<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-21707
PROSPECTUS SUPPLEMENT (To prospectus dated September 17, 1997)
$349,390,000
Chevy Chase Auto Receivables Trust 2000-1
[Chevy Chase Bank, F.S.B. Logo]
Seller and Servicer
The trust will issue -
Consider . Six classes of notes that are offered by this
carefully the prospectus supplement; and
risk factors
beginning on . Subordinate interests in the trust that are not
page S-6 of this offered by this prospectus supplement but serve as
prospectus credit support to the notes offered by this
supplement and prospectus supplement. These subordinate interests
page 12 of the will initially be issued to the bank.
prospectus.
The notes -
The notes
represent asset- . Are backed by a pledge of assets of the trust. The
backed debt assets of the trust securing the notes will include a
secured solely pool of "prime" quality auto loans secured by new and
by the auto loan used automobiles, light duty trucks and vans;
pool held by the
trust. The notes . Receive monthly distributions on the 15th day of each
are not month, or if not a business day, then on the next
interests in or business day, beginning on July 17, 2000; and
obligations of
any other
person. . Currently have no trading market.
Credit enhancement for the notes will consist of -
No governmental
agency or . A reserve account that can be used to pay shortfalls
instrumentality in payments on the notes; and
has insured or
guaranteed the . Overcollateralization resulting from the excess of
notes or the the principal amount of the auto loans over the
underlying auto aggregate principal amount of the notes.
loans.
<TABLE>
<CAPTION>
Issuance Interest Final Scheduled Initial Public Underwriting Proceeds
Amount Rate Payment Date Offering Price Discount to the Bank(1)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Notes $ 79,000,000 6.87% July 12, 2001 100.0000000% 0.155% 99.8450000%
-------------------------------------------------------------------------------------------------------
Class A-2 Notes $ 70,000,000 7.25% December 15, 2002 99.9913168% 0.175% 99.8163168%
-------------------------------------------------------------------------------------------------------
Class A-3 Notes $111,000,000 7.39% June 15, 2004 99.9854541% 0.215% 99.7704541%
-------------------------------------------------------------------------------------------------------
Class A-4 Notes $ 73,508,000 7.47% July 15, 2005 99.9952377% 0.265% 99.7302377%
-------------------------------------------------------------------------------------------------------
Class B Notes $ 7,059,000 7.76% November 15, 2005 99.9747781% 0.400% 99.5747781%
-------------------------------------------------------------------------------------------------------
Class C Notes $ 8,823,000 8.15% December 15, 2006 99.9855679% 0.500% 99.4855679%
-------------------------------------------------------------------------------------------------------
Total $349,390,000 $349,361,221.38 $750,747.20 $348,610,474.18
</TABLE>
(1) Before expenses, estimated to be $615,000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement. Any representation to the
contrary is a criminal offense.
Class A Underwriters
Salomon Smith Barney
Deutsche Banc Alex. Brown
J.P. Morgan & Co.
Class B and Class C Underwriter
Salomon Smith Barney
The date of this prospectus supplement is June 13, 2000
<PAGE>
Where You Can Find More Information
Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, NW, Room 1024, Washington, DC 20549. You can also copy
and inspect these reports, proxy statements and other information at the
following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, New York 10048 Chicago, Illinois 60661
All reports we file on behalf of the trust with the SEC after the date
of this prospectus supplement but before the offering of the notes ends are
considered to be part of this prospectus supplement. Information contained in
those reports updates the information in this prospectus supplement. We will
provide you with copies of these reports, at no cost, if you write to: Chevy
Chase Bank, F.S.B., 8401 Connecticut Avenue, 6th Floor, Chevy Chase, Maryland
20815, telephone (301) 986-7000.
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. SEC filings are also available to the public on the
SEC's web site at http://www.sec.gov.
This prospectus supplement supplements a prospectus that is part of a
registration statement filed by the bank with the SEC (Registration No. 333-
21707).
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone else
to provide you with different information. You should not assume that the
information in this prospectus supplement or in the prospectus is accurate as of
any date other than the date on the cover page of this prospectus supplement.
We include cross-references in this prospectus supplement to captions
in these materials where you can find further discussions. The following table
of contents provides the pages on which these captions are located.
In this prospectus, the terms "we", "us" and "our" refer to Chevy
Chase Bank, F.S.B.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Where You Can Find More Information..... ii DESCRIPTION OF SALE AND SERVICING 27
SUMMARY................................. 1 AGREEMENT..............................
The Trust.............................. 1 Conveyance of Auto Loans............. 27
The Seller / Servicer.................. 1 Servicing Procedures................. 28
Cut-Off Date........................... 1 Servicer's Certificate............... 28
Closing Date........................... 1 Review by Independent Certified 29
Payment Dates.......................... 1 Public Accountants..................
Description of the Notes............... 1 Servicer Default; Waiver of Past 29
General.............................. 1 Defaults............................
The Notes............................ 1 Servicing Compensation, Payment of 30
Flow of Funds........................ 2 Expenses and Trustees' Fees.........
Interest............................. 2 Mandatory Repurchase of Auto Loans... 30
Principal............................ 3 DESCRIPTION OF THE NOTES................ 31
Optional Redemption.................. 3 General.............................. 31
The Trust Assets....................... 3 Distributions to the Noteholders of 32
General.............................. 3 the Subordinate Notes...............
The Auto Loans....................... 3 Payment Dates........................ 32
Characteristics of the Auto Loans.... 4 Accounts............................. 32
Reserve Account...................... 4 Delivery of the Servicer's 32
Subordination........................ 4 Certificate.........................
Overcollateralization................ 4 Flow of Funds........................ 33
Servicing.............................. 5 Interest Payments.................... 34
Federal Income Tax Consequences........ 5 Credit Enhancement................... 35
ERISA Considerations................... 5 Overcollateralization................ 36
Ratings................................ 5 Withholding.......................... 36
Legal Investment Considerations........ 5 Reports to Noteholders............... 37
RISK FACTORS............................ 6 Optional Termination................. 37
THE TRUST............................... 7 Events of Default.................... 38
General.............................. 7 Rights upon an Event of Default...... 38
The Owner Trustee.................... 8 MATERIAL FEDERAL INCOME TAX CONSEQUENCES 40
The Indenture Trustee................ 8 Tax Characterization of the Trust.... 40
USE OF PROCEEDS......................... 8 Tax Consequences to Holders of the 40
THE 2000-1 TRUST PROPERTY............... 8 Notes...............................
General.............................. 8 State and Local Tax Considerations... 46
PREPAYMENT AND YIELD CONSIDERATIONS..... 9 ERISA CONSIDERATIONS.................... 46
THE POOL OF AUTO LOANS.................. 18 RATINGS................................. 48
General.............................. 18 UNDERWRITING............................ 48
Underwriting Procedures.............. 18 LEGAL MATTERS........................... 52
Selection Criteria................... 19 REPORT OF INDEPENDENT ACCOUNTANTS....... 53
Composition of the Auto Loans as of 20
the Cut-Off Date....................
THE BANK................................ 24
General.............................. 24
Litigation........................... 24
Delinquency and Default Experience... 24
</TABLE>
iii
<PAGE>
SUMMARY
. This summary highlights selected information from this prospectus supplement
and does not contain all of the information that you need to consider in
making your investment decision. To understand all of the terms of the
offering of the notes, read carefully this entire prospectus supplement and
the accompanying prospectus.
. This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
The Trust
Chevy Chase Auto Receivables Trust 2000-1, or the trust, is a Delaware business
trust. The trust will issue the notes and be liable for the payment of interest
and principal on the notes.
The trust's principal assets will be a pool of auto loans and cash held in
certain accounts.
The Seller / Servicer
Chevy Chase Bank, F.S.B, or the bank, a federally chartered stock savings bank,
will sell the auto loans to the trust and will act as servicer of the auto
loans.
Cut-Off Date
The opening of business on June 1, 2000.
Closing Date
On or about June 21, 2000.
Payment Dates
The 15th day of each month, if the 15th is a business day. If the 15th day is
not a business day, the payment date will be the following day that is a
business day. The first payment date will be July 17, 2000.
Description of the Notes
General
The trust will issue six classes of its asset backed notes. The notes are
designated as the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes and the Class C Notes. The Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes are the Class A
Notes. The Class B Notes and the Class C Notes are the Subordinate Notes.
The notes will be secured solely by a pledge of the assets of the trust.
The trust will also issue a trust certificate. The trust certificate represents
the ownership of the trust. Payments on the trust certificate are subordinate
to payments on the notes. The trust certificate does not have a principal
balance and is not offered to the public.
The Notes
Each class of notes will have the initial principal amount, interest rate and
final scheduled payment date for that class listed on the cover page of this
prospectus supplement.
S-1
<PAGE>
The notes will be issued initially in book-entry form only and will be issued in
minimum denominations of $1,000 and multiples of $1. You may hold your notes
through DTC in the United States or Clearstream, Luxembourg, or the Euroclear
System in Europe.
Flow of Funds
On each payment date, the trustee will apply the trust's available funds as
follows:
. first, to pay the monthly servicing fee;
. second, to pay the trustees' fees;
. third, to pay interest on the Class A Notes,
. fourth, to fund a payment of principal, to the extent as may be necessary to
reduce the Class A Note principal balance to the pool balance; i.e., to
maintain parity between the Class A Note principal balance and the pool
balance, which amount will be paid out as described below under "Principal",
. fifth, to pay interest on the Class B Notes,
. sixth, to fund a payment of principal, to the extent as may be necessary to
reduce the combined Class A and Class B Note principal balance to the pool
balance i.e., to maintain parity between the combined Class A and Class B
Note balance and the pool balance, which amount will be paid out as described
below under "Principal",
. seventh, to pay interest on the Class C Notes,
. eighth, to fund a payment of principal, to the extent as may be necessary to
reduce the combined Class A, Class B, and Class C Note principal balance to
the pool balance, i.e., to maintain parity between the aggregate note
principal balance and the pool balance, which amount will be paid out as
described below under "Principal",
. ninth, to fund a payment of principal in an amount generally equal to the
decrease in the pool balance during the prior month, reduced by the amount of
any principal allocated as provided above, and further reduced by the amount
of any excess level of overcollateralization, which amount will be paid out
as described below under "Principal",
. tenth, to fund a payment of principal, to the extent as may be necessary to
reduce to zero the principal balance of any class which remains outstanding
on or after its final scheduled payment date, which amount will be paid out
as described below under "Principal",
. eleventh, to deposit into the reserve account an amount up to the reserve
account required amount,
. twelfth, to fund using excess cashflow, as well as excess amounts released
from the reserve account, an additional payment of principal, to the extent
as may be necessary to increase the overcollateralization to its required
target level, which amount will be paid out as described below under
"Principal", and
. thirteenth, to pay the remainder, if any, to the holder of the trust
certificate.
Interest
On each payment date, the noteholders of each class will receive interest that
accrued from the preceding payment date, payable at the interest rate for that
class. In the case of the first payment date, interest will accrue from the
closing date. The interest rate for each class is listed on the cover page of
this prospectus supplement. Interest on the Class A-1 Notes will be calculated
on the basis of a 360-day year and the actual number of days elapsed in the
accrual period.
S-2
<PAGE>
Interest on all other classes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Interest amounts paid to the holders of the Class A Notes will be shared by the
holders of the Class A-1, the Class A-2, the Class A-3 and the Class A-4 Notes
in proportion to the interest due on each class.
Principal
On each payment date, all amounts allocated to the payment of principal as
described in "Flow of Funds" above will be aggregated and will be paid out in
the following order of priority:
. first, to the Class A-1 Noteholders until they are paid in full,
. second, to the Class A-2 Noteholders until they are paid in full,
. third, to the Class A-3 Noteholders until they are paid in full,
. fourth, to the Class A-4 Noteholders until they are paid in full,
. fifth, to the Class B Noteholders until they are paid in full, and
. sixth, to the Class C Noteholders until they are paid in full.
If an event of default occurs, the Class A Notes then outstanding will receive
principal payments pro rata, although the Class A Notes as a group will still be
entitled to payment in full before any principal is paid on the Class B Notes or
the Class C Notes.
Optional Redemption
On any payment date when the outstanding principal balance of the notes is less
than or equal to 5% of the original principal balance of the notes, the bank may
purchase the auto loans from the trust. This will result in the redemption of
the notes. If a redemption occurs, you will receive a final distribution
equaling the entire unpaid principal balance of the notes plus any accrued and
unpaid interest.
The Trust Assets
General
The trust's assets will principally include:
. a pool of auto loans, which are secured by new and used automobiles, light
duty trucks and vans;
. collections on the auto loans received on or after June 1, 2000;
. an assignment of the security interests in the vehicles securing the auto
loan pool; and
. amounts held in the reserve account.
The Auto Loans
The auto loans consist of simple interest retail installment sales contracts
between dealers and retail purchasers and installment loans which are secured by
new and used automobiles, light duty trucks and vans financed by means of the
auto loan. Each obligor's obligation under its auto loan is a full recourse
obligation. The auto loans contain provisions which unconditionally require the
obligor to make all payments under the related auto loan.
On the closing date, the bank will sell the auto loans to the trust.
On the closing date the trust will pledge the auto loans to the indenture
trustee as collateral for the notes. Payments on the notes will be made from
payments on the pledged auto loans, withdrawals from the reserve account and
payments received under applicable insurance policies.
S-3
<PAGE>
Characteristics of the Auto Loans
The statistical information presented in this prospectus supplement is based on
the auto loans as of the cut-off date.
The auto loans will consist of "prime" quality auto loans secured by new and
used automobiles, light duty trucks and vans which were purchased from
automobile dealers under the bank's financing program.
As of the cut-off date, the auto loans have:
. an aggregate principal balance of $352,919,264.22;
. a weighted average annual percentage rate of approximately 10.53%;
. a weighted average original maturity of approximately 61.66 months;
. a weighted average remaining maturity of approximately 59.88 months; and
. a remaining term of not more than 72 months and not less than 12 months.
Reserve Account
On the closing date, the amount in the reserve account will be $2,646,894.48
which is 0.75% of the original pool balance, and which is the full required
funding of the reserve account. The amount on deposit in the reserve account is
required to be maintained at this level for so long as the notes are
outstanding, except that the amount on deposit need never be greater than the
aggregate outstanding note principal balance.
Amounts in the reserve account will be available:
. to pay interest on the notes,
. to pay the principal balance of a class of notes to zero on that class's
final scheduled payment date, and
. to pay principal on the notes to the extent necessary to reduce the then
outstanding principal balance of the notes to the then outstanding pool
balance i.e., to maintain parity between the aggregate note balance and the
pool balance.
Subordination
Payments on the Subordinate Notes are subordinated to payments on the Class A
Notes. This subordination of distributions on the Subordinate Notes is intended
to increase the likelihood that the trust will not default in making payments
due on the Class A Notes.
Payments on the Class C Notes are subordinated to payments on the Class A Notes
and Class B Notes. This subordination of payments on the Class C Notes is
intended to increase the likelihood that the trust will not default in making
payments due on the Class A Notes and the Class B Notes.
Overcollateralization
On the closing date, the original pool balance will exceed the initial principal
amount of the notes of all classes by approximately $3,529,264.22, which is
approximately 1.0% of the original pool balance. This excess represents
overcollateralization. The level of
S-4
<PAGE>
overcollateralization is required to increase to, and thereafter be maintained
at, a target level equal to the greater of (1) 4.00% of the then-current pool
balance, less the amount then on deposit in the reserve account and (2) the
aggregate principal balance of the auto loans that are delinquent 90 days or
more, including repossessions, and that have not been charged off, less the
amount in the reserve account. The level of overcollateralization is increased
and maintained through the application of excess cashflow available to the
trust, primarily in the form of the excess of interest collections on the auto
loan pool over the interest paid out on the notes, as additional principal paid
on the notes. In general, the target amount of overcollateralization will
decrease as the pool balance decreases. However, the required amount of
overcollateralization on any payment date will never be less than 0.50% of the
original pool balance. The overcollateralization will be available to absorb
losses on the auto loan pool.
Servicing
The bank will be the servicer of the auto loans and will be responsible for
servicing, managing and making collections on, and otherwise enforcing, the auto
loans.
Federal Income Tax Consequences
For federal income tax purposes:
. Dewey Ballantine LLP, tax counsel to the trust and counsel to the
underwriters, is of the opinion that the notes will be treated as debt and
the trust will not be treated as an association or publicly traded
partnership taxable as a corporation. By your acceptance of a note, you
agree to treat the notes as debt.
. Interest on the notes will be taxable as ordinary income when received
by a holder on the cash method of accounting and when accrued by a holder
on the accrual method of accounting.
. Dewey Ballantine LLP has prepared the discussion under "Material Federal
Income Tax Consequences" in this prospectus supplement and "Certain Tax
Considerations" in the prospectus and is of the opinion that the discussion
accurately states all material federal income tax consequences of the
purchase, ownership and disposition of the notes to their original
purchaser.
ERISA Considerations
Subject to the important considerations described under "ERISA Considerations"
in this prospectus supplement, pension, profit-sharing and other employee
benefit plans may purchase notes. You should consult with your counsel
regarding the applicability of the provisions of the Employee Retirement Income
Security Act of 1974, as amended, before purchasing a note.
Ratings
. The trust will not issue the notes unless they have been assigned the
ratings stated below.
. You should know that the ratings could be lowered, qualified or
withdrawn by the rating agencies.
<TABLE>
<CAPTION>
Class Ratings
------ --------------------------------
S&P Moody's Fitch IBCA
-------- --------- -----------
<S> <C> <C> <C>
A-1 A-1+ Prime -1 F1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
B A A2 A
C BBB+ Baa2 BBB+
</TABLE>
Legal Investment Considerations
The Class A-1 Notes will be eligible for purchase by money market funds under
Rule 2a-7 under the Investment Company Act.
S-5
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
prospectus, you should consider, among other things, the following factors in
connection with the purchase of the notes:
An investment in the notes may be an illiquid investment. There
currently is no secondary market for the notes, and there is no assurance that
one will develop or, if one does develop, that it will continue until the notes
are paid in full. The underwriters intend to make a market in the notes but
have no obligation to do so.
The rate at which the notes will amortize cannot be predicted. All of
the auto loans are prepayable at any time without penalty. The rate of
prepayments on the auto loans may be influenced by a variety of economic, social
and other factors. Under certain circumstances, the bank will be obligated to
purchase auto loans as a result of breaches of certain representations and
covenants in the transaction documents. The bank also has the right, subject to
certain conditions, to purchase the auto loans when the total principal balance
of the notes is 5% or less of the total principal balance of the notes as of the
date they are issued. Any reinvestment risks resulting from a faster or slower
incidence of prepayments and/or purchases of auto loans will be borne entirely
by the noteholders.
The Subordinate Notes are subordinated notes, and the risk of loss or
delay in distributions is greater than on the Class A Notes.
Payments on the Subordinate Notes will be subordinated in priority of
payment to interest and principal due on the Class A Notes. Consequently, the
holders of Subordinate Notes will not receive any payments of interest on a
payment date unless the full amount of interest due on the Class A Notes on that
payment date as well as an amount of principal to maintain parity between the
Class A Note principal balance and the pool balance has been paid. No principal
will be paid on the Subordinate Notes until the entire principal balance of all
Class A Notes has been paid in full. This subordination has the effect of
increasing the likelihood of payment on the Class A Notes and therefore
decreasing the likelihood of payment on the Subordinate Notes.
The holders of the Subordinate Notes are restricted in their rights to
accelerate the notes.
The most senior class outstanding at any time will have the right
under most circumstances to accelerate the notes or waive an event of default,
as well as to direct remedies following an event of default.
Geographic concentrations of receivables may result in higher losses
if particular regions experience downturns. As of the cut-off date, based upon
billing address information provided to the bank, the obligors resided in 43
states and the District of Columbia. Five of these states, Texas, Georgia,
Virginia, Maryland and North Carolina account for 44.50%, 17.41%, 11.86%, 8.55%
and 6.83%, respectively, of the aggregate principal balance of the receivables
in the trust. Adverse economic conditions in these states could adversely
affect the
S-6
<PAGE>
delinquency, loan loss or repossession experience with respect to the auto
loans. Changes in these factors may also affect the rate of principal payments
on the auto loans.
Failure to obtain a perfected security interest in the vehicles in all
states may lead to a reduction in distributions of principal and interest. The
bank or its agent will hold the auto loans and the certificates of title or
ownership relating to the vehicles as custodian for the indenture trustee.
However, the auto loans will not be marked or stamped to indicate that they have
been sold to the trust, and the certificates of title or ownership for the
vehicles will not be endorsed or otherwise amended to identify the trust as the
new secured party. Under such circumstances and in certain jurisdictions, the
trust's interest in the auto loans and the vehicles may be defeated. See
"Certain Legal Aspects of the Receivables" in the accompanying prospectus.
If the protection provided to the noteholders by the
overcollateralization and the reserve account is insufficient to pay principal
and interest on the notes, the noteholders would have to look principally to the
obligors on the auto loans and to the proceeds from the repossession and sale of
vehicles which secure the auto loans. In that event, certain factors, such as
the indenture trustee's failure to have perfected security interests in the
vehicles in all states, may affect the trust's ability to repossess and sell the
vehicles securing the auto loans, and thus may reduce the proceeds to be
distributed to noteholders. See "Description of the Notes--Flow of Funds" in
this prospectus supplement, as well as "Certain Legal Aspects of the
Receivables" in the accompanying prospectus.
THE TRUST
The following information supplements and, to the extent more
specific, supersedes the information contained in the accompanying prospectus.
General
Chevy Chase Auto Receivables Trust 2000-1, or the trust will be a
Delaware business trust formed under the laws of the State of Delaware under a
trust agreement, dated as of June 1, 2000 between the bank and the owner trustee
for the purpose of engaging in the transactions described in this prospectus
supplement. The trust will only engage in the following activities:
. acquiring, holding and managing the auto loans and the other assets of
the trust,
. issuing the notes,
. making payments on the notes, and
. engaging in other activities in connection with the notes.
The trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company as owner trustee, at the same address as the owner
trustee.
S-7
<PAGE>
The trust will not acquire any assets other than the trust property,
and it is not anticipated that the trust will have any need for additional
capital resources. The financial statements of the trust, which were prepared
prior to sale of the auto loans to the trust and the issuance of the notes, are
included in this prospectus supplement beginning on page S-53. No historical or
pro forma financial statements or ratios of earnings to fixed charges with
respect to the trust have been included because the trust will have had no
operating history upon its establishment and will not have engaged in any
business other than acquiring and holding the trust property, issuing the notes
and distributing payments on the notes.
The Owner Trustee
Wilmington Trust Company will be the owner trustee under the trust
agreement. It is a Delaware banking corporation and its principal offices are
located at 1100 North Market Street, Wilmington, Delaware 19890. The owner
trustee will perform limited administrative functions under the trust agreement.
The owner trustee's liability in connection with the issuance and sale of the
notes is limited solely to the express obligations of the owner trustee as
stated in the trust agreement and the sale and servicing agreement, to be dated
as of June 1, 2000, among the trust, the seller, the servicer and the indenture
trustee.
The Indenture Trustee
U.S. Bank National Association will be the indenture trustee under an
indenture, dated as of June 1, 2000, among the trust and U.S. Bank National
Association, as indenture trustee. U.S. Bank National Association is a national
banking association, the principal offices of which are located at 180 East 5th
Street, St. Paul, Minnesota 55101.
USE OF PROCEEDS
The net proceeds received by the trust from the sale of the notes will
be used to pay the bank the cash portion of the purchase price for the auto
loans and to fund the initial deposit to be made to the reserve account.
THE 2000-1 TRUST PROPERTY
General
The trust assets consist of the following:
. the auto loans;
. all monies, including accrued interest, due or received on the auto loans on
or after the cut-off date of June 1, 2000;
. all amounts and property from time to time held in or credited to the
collection account, the reserve account and the note account;
S-8
<PAGE>
. all of the seller's security interests in new and used automobiles, light
duty trucks and vans, or the financed vehicles;
. all of the seller's rights to proceeds from claims on physical damage, theft,
vendor's single interest, credit life, disability or hospitalization
insurance policies, if any, covering financed vehicles or obligors, as the
case may be, to the extent that such insurance policies relate to the auto
loans;
. any proceeds from the sale of repossessed financed vehicles;
. all of the bank's right to all documents contained in the auto loan files;
. all property, including the right to receive future liquidation proceeds,
that secures an auto loan and that shall have been acquired by or on behalf
of the indenture trustee; and
. all proceeds of the foregoing.
The indenture does not permit the trust to acquire any additional
assets.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on each class of notes will be directly
related to the rate of principal payments on the underlying auto loans. If any
class of notes is purchased at a price other than at par, the yield to maturity
on such class also will be affected by the rate of principal payments. The
principal collections on the auto loans may be in the form of scheduled
principal payments, prepayments or liquidations due to default, casualty and the
like. Any principal collections other than scheduled principal payments, will
result in distributions to the noteholders of amounts which would otherwise have
been distributed over the remaining term of the auto loans. In general, the
rate of such payments may be influenced by a number of other factors, including
general economic conditions.
The effective yield to the holders of a class of notes will depend
upon, among other things, the price at which such notes are purchased, the
amount of principal, including both scheduled and nonscheduled payments thereof,
which is paid to the noteholders and the rate at which such principal is paid.
On each payment date, the indenture trustee will pay the noteholders
of each class interest that accrued from the preceding payment date, payable at
the interest rate for that class. In the case of the first payment date, monthly
interest will accrue from the closing date at the applicable note rate on the
original note principal balance for each class of the notes. Interest on the
Class A-1 Notes will be calculated on the basis of a 360-day year and the actual
number of days elapsed in the accrual period. Interest on all other classes
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. The original note principal balance for each class is:
S-9
<PAGE>
<TABLE>
<S> <C> <C>
Class A-1 Notes: $ 79,000,000
Class A-2 Notes: $ 70,000,000
Class A-3 Notes: $111,000,000
Class A-4 Notes: $ 73,508,000
Class B Notes: $ 7,059,000, and
Class C Notes: $ 8,823,000
</TABLE>
Prepayments on auto loans can be measured relative to a prepayment
standard or model. The model used in this prospectus supplement, the absolute
prepayment model, or ABS, represents an assumed rate of prepayment each month
relative to the original number of auto loans in a pool. ABS further assumes
that all the auto loans are the same size and amortize at the same rate and that
each auto loan in each month of its life will either be paid as scheduled or be
prepaid in full. For example, in a pool of auto loans originally containing
10,000 auto loans, a 1% ABS rate means that 100 auto loans prepay each month.
ABS does not purport to be an historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of auto loans.
The tables captioned "Percent of Initial Note Principal Balance at
Various ABS Percentages", also called the ABS Tables, have been prepared on the
basis of the following assumptions:
. the auto loans prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases;
. each scheduled monthly payment on the auto loans is made on the last day of
each month and each month has 30 days;
. the initial principal amount of the notes is as stated on the cover page;
. interest on the notes accrues during each interest period at the following
assumed coupon rates: Class A-1, 6.87%; Class A-2, 7.25%; Class A-3, 7.39%;
Class A-4, 7.47%; Class B, 7.76%; and Class C, 8.15%;
. payments on the notes are made on the 15th day of each month whether or not a
business day;
. the notes are purchased on the closing date;
. the overcollateralization is initially 1.0% of the pool balance, building to
4.00% of the amortizing pool balance, minus the amount then on deposit in the
reserve account; however, the required amount of overcollateralization on any
payment date will never be less than 0.50% of the original pool balance;
S-10
<PAGE>
. the scheduled monthly payment for each auto loan has been calculated on the
basis of the assumed characteristics presented in the table below, and each
auto loan will amortize in amounts sufficient to repay the principal balance
of the auto loans by its indicated remaining term to maturity; and
. the seller or the servicer exercises its clean-up call redemption.
The ABS Tables also assume that (1) the auto loans have been
aggregated into hypothetical pools with all of the auto loans within each pool
having the following characteristics, and (2) that the level of scheduled
monthly payment for each of the pools, which is based on its aggregate principal
balance, gross APR, original number of scheduled payments and remaining number
of scheduled payments as of the cut-off date, will be calculated so that each
pool will be fully amortized by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
Remaining
Term
Aggregate to Maturity Seasoning
Pool Principal Balance APR (in Months) (in Months)
------ --------------------- ------- ------------ -------------
<S> <C> <C> <C> <C>
1 $ 7,950,545.78 9.00% 32 2
2 24,967,350.21 10.39% 46 2
3 211,871,041.21 10.45% 58 2
4 31,087,230.75 10.64% 64 2
5 77,043,096.27 10.89% 70 2
--------------------- ------- ------------ -------------
Total $352,919,264.22 10.53% 60 2
--------------------- ------- ------------ -------------
--------------------- ------- ------------ -------------
</TABLE>
The ABS Tables indicate, based on the assumptions described above, the
percentages of the initial principal amount of the notes that would be
outstanding after each of the payment dates shown at various percentages of ABS
and the corresponding weighted average lives of the notes. The weighted average
life of a note is determined by (1) multiplying the amount of each principal
payment on a note by the number of years from the date of the issuance of the
notes to the payment date, (2) adding the results and (3) dividing the sum by
the initial principal amount of the notes of that class. The actual
characteristics and performance of the auto loans will differ from the
assumptions used in constructing the ABS Tables. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the auto loans will prepay at a constant level
of ABS until maturity or that all of the auto loans will prepay at the same
level of ABS. Moreover, the diverse terms of auto loans could produce slower or
faster principal distributions than indicated in the ABS Tables at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the auto loans are as assumed. Any difference between the
assumptions and the actual characteristics and performance of the auto loans,
including actual prepayment experience or losses, will affect the percentages of
initial balances outstanding over time and the weighted average lives of the
notes. The percentages in the ABS Tables have been rounded to the nearest whole
number.
S-11
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -1 Notes
------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 2000 100 100 100 100 100
July 2000 90 88 86 84 81
August 2000 82 77 73 68 63
September 2000 73 66 59 52 45
October 2000 64 55 46 37 28
November 2000 55 44 33 22 11
December 2000 46 33 21 7 0
January 2001 37 23 8 0 0
February 2001 28 12 0 0 0
March 2001 20 3 0 0 0
April 2001 13 0 0 0 0
May 2001 5 0 0 0 0
June 2001 0 0 0 0 0
Average Life (years)
To 5% Call....................... 0.49 0.40 0.34 0.29 0.26
To Maturity...................... 0.49 0.40 0.34 0.29 0.26
</TABLE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -2 Notes
---------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 2000 100 100 100 100 100
July 2000 100 100 100 100 100
August 2000 100 100 100 100 100
September 2000 100 100 100 100 100
October 2000 100 100 100 100 100
November 2000 100 100 100 100 100
December 2000 100 100 100 100 93
January 2001 100 100 100 92 75
February 2001 100 100 96 77 58
March 2001 100 100 83 63 42
April 2001 100 93 71 48 25
May 2001 100 82 58 34 9
June 2001 97 72 46 20 0
July 2001 88 62 34 7 0
August 2001 80 51 23 0 0
September 2001 71 41 11 0 0
October 2001 62 31 0 0 0
November 2001 54 22 0 0 0
December 2001 45 12 0 0 0
January 2002 37 2 0 0 0
February 2002 28 0 0 0 0
March 2002 20 0 0 0 0
April 2002 11 0 0 0 0
May 2002 3 0 0 0 0
June 2002 0 0 0 0 0
Average Life (years)
To 5% Call.................... 1.48 1.21 1.00 0.85 0.74
To Maturity................... 1.48 1.21 1.00 0.85 0.74
</TABLE>
S-12
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -3 Notes
------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 2000 100 100 100 100 100
July 2000 100 100 100 100 100
August 2000 100 100 100 100 100
September 2000 100 100 100 100 100
October 2000 100 100 100 100 100
November 2000 100 100 100 100 100
December 2000 100 100 100 100 100
January 2001 100 100 100 100 100
February 2001 100 100 100 100 100
March 2001 100 100 100 100 100
April 2001 100 100 100 100 100
May 2001 100 100 100 100 100
June 2001 100 100 100 100 96
July 2001 100 100 100 100 86
August 2001 100 100 100 96 77
September 2001 100 100 100 88 68
October 2001 100 100 100 80 59
November 2001 100 100 93 72 50
December 2001 100 100 86 64 41
January 2002 100 100 79 56 33
February 2002 100 95 72 49 25
March 2002 100 89 66 42 17
April 2002 100 83 59 35 9
May 2002 100 78 53 28 2
June 2002 96 72 47 21 0
July 2002 91 66 41 15 0
August 2002 86 60 35 8 0
September 2002 80 55 29 2 0
October 2002 75 49 23 0 0
November 2002 70 44 17 0 0
December 2002 65 39 12 0 0
January 2003 59 33 6 0 0
February 2003 54 28 1 0 0
March 2003 49 23 0 0 0
April 2003 44 18 0 0 0
May 2003 39 13 0 0 0
June 2003 34 8 0 0 0
July 2003 29 3 0 0 0
August 2003 24 0 0 0 0
September 2003 19 0 0 0 0
October 2003 14 0 0 0 0
November 2003 9 0 0 0 0
December 2003 4 0 0 0 0
January 2004 0 0 0 0 0
Average Life (years)
To 5% Call........................ 2.77 2.37 2.00 1.69 1.45
To Maturity....................... 2.77 2.37 2.00 1.69 1.45
</TABLE>
S-13
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -4 Notes
------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 2000 100 100 100 100 100
July 2000 100 100 100 100 100
August 2000 100 100 100 100 100
September 2000 100 100 100 100 100
October 2000 100 100 100 100 100
November 2000 100 100 100 100 100
December 2000 100 100 100 100 100
January 2001 100 100 100 100 100
February 2001 100 100 100 100 100
March 2001 100 100 100 100 100
April 2001 100 100 100 100 100
May 2001 100 100 100 100 100
June 2001 100 100 100 100 100
July 2001 100 100 100 100 100
August 2001 100 100 100 100 100
September 2001 100 100 100 100 100
October 2001 100 100 100 100 100
November 2001 100 100 100 100 100
December 2001 100 100 100 100 100
January 2002 100 100 100 100 100
February 2002 100 100 100 100 100
March 2002 100 100 100 100 100
April 2002 100 100 100 100 100
May 2002 100 100 100 100 100
June 2002 100 100 100 100 91
July 2002 100 100 100 100 80
August 2002 100 100 100 100 70
September 2002 100 100 100 100 60
October 2002 100 100 100 93 50
November 2002 100 100 100 84 41
December 2002 100 100 100 75 32
January 2003 100 100 100 67 23
February 2003 100 100 100 59 15
March 2003 100 100 94 51 8
April 2003 100 100 86 44 0
May 2003 100 100 79 37 0
June 2003 100 100 72 30 0
July 2003 100 100 65 24 0
August 2003 100 98 58 18 0
September 2003 100 91 52 12 0
October 2003 100 84 46 6 0
November 2003 100 77 40 1 0
December 2003 100 70 34 0 0
January 2004 99 64 28 0 0
February 2004 91 57 23 0 0
March 2004 83 51 18 0 0
April 2004 76 45 14 0 0
May 2004 69 39 9 0 0
June 2004 62 34 5 0 0
July 2004 55 29 2 0 0
August 2004 49 24 0 0 0
September 2004 42 19 0 0 0
October 2004 35 14 0 0 0
November 2004 29 9 0 0 0
December 2004 22 4 0 0 0
January 2005 15 0 0 0 0
February 2005 9 0 0 0 0
March 2005 2 0 0 0 0
April 2005 0 0 0 0 0
Average Life (years)
To 5% Call......................... 4.18 3.82 3.34 2.82 2.37
To Maturity........................ 4.18 3.82 3.34 2.82 2.37
</TABLE>
S-14
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class B Notes
----------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 2000 100 100 100 100 100
July 2000 100 100 100 100 100
August 2000 100 100 100 100 100
September 2000 100 100 100 100 100
October 2000 100 100 100 100 100
November 2000 100 100 100 100 100
December 2000 100 100 100 100 100
January 2001 100 100 100 100 100
February 2001 100 100 100 100 100
March 2001 100 100 100 100 100
April 2001 100 100 100 100 100
May 2001 100 100 100 100 100
June 2001 100 100 100 100 100
July 2001 100 100 100 100 100
August 2001 100 100 100 100 100
September 2001 100 100 100 100 100
October 2001 100 100 100 100 100
November 2001 100 100 100 100 100
December 2001 100 100 100 100 100
January 2002 100 100 100 100 100
February 2002 100 100 100 100 100
March 2002 100 100 100 100 100
April 2002 100 100 100 100 100
May 2002 100 100 100 100 100
June 2002 100 100 100 100 100
July 2002 100 100 100 100 100
August 2002 100 100 100 100 100
September 2002 100 100 100 100 100
October 2002 100 100 100 100 100
November 2002 100 100 100 100 100
December 2002 100 100 100 100 100
January 2003 100 100 100 100 100
February 2003 100 100 100 100 100
March 2003 100 100 100 100 100
April 2003 100 100 100 100 100
May 2003 100 100 100 100 0
June 2003 100 100 100 100 0
July 2003 100 100 100 100 0
August 2003 100 100 100 100 0
September 2003 100 100 100 100 0
October 2003 100 100 100 100 0
November 2003 100 100 100 100 0
December 2003 100 100 100 0 0
January 2004 100 100 100 0 0
February 2004 100 100 100 0 0
March 2004 100 100 100 0 0
April 2004 100 100 100 0 0
May 2004 100 100 100 0 0
June 2004 100 100 100 0 0
July 2004 100 100 100 0 0
August 2004 100 100 0 0 0
September 2004 100 100 0 0 0
October 2004 100 100 0 0 0
November 2004 100 100 0 0 0
December 2004 100 100 0 0 0
January 2005 100 99 0 0 0
February 2005 100 0 0 0 0
March 2005 100 0 0 0 0
April 2005 56 0 0 0 0
May 2005 0 0 0 0 0
Average Life (years)
To 5% Call..................... 4.86 4.65 4.15 3.48 2.90
To Maturity.................... 4.91 4.70 4.27 3.55 2.93
</TABLE>
S-15
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class C Notes
-------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 2000 100 100 100 100 100
July 2000 100 100 100 100 100
August 2000 100 100 100 100 100
September 2000 100 100 100 100 100
October 2000 100 100 100 100 100
November 2000 100 100 100 100 100
December 2000 100 100 100 100 100
January 2001 100 100 100 100 100
February 2001 100 100 100 100 100
March 2001 100 100 100 100 100
April 2001 100 100 100 100 100
May 2001 100 100 100 100 100
June 2001 100 100 100 100 100
July 2001 100 100 100 100 100
August 2001 100 100 100 100 100
September 2001 100 100 100 100 100
October 2001 100 100 100 100 100
November 2001 100 100 100 100 100
December 2001 100 100 100 100 100
January 2002 100 100 100 100 100
February 2002 100 100 100 100 100
March 2002 100 100 100 100 100
April 2002 100 100 100 100 100
May 2002 100 100 100 100 100
June 2002 100 100 100 100 100
July 2002 100 100 100 100 100
August 2002 100 100 100 100 100
September 2002 100 100 100 100 100
October 2002 100 100 100 100 100
November 2002 100 100 100 100 100
December 2002 100 100 100 100 100
January 2003 100 100 100 100 100
February 2003 100 100 100 100 100
March 2003 100 100 100 100 100
April 2003 100 100 100 100 100
May 2003 100 100 100 100 0
June 2003 100 100 100 100 0
July 2003 100 100 100 100 0
August 2003 100 100 100 100 0
September 2003 100 100 100 100 0
October 2003 100 100 100 100 0
November 2003 100 100 100 100 0
December 2003 100 100 100 0 0
January 2004 100 100 100 0 0
February 2004 100 100 100 0 0
March 2004 100 100 100 0 0
April 2004 100 100 100 0 0
May 2004 100 100 100 0 0
June 2004 100 100 100 0 0
July 2004 100 100 100 0 0
August 2004 100 100 0 0 0
September 2004 100 100 0 0 0
October 2004 100 100 0 0 0
November 2004 100 100 0 0 0
December 2004 100 100 0 0 0
January 2005 100 100 0 0 0
February 2005 100 0 0 0 0
March 2005 100 0 0 0 0
April 2005 100 0 0 0 0
May 2005 0 0 0 0 0
Average Life (years)
To 5% Call........................ 4.90 4.65 4.15 3.48 2.90
To Maturity....................... 5.37 5.08 4.61 3.78 3.07
</TABLE>
S-16
<PAGE>
THE POOL OF AUTO LOANS
General
The assets of the trust will primarily consist of the auto loans,
which are secured by the financed vehicles.
The auto loans in the pool were purchased or originated by the bank.
You should note that the bank also acts as servicer for the auto loans under the
sale and servicing agreement, and we refer to the bank in that capacity as the
servicer.
With respect to the auto loan pool as of the cut-off date:
. 98.52% by aggregate principal balance were purchased by the bank from
dealers in the ordinary course of business;
. 1.48% by aggregate principal balance were originated directly by the
bank at or through its deposit branches;
. approximately 44.30% of the aggregate principal balance represents
financing of new automobiles, light duty trucks and vans; and
. approximately 55.70% of the aggregate principal balance represents
financing of used automobiles, light duty trucks and vans.
Underwriting Procedures
Each auto loan was originated or purchased by the bank and
underwritten in accordance with the bank's established underwriting policies
described below. The underwriting procedures of the bank are designed to
provide a basis for assessing the obligor's ability and willingness to repay the
loan.
The bank requires each applicant to complete an application form
providing various items of general demographic information, financial
information, and employment history. In addition, specific information with
respect to the motor vehicle to be financed is required as part of the
application process. The bank then reviews the application and a credit bureau
report is obtained. In conducting the assessment of the obligor, the bank
considers such factors as the obligor's FICO score, the ratio of the proposed
loan payment to income and the ratio of debt to income. The bank also evaluates
the obligor's credit history through a review of a credit report compiled by a
recognized consumer credit reporting bureau. The obligor's equity in the
collateral and the terms of the loan are also important in the bank's analysis.
For those applications that are approved, the bank then determines the
amount and terms of the financing to be offered. The amount that the bank will
advance against the motor vehicle ranges from 100% to 120% of the invoice for
new vehicles and the NADA trade-in value for used vehicles plus, in each case,
the dealer additions, based on the applicable FICO score of
S-17
<PAGE>
the obligor. Dealer additions are limited to 15% of the purchase price. The term
for a loan is a function of the age of the motor vehicle and the applicable FICO
score of the obligor. Acceptable terms generally range from 24 to 72 months in
length.
The bank's guidelines are intended only to provide a basis for lending
decisions, and exceptions to such guidelines may, within certain limits, be made
based upon the credit judgment of the lending officer with appropriate approval
authority. The bank periodically conducts quality audits to ensure compliance
with its established policies and procedures.
Selection Criteria
The auto loans were selected from the bank's portfolio on the basis of
a number of criteria, including the following:
. each auto loan has an original term to maturity of 12 to 72 months;
. each auto loan has a maturity of not later than June 13, 2006;
. each auto loan provides for level monthly payments that fully
amortize the amount financed over the original term;
. no auto loan was more than 29 days past due as of the cut-off date;
. each auto loan has an unpaid principal balance of not less than $1,000
as of the cut-off date; and
. the weighted average remaining term to maturity of the auto loans was
59.88 months as of the cut-off date.
All the auto loans are prepayable at any time. The bank makes no
prediction as to the actual prepayment experience on the auto loans. See also
"Description of the Notes--Optional Termination" in this prospectus supplement
regarding the bank's option to purchase the auto loans when the total principal
balance of the notes is 5% or less of total principal balance of the notes as of
the date of issuance of the notes.
The auto loans are simple interest installment sales contracts and
installment loans which provide for equal monthly payments.
The composition, distribution by annual percentage rate, commonly
called APR, and geographical distribution of the auto loans as of the cut-off
date are as set forth in the following tables.
S-18
<PAGE>
Composition of the Auto Loans as of the Cut-Off Date
<TABLE>
<S> <C>
Initial Aggregate Principal Balance..................... $352,919,264.22
Number of Auto Loans.................................... 19,242
Average Original Principal Balance...................... $18,775.87
Range of Original Principal Balances.................... $2,384.21 to $59,379.55
Average Remaining Principal Balance..................... $18,341.09
Range of Remaining Principal Balances................... $1,359.20 to $58,236.43
Weighted Average APR(1)................................. 10.53%
Range of APRs........................................... 7.00% to 18.50%
Weighted Average Original Term to Maturity(1)........... 61.66 months
Range of Original Terms to Maturity..................... 12 months to 72 months
Weighted Average Remaining Term to Maturity(1).......... 59.88 months
Range of Remaining Terms to Maturity.................... 12 months to 72 months
----------------------------------------------------------------------------------
</TABLE>
(1) Weighted by remaining principal balance.
S-19
<PAGE>
Distribution of the Auto Loans by APR as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of APRs Auto Loans Principal Balance Principal Balance
------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
7.00% to 7.99%......... 1,531 $ 29,765,304.29 8.43%
8.00% to 8.99%......... 3,353 62,503,474.36 17.71%
9.00% to 9.99%......... 3,704 69,557,067.60 19.71%
10.00% to 10.99%........ 3,062 57,256,178.90 16.22%
11.00% to 11.99%........ 2,674 48,664,802.51 13.79%
12.00% to 12.99%........ 2,434 44,114,529.77 12.50%
13.00% to 13.99%........ 1,390 24,277,283.53 6.88%
14.00% to 14.99%........ 720 11,333,611.09 3.21%
15.00% to 15.99%........ 240 3,596,636.31 1.02%
16.00% to 16.99%........ 81 1,124,148.30 0.32%
17.00% to 17.99%........ 41 586,322.42 0.17%
18.00% to 18.99%........ 12 139,905.14 0.04%
------------------------ -------------- ----------------- ------------------
Total................... 19,242 $352,919,264.22 100.00%
-------------- ----------------- ------------------
-------------- ----------------- ------------------
</TABLE>
S-20
<PAGE>
Geographic Distribution of the Auto Loans as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
State(1)(2) Auto Loans Principal Balance Principal Balance
------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
Alabama.................. 222 $ 3,886,040.37 1.10%
Florida.................. 796 14,145,746.74 4.01%
Georgia.................. 3,398 61,440,854.87 17.41%
Maryland................. 1,689 30,175,070.42 8.55%
North Carolina........... 1,375 24,107,367.53 6.83%
Pennsylvania............. 254 4,447,026.62 1.26%
Tennessee................ 221 4,102,835.64 1.16%
Texas.................... 8,345 157,054,455.71 44.50%
Virginia................. 2,269 41,871,236.74 11.86%
Other.................... 673 11,688,629.58 3.32%
------------------------ -------------- ----------------- ------------------
Total.................... 19,242 $352,919,264.22 100.00%
-------------- ----------------- ------------------
-------------- ----------------- ------------------
</TABLE>
(1) Based upon the billing address of the obligors.
(2) No other state represents more than 1% of the Auto Loans.
Distribution of the Auto Loans by Remaining Principal Balance as of the Cut-Off
Date
<TABLE>
<CAPTION>
Aggregate Percentage of
Range of Remaining Number of Principal Aggregate
Principal Balances Auto Loans Balance Principal Balance
-------------------------------- ---------- ----------------- -------------------
<S> <C> <C> <C>
$ 00.00 to $ 4,999.99...... 48 $ 181,649.14 0.05%
$ 5,000.00 to $ 9,999.99...... 1,485 12,450,395.31 3.53%
$10,000.00 to $ 14,999.99...... 5,028 64,069,016.45 18.15%
$15,000.00 to $ 19,999.99...... 5,829 101,389,573.80 28.74%
$20,000.00 to $ 24,999.99...... 3,922 87,196,797.44 24.71%
$25,000.00 to $ 29,999.99...... 1,807 48,964,811.69 13.87%
$30,000.00 to $ 34,999.99...... 760 24,402,446.97 6.91%
$35,000.00 to $ 39,999.99...... 247 9,150,306.01 2.59%
$40,000.00 to $ 44,999.99...... 76 3,181,544.10 0.90%
$45,000.00 to $ 49,999.99...... 33 1,555,193.92 0.44%
$50,000.00 to $ 54,999.99...... 4 207,324.75 0.06%
$55,000.00 to $ 58,236.43...... 3 170,204.64 0.05%
-------------------------------- ---------- ----------------- -------------------
Total........................... 19,242 $352,919,264.22 100.00%
---------- ----------------- -------------------
---------- ----------------- -------------------
</TABLE>
S-21
<PAGE>
Distribution of the Auto Loans by Remaining Terms to Maturity as of the
Cut-Off Date
<TABLE>
<CAPTION>
Aggregate Percentage of
Range of Remaining Terms to Number of Principal Aggregate
Maturity (months) Auto Loans Balance Principal Balance
--------------------------- ---------- ----------- ------------------
<S> <C> <C> <C>
12 to 24................... 103 $ 1,033,762.98 0.30%
25 to 36................... 544 6,953,725.32 1.97%
37 to 48................... 1,856 24,982,248.04 7.08%
49 to 60................... 11,900 211,910,725.64 60.04%
61 to 72................... 4,839 108,038,802.24 30.61%
--------------------------- ---------- -------------- ------------------
Total...................... 19,242 $352,919,264.22 100.00%
========== ============== ==================
</TABLE>
S-22
<PAGE>
THE BANK
General
The bank, which is the seller and the servicer of the auto loans, is a
federally chartered stock savings bank. The bank's home office is located at
7926 Jones Branch Drive, McLean, Virginia 22102, and its executive offices are
located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815. The bank's
telephone number is (301) 986-7000. The bank is subject to comprehensive
regulation, examination and supervision by the Office of Thrift Supervision, or
the OTS, within the Department of the Treasury and, to a lesser extent, by the
Federal Deposit Insurance Corporation, or the FDIC. Deposits at the bank are
fully insured up to $100,000 per insured depositor by the Savings Association
Insurance Fund, which is administered by the FDIC.
Based on unaudited results, at March 31, 2000, the bank had
consolidated assets of approximately $10.2 billion, deposits of approximately
$6.5 billion, and stockholders' equity of approximately $479.3 million. As a
savings bank chartered under the laws of the United States, the bank is subject
to certain minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended, or
FIRREA. At March 31, 2000, the bank's tangible, core, tier 1 risk-based and
total risk-based regulatory capital ratios were 5.50%, 5.50%, 7.44% and 11.48%,
respectively. As of such date, the bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well-
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991. The OTS has the discretion to treat a "well-capitalized"
institution as an "adequately capitalized" institution for purposes of the
prompt corrective action regulations if, after notice and an opportunity for a
hearing, the OTS determines that the institution is being operated in an unsafe
or unsound condition or has received and has not corrected a less than
satisfactory examination rating for asset quality, management, earnings or
liquidity.
Litigation
The bank is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings, that would have a material adverse
effect upon its financial condition or results of operations.
Delinquency and Default Experience
The tables below set forth certain information concerning the bank's
delinquency and loss experience with respect to its servicing portfolio of
retail installment sales contracts for new and used automobiles, light duty
trucks and vans acquired pursuant to its finance programs. Delinquency is
recognized on a contractual basis only. The bank cannot assure you that the
levels of delinquency and loss experience reflected in the tables below, are
indicative of the performance of the auto loans included in the trust.
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<PAGE>
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ ------------------------------- -------------------------------
Percentage of Percentage of Percentage of
Dollar Amount Total Auto Dollar Amount Total Auto Dollar Amount Total Auto
(000) Loans (000) Loans (000) Loans
------------- -------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Auto Loans
Outstanding(1) $431,351 $714,320 $853,424
Delinquencies:(2)(3)
30-59 Days $ 2,491 0.58% $ 8,516 1.19% $ 9,212 1.08%
60-89 Days 742 0.17% 2,176 0.30% 3,256 0.38%
90 days or more 1,667 0.39% 3,588 0.50% 9,188 1.08%
-------- -------- ---------- -------- -------- --------
Total Delinquencies $ 4,900 1.14% $ 14,280 1.99% $ 21,656 2.54%
======== ======== ========== ======== ======== =======
<CAPTION>
1998 1999 As of March 31, 2000
------------------------------ ------------------------------- -------------------------------
Percentage of Percentage of Percentage of
Dollar Amount Total Auto Dollar Amount Total Auto Dollar Amount Total Auto
(000) Loans (000) Loans (000) Loans
------------- ------------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Auto Loans
Outstanding(1) $760,348 $1,133,797
Delinquencies:(2)(3)
30-59 Days $ 7,919 1.04% $ 10,439 0.92% $ 9,796 0.73%
60-89 Days 2,297 0.30% $ 3,180 0.28% $ 2,205 0.16%
90 days or more 6,155 0.81% $ 7,709 0.68% $ 8,129 0.60%
-------- -------- ---------- -------- ======== =======
Total Delinquencies $ 16,371 2.15% $ 21,328 1.88% $20,130 1.49%
======== ======== ========== ======== ======== ========
</TABLE>
(1) Auto loans outstanding is the remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
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CHEVY CHASE BANK, F.S.B.
Loss Experience
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------- ----------------------------- -------------------------------
Percentage of Percentage of Percentage of
Average Auto Average Auto Average Auto
Dollar Loans Dollar Loans Dollar Amount Loans
Amount (000) Outstanding Amount (000) Outstanding (000) Outstanding (1)
--------------- -------------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Average Auto Loans
Outstanding(2) $363,845 $565,963 $832,700
Gross Charge-offs(3) $ 2,120 0.58% $ 3,795 0.67% $ 8,303 1.00%
Recoveries(4) $ 275 0.07% $ 277 0.05% $ 770 0.09%
-------- ---- -------- ---- -------- ----
Net Losses $ 1,845 0.51% $ 3,518 0.62% $ 7,533 0.91%
======== ==== ======== ==== ======== ====
<CAPTION>
For the year ended December 31, For the three-month
--------------------------------------------------------------- period ended
1998 1999 March 31, 2000
----------------------------- ----------------------------- ---------------------------------
Percentage of Percentage of Percentage of
Average Auto Average Auto Average Auto
Dollar Loans Dollar Loans Dollar Amount Loans
Amount (000) Outstanding Amount (000) Outstanding (000) Outstanding (1)
-------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Average Auto Loans
Outstanding(2) $771,587 $940,031
Gross Charge-offs(3) $ 12,682 1.64% $ 8,200 0.87% $2,681 0.84%
Recoveries(4) $ 1,211 0.15% $ 1,554 0.16% $ 504 0.16%
-------- ---- -------- ---- ------ ----
Net Losses $ 11,471 1.49% $ 6,646 0.71% $2,177 0.68%
======== ==== ======== ==== ====== ====
</TABLE>
(1) Annualized.
(2) Equals the arithmetic average of the month-end balances.
(3) Gross charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(4) Includes current post-disposition recoveries on receivables previously
charged off.
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DESCRIPTION OF SALE AND SERVICING AGREEMENT
Conveyance of Auto Loans
On the closing date, the bank will sell to the trust, without recourse
except as expressly set forth in the sale and servicing agreement, all of the
bank's right, title and interest in and to the auto loans and the other trust
property, including its security interests in the financed vehicles.
Concurrently with this sale and assignment, the indenture trustee will execute,
authenticate and deliver the notes to the underwriters against payment to the
bank of the net purchase price of the sale of the notes.
In the sale and servicing agreement, the bank will make various
representations and warranties to the trust, including:
. the information provided with respect to auto loans is correct in all
material respects; the obligor on each auto loan is required to obtain
physical damage and theft insurance in accordance with the bank's
normal requirements;
. at the date of issuance of each class of notes, the auto loans are
free and clear of all security interests, liens, charges, and
encumbrances and no setoffs, defenses, or counterclaims against the
bank have been asserted or threatened (other than the interest of the
trust and indenture trustee;
. on the closing date, each of the auto loans is or will be secured by a
first priority perfected security interest in the financed vehicle in
favor of the bank; and
. at the time it was originated, each auto loan complied, and on the
closing date complies, in all material respects, with applicable
federal and state laws, including consumer credit, truth in lending,
equal credit opportunity, and disclosure laws.
The only recourse the trust and the noteholders will have against the
bank for breach of any of the representations and warranties made with respect
to the auto loans in the sale and servicing agreement will be to require the
bank to repurchase the auto loan. See "--Mandatory Repurchase of Auto Loans" in
this prospectus supplement.
To assure uniform quality in servicing the auto loans and to reduce
administrative costs, the bank, as servicer, shall be appointed as initial
custodian of the auto loans. The servicer, in its capacity as custodian, will
hold the auto loans and all electronic entries, documents, instruments and
writings related to the auto loans, or the auto loan file, directly or through
sub-servicers, on behalf of the indenture trustee for the benefit of
noteholders. The auto loans will not be stamped or otherwise marked to reflect
the sale and assignment of the auto loans to the trust and the pledge thereof to
the indenture trustee and will not be segregated from other receivables held by
the servicer. However, UCC financing statements reflecting the sale and
assignment of the auto loans by the bank to the trust will be filed, and the
bank's accounting
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records and computer systems will be marked to reflect such sale and assignment
and subsequent pledge to the indenture trustee. See "Certain Legal Aspects of
the Receivables" in the prospectus. The sale and servicing agreement will
require the servicer to file continuation statements relating to such UCC
financing statements in order to maintain the perfected security interest of the
trust in the auto loans. The servicer may designate a third-party document
retention company to act as custodian with respect to auto loan files.
Servicing Procedures
The servicer will service the auto loans pursuant to the sale and
servicing agreement. The sale and servicing agreement requires the servicer to
carry out the servicing of the auto loans generally in the same manner in which
it services receivables and vehicles held for its own account. In performing its
servicing duties, the servicer will act on behalf and for the benefit of the
trust and the noteholders, subject at all times to the provisions of the sale
and servicing agreement, without regard to any relationship which the servicer
or any affiliate of the servicer may otherwise have with an obligor.
The servicer, as an independent contractor on behalf of the trust and
for the benefit of the noteholders, will be responsible for managing, servicing
and administering the auto loans and enforcing and making collections on the
auto loans and any insurance policies relating to the financed vehicles and for
enforcing any security interest in any of the financed vehicles, all as set
forth in the sale and servicing agreement. The servicer's responsibilities will
include collecting and posting of all payments, responding to inquiries of
obligors, investigating delinquencies, accounting for collections, furnishing
monthly and annual statements to the indenture trustee with respect to
distributions, providing appropriate federal income tax information for use in
providing information to noteholders and attempting to maintain the perfected
security interest of the bank in the financed vehicles.
Servicer's Certificate
The sale and servicing agreement requires that on or before December
31 of each year, beginning December 31, 2001, the servicer deliver an officer's
certificate to the indenture trustee and the rating agencies which states that:
. the officer has reviewed the servicer's activities and performance of
its duties under the sale and servicing agreement during the preceding
12-month period ended December 31 of that year (or the period since
the date of the sale and servicing agreement);
. the review has been made under that officer's supervision; and
. to the best of the officer's knowledge, based on the review, the
servicer has fulfilled all of its obligations under the sale and
servicing agreement throughout the period in question, or, if there
has been a default in the fulfillment of any such obligation,
specifying each default known to the officers, its nature and status.
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<PAGE>
Review by Independent Certified Public Accountants
The sale and servicing agreement requires the servicer to have a firm
of independent certified public accountants, who may also render other services
to the servicer, deliver a written statement to the indenture trustee. The
independent certified public accountants must deliver this report within 90 days
following the end of each fiscal year of the servicer, beginning with the
servicer's fiscal year ending September 30, 2001 and send a copy to the rating
agencies. This report must confirm that:
. the firm of independent certified public accountants has read the
monthly servicer's certificates delivered pursuant to the sale and
servicing agreement with respect to each collection period during such
one-year period, or such longer or shorter period since the date of
the sale and servicing agreement;
. the firm of independent certified public accountants has reviewed the
servicing of the auto loans by the servicer;
. its review included tests relating to automobile, light duty truck and
van loans serviced for others in accordance with the requirements of
the Uniform Single Attestation Program for Mortgage Bankers, to the
extent the procedures in such program are applicable to the servicing
obligations set forth in the sale and servicing agreement; and
. except as described in the report, the review disclosed no exceptions
or errors in the records relating to automobile, light duty truck and
van loans serviced for others that, in the firm's opinion, paragraph
four of such program requires such firm to report.
Servicer Default; Waiver of Past Defaults
A servicer default under the sale and servicing agreement will consist
of the occurrence and continuance of any of the following:
. the servicer's failure to deliver the servicer's certificate to the
indenture trustee on or before the determination date, which failure
continues unremedied for more than three business days after written
notice from the indenture trustee or the holders of notes evidencing
not less than 25% of the principal balance of the notes as of that
date of determination;
. the servicer's failure to deliver to the indenture trustee for
distribution to the noteholders any proceeds or payment which the sale
and servicing agreement requires it to deliver, which failure
continues unremedied for more than three business days after written
notice from the indenture trustee or the holders of notes evidencing
not less than 25% of the principal balance of the notes as of that
date of determination;
. the servicer's failure to observe or perform in any material respect
any other covenant or agreement of the servicer, in the sale and
servicing agreement, which failure materially and adversely affects
the rights of the noteholders and which continues
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<PAGE>
unremedied for more than 30 days after the giving of written notice of
such failure to the servicer, by the indenture trustee or to the
indenture trustee by noteholders evidencing not less than 25% of the
principal balance of the notes as of that date of determination; and
. any insolvency event.
An insolvency event means financial insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings with respect to
the servicer and certain actions by the servicer indicating its insolvency or
inability to pay its obligations, as described in "Description of the Trust
Agreements--Removal of the Servicer" in the prospectus. Upon the occurrence of
a servicer default, the servicer may be removed by the indenture trustee or by
the majority noteholders. The majority noteholders may waive some defaults by
the servicer in the performance of its obligations under the sale and servicing
agreement, as described in "Description of the Securities--Waiver of Past
Defaults" in the accompanying prospectus.
The majority noteholders means, as of any date of determination,
holders of notes representing a majority of the aggregate principal balance of
all classes of notes as of that date of determination.
Servicing Compensation, Payment of Expenses and Trustees' Fees
For its servicing of the auto loans, the servicer will be entitled to
receive a monthly servicing fee on each payment date which equals one-twelfth
times 1.00% of the pool balance as of the first day of the immediately preceding
collection period. The servicer will deposit all late fees into the collection
account and those fees will be included in available funds.
All costs of servicing each auto loan in the manner required by the
sale and servicing agreement will be borne by the servicer, but the servicer
shall be entitled to retain, out of any amounts actually recovered with respect
to any defaulted auto loan or the financed vehicles subject to a defaulted auto
loan, the servicer's actual out-of-pocket expenses reasonably incurred with
respect to such defaulted auto loan or financed vehicle.
On each payment date, the indenture trustee and the owner trustee are
each entitled to receive a fee (payable from available funds) for their services
as indenture trustee and owner trustee, during the prior collection period in an
amount agreed upon by the bank and the indenture trustee and the owner trustee,
respectively.
Mandatory Repurchase of Auto Loans
In the event of a breach of any representation or warranty with
respect to the auto loans described in "--Conveyance of Auto Loans" in this
prospectus supplement, which breach materially and adversely affects an auto
loan or the interest of the trust or the noteholders in such auto loan, the bank
will be required to repurchase the auto loan from the trust for the purchase
amount. This repurchase requirement will not apply if the breach has been cured
by the last day
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<PAGE>
of the collection period following the collection period during which the bank
becomes aware of, or receives written notice from the indenture trustee, or the
servicer of the breach. The purchase amount is payable on the determination date
following such subsequent collection period. The repurchase obligation will
constitute the sole remedy available to the noteholders or the indenture trustee
against the bank for any such uncured breach. See "Description of the Trust
Agreements--Mandatory Repurchase of Receivables" in the accompanying prospectus.
In the event of a breach of certain covenants of the servicer in the
sale and servicing agreement, the servicer will be required to purchase the
affected auto loans from the trust. The purchase obligation will constitute the
sole remedy available to the noteholders or the indenture trustee against the
servicer for any such uncured breach. See "Description of the Trust Agreements-
-Servicing Procedures" in the accompanying prospectus.
The purchase amount of any auto loan, with respect to any payment date
equals the sum of:
. the outstanding principal balance of the auto loan as of the last day
of the preceding collection period, and
. the amount of unpaid interest on the auto loan's principal balance
at the related APR through the date the auto loan is purchased, after
giving effect to the receipt of monies collected on the auto loan in
that preceding collection period.
DESCRIPTION OF THE NOTES
General
The trust will issue the notes under an indenture, a form of which has
been filed as an exhibit to the registration statement. The following summary
describes material terms of the notes and the indenture. The summary does not
purport to be complete and is subject to all the provisions of the notes and the
indenture. The following summary supplements the description of the general
terms and provisions of the notes of any given series and the related indenture
as described in the accompanying prospectus, and to the extent that those
descriptions differs from the descriptions provided in this prospectus
supplement, the descriptions provided in this prospectus supplement replace
those descriptions. You can obtain a copy of the indenture without charge on
written request addressed to the indenture trustee at its Corporate Trust
Department at 180 East 5th Street, St. Paul, Minnesota 55101, Att: Structured
Finance/Chevy Chase 2000-1.
The trust will offer the notes in minimum denominations of $1,000 and
integral multiples of $1 in book-entry form only. Persons acquiring beneficial
interests in the notes will hold their interests through The Depository Trust
Company in the United States or Clearstream, Luxembourg or in the Euroclear
System in Europe. See "Description of the Securities -- Book-Entry
Registration" and Annex I in the prospectus.
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<PAGE>
In addition to the notes, the trust will also issue the trust
certificate which will not be offered by this prospectus supplement.
Distributions to the Noteholders of the Subordinate Notes
Payments of interest on the Subordinate Notes will only be made on
each payment date if available funds remain after paying all fees to the
servicer, the indenture trustee and the owner trustee and after making all
payments of interest on the Class A Notes and certain payments of principal on
that date. No principal will be paid to the holders of the Subordinate Notes
until the entire outstanding principal balance of all Class A Notes has been
paid to zero.
Payment Dates
The notes will pay interest and principal on the fifteenth day of each
month, or, if the fifteenth day is not a business day, on the next following
business day. The first payment date will be July 17, 2000. Only holders of
record as of the close of business on the day immediately preceding a payment
date, commonly known as a record date, will receive payments on that payment
date.
A business day means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City, Chevy Chase, Maryland or in the
city in which the Corporate Trust Office of the indenture trustee under the
trust agreement is located are authorized or obligated by law or executive order
to close.
Each month the trust will distribute the amounts received on the auto
loans and any other collections available as property of the trust during the
calendar month, before the month in which the payment date occurs. This period
is referred to as a collection period.
The final scheduled payment dates are set forth on the cover to this
prospectus supplement.
Accounts
On the closing date the indenture trustee will establish the following
accounts, for the benefit of the noteholders:
. the collection account, into which all payments, made on or with
respect to the auto loans will be deposited,
. the note account, and
. the reserve account.
Delivery of the Servicer's Certificate
On or before the earlier of the 8th business day or the 11th calendar
day of each month, or the determination date, the servicer will deliver a
servicer's certificate to the
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indenture trustee and the rating agencies. The servicer's certificate will
provide the information needed to make payments and other distributions and
transfers on the upcoming payment date.
Flow of Funds
On each payment date, the servicer will, in the servicer's
certificate, instruct the indenture trustee as to the application of the
available funds for that payment date. The available funds for a payment date
are the collections on the auto loan pool received by the servicer during the
prior month, minus servicer compensation (other than the monthly servicing fee)
and reimbursable amounts owed to the servicer; this amount will be transferred
from the collection account to the note account. The available funds, together
with amounts transferred from the reserve account to the note account to fund
noteholder payments, will, on each payment date, be allocated in the following
order of priority:
(1) to the servicer, the monthly servicing fee;
(2) to the owner trustee and the indenture trustee, the fees then due
to each of them;
(3) to the Class A Noteholders, ratably, the interest then due to
them, including carryover shortfall interest;
(4) to fund a payment of principal to the extent as may be necessary
to reduce the Class A Note principal balance to the pool balance;
i.e., to maintain parity between the Class A Note principal
balance and the pool balance, which amount will be paid out as
described below under "Principal";
(5) to the Class B Noteholders, the interest then due to them,
including carryover shortfall interest,
(6) to fund a payment of principal to the extent as may be necessary
to reduce the combined Class A and Class B Note principal balance
to the pool balance i.e., to maintain parity between the combined
Class A and Class B Note balance and the pool balance, which
amount will be paid out as described below under "Principal";
(7) to the Class C Noteholders, the interest then due to them,
including any carryover shortfall interest;
(8) to fund a payment of principal to the extent as may be necessary
to reduce the combined Class A, Class B, and Class C Note
principal balance to the pool balance, i.e., to maintain parity
between the aggregate note principal balance and the pool
balance, which amount will be paid out as described below under
"Principal";
(9) to fund a payment of principal in an amount generally equal to
the decrease in the pool balance during the prior month, reduced
by the amount of any principal allocated as provided above, and
further reduced
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by the amount of any excess level of overcollateralization, which
amount will be paid out as described below under "Principal";
(10) to fund a payment of principal to the extent as may be necessary
to reduce to zero the principal balance of any class which
remains outstanding on or after its final scheduled payment date,
which amount will be paid out as described below under
"Principal";
(11) to the reserve account, any deficiency in the reserve account
required amount;
(12) to fund, using excess cashflow, as well as excess amounts
released from the reserve account, an additional payment of
principal to the extent as may be necessary to increase the
overcollateralization to its required target level, which amount
will be paid out as described below under "Principal"; and
(13) the remainder, if any, of the available funds, to the holder of
the trust certificate.
Interest Payments
Interest on each class of notes will accrue during each interest
accrual period at the applicable interest rate listed below from and including
the most recent payment date that interest was paid -- or, in the case of the
first payment date, from and including the closing date to but excluding the
following payment date. The interest accruing during an interest period will
accrue on each class's outstanding principal amount as of the end of the prior
payment date -- or, in the case of the first payment date, on each class's
initial note principal balance.
For any payment date, interest due but not paid on that payment date
will be due on the next payment date together with, to the extent permitted by
law, interest at the applicable interest rate on that unpaid amount. Interest
on the Class A-1 Notes will be calculated on the basis of a 360-day year and the
actual number of days elapsed in the applicable interest accrual period.
Interest on all other classes of notes will be calculated on the basis of a 360-
day year consisting of twelve 30-day months.
The interest rate for each class of notes is as follows:
. Class A-1 Interest Rate: 6.87% per annum;
. Class A-2 Interest Rate: 7.25% per annum;
. Class A-3 Interest Rate: 7.39% per annum;
. Class A-4 Interest Rate: 7.47% per annum;
. Class B Interest Rate: 7.76% per annum and
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. Class C Interest Rate: 8.15% per annum.
Principal Payments. On each payment date, all amounts allocated to the
payment of principal as described in "Flow of Funds" above will be aggregated
and will be paid out in the following order of priority:
(1) to the Class A-1 Noteholders in reduction of principal until the
principal balance of the Class A-1 Notes has been reduced to
zero;
(2) to the Class A-2 Noteholders in reduction of principal until the
principal balance of the Class A-2 Notes has been reduced to
zero;
(3) to the Class A-3 Noteholders in reduction of principal until the
principal balance of the Class A-3 Notes has been reduced to
zero;
(4) to the Class A-4 Noteholders in reduction of principal until the
principal balance of the Class A-4 Notes has been reduced to
zero;
(5) to the Class B Noteholders in reduction of principal until the
principal balance of the Class B Notes has been reduced to zero;
and
(6) to the Class C Noteholders in reduction of principal until the
principal balance of the Class C Notes has been reduced to zero.
If an event of default occurs, the Class A Notes then outstanding will
receive principal payments pro rata, although the Class A Notes as a group will
still be entitled to payment in full before any principal is paid on the Class B
Notes and the Class C Notes.
Credit Enhancement
Subordination of the Subordinate Notes. Payments on the Subordinate
Notes are subordinated to payments on the Class A Notes. This subordination of
distributions on the Subordinate Notes is intended to increase the likelihood
that the trust will not default in making payments due on the Class A Notes.
Payments on the Class C Notes are subordinated to payments on the
Class A Notes and Class B Notes. This subordination of payments on the Class C
Notes is intended to increase the likelihood that the trust will not default in
making payments due on the Class A Notes and the Class B Notes.
Reserve Account. On the closing date, the amount in the reserve
account will be $2,646,894.48 which is 0.75% of the original pool balance and
which is the full required funding of the reserve account. The amount on
deposit in the reserve account is required to be maintained at this level for so
long as the notes are outstanding, except that the amount on deposit need never
be greater than the aggregate outstanding note principal balance.
On each payment date, the amount on deposit in the reserve account
will be available to pay:
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. interest on the notes for that payment date,
. if that payment date is the final scheduled payment date of any class
of notes, the amount necessary to reduce the principal balance of such
class of notes to zero, and
. the excess, if any, by which the aggregate outstanding principal
amount of all classes of notes, after taking into account all other
payments of principal on that payment date, exceeds the pool balance
as of the end of the prior month, i.e., the amount necessary to
maintain parity between the aggregate note balance and the pool
balance.
Amounts on deposit in the reserve account on a payment date, after
taking into account all deposits to and withdrawals from the reserve account,
which are in excess of the required amount will be released from the reserve
account and applied:
. as part of excess cashflow, to fund an additional payment of
principal on the notes to the extent needed to increase or maintain
the overcollateralization, and
. to make a payment to the holders of the trust certificate.
Overcollateralization
On the closing date, the original pool balance will exceed the initial principal
amount of the notes of all classes by approximately $3,529,264.22, which is
approximately 1.0% of the original pool balance. This excess represents
overcollateralization. The level of overcollateralization is required to
increase to, and thereafter be maintained at, a target level equal to the
greater of (1) 4.00% of the pool balance less the amount in the reserve account
and (2) the aggregate principal balance of the auto loans that are delinquent 90
days or more, including repossessions, and have not been charged off and less
the amount in the reserve account. The level of overcollateralization is
increased and maintained through the application of excess cashflow available
to the trust, primarily in the form of the excess of interest collections on the
auto loan pool over the interest paid out on the notes as well as releases of
excess amounts from the reserve account. In general, the target amount of
overcollateralization will decrease as the pool balance decreases. However, the
required amount of overcollateralization on any payment date will never be less
than 0.50% of the original pool balance. The overcollateralization will be
available to absorb losses on the auto loan pool prior to any withdrawals from
the reserve account used to fund principal.
Withholding
The indenture trustee is required to comply with all federal income
tax withholding requirements respecting payments to noteholders of interest or
original issue discount with respect to the notes that the indenture trustee
reasonably believes are applicable
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under the Code. Foreign Beneficial Owners will be subject to U.S. income and
withholding tax unless they provide certain certifications as described under
"Material Federal Income Tax Consequences--Tax Consequences to Holders of the
Notes--Foreign Investors" in this prospectus supplement. The consent of neither
the noteholders nor the Beneficial Owners will be required for such withholding.
In the event that the indenture trustee does withhold or causes to be withheld
any amount from interest or original issue discount payments or advances thereof
to any noteholders pursuant to federal income tax withholding requirements, the
indenture trustee is required to indicate the amount withheld in its monthly
report to such noteholders. If any withholding or other tax is imposed by any
jurisdiction, neither the noteholders nor the Beneficial Owners have any right
to receive additional interest or other amounts in consequence thereof.
Reports to Noteholders
On each payment date, the indenture trustee will furnish or cause to
be furnished with each payment to noteholders, a monthly report, based on
information in the servicer's certificate, setting forth the following
information for that payment date:
. the amount of the principal payment for each class of notes including
any overdue principal;
. the amount of the interest payment for each class of notes including
any overdue interest;
. the aggregate amount of fees and compensation received by the
servicer, the owner trustee and the indenture trustee for the
collection period;
. the amount, if any, withdrawn from the reserve account with respect to
such payment date;
. the aggregate net losses on the auto loans for the related collection
period;
. the pool balance and the pool factor as of the end of the related
collection period;
. the aggregate principal balance of all auto loans which were
delinquent (1) 30 days or more and (2) 90 days or more, in each case,
as of the last day of the related collection period; and
. the principal balance for each class of notes on such payment date
(after giving effect to the distributions on such payment date).
Optional Termination
The indenture and the sale and servicing agreement will provide that
on any payment date following the record date on which the total principal
balance of the notes is 5% or
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less of the aggregate original note principal balance, the bank will have the
option to acquire all right, title and interest in all, but not less than all,
auto loans held in the trust by paying into the trust for retirement of the
notes an amount equal to the aggregate of the purchase amounts of the auto
loans.
Events of Default
The notes are subject to the following events of default:
. default in the payment of interest on any Note, when the same becomes
due and payable, and the default shall continue for a period of five
days; or
. default in the payment of the outstanding principal balance of any
note on its final scheduled payment date, and the default shall
continue for a period of five days;
. default in the observance or performance of any other covenant or
agreement of the trust made in the indenture, or any representation or
warranty of the trust made in the indenture proving to have been
incorrect in any material respect as of the time when the same shall
have been made, subject to the giving of notice and a grace period; or
. bankruptcy events concerning the trust.
Rights upon an Event of Default
If there is an event of default, interest will continue to accrue on
the principal and the overdue interest at the applicable interest rate on the
note until any overdue principal and interest is paid. The indenture trustee's
remedies following an event of default will include the institution of
proceedings to collect amounts due, foreclosure of the property comprising the
trust assets and the exercise of other standard secured creditor remedies. The
indenture trustee may also elect to maintain possession of the trust assets, and
continue to apply collections on the auto loans as if there had been no
declaration of acceleration. The indenture trustee's remedies also include the
right to retain an independent public accounting firm to produce a verification
report as to whether or not the trust assets would be sufficient, on an ongoing
basis, to make all payments on the notes, assuming that the notes remain
outstanding through maturity.
. If the event of default results from the bankruptcy of the trust or
the failure of the trust to pay timely interest on any class of notes
or principal on the final scheduled payment date of any note, the
notes of all classes may be accelerated, and the indenture trustee may
exercise the above remedies, but only if so directed by the
controlling class.
. If the event of default results from a covenant default by the trust,
then the notes will only be accelerated and remedies exercised, if the
holders of a majority of the principal balance of each class, voting
on a class-by-class basis, so direct.
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The noteholders may base their directions to the indenture trustee on
the results of the verification report, as well as a valuation of the projected
sale proceeds of the trust assets. The costs of any verification report or
valuation will not be borne by the indenture trustee or by the owner trustee,
but by the trust, or, if the noteholders so elect, by the noteholders.
Controlling class means the holders of notes representing a majority of the
principal balance of the Class A Notes then outstanding, or if the Class A Notes
are not outstanding, the Class B Notes then outstanding, or if neither the Class
A Notes nor the Class B Notes are outstanding, the Class C Notes then
outstanding.
If an event of default occurs and has not been remedied, the indenture
trustee will be under no obligation to exercise any of the rights or powers
under the trust documents at the request or direction of any of the holders of
the notes, if the indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with the request. Subject to the provisions for
indemnification and limitations contained in the trust documents and except in
the case of a default in respect of a covenant, the controlling class will have
the right to direct the time, method and place of conducting any proceeding or
any remedy available to the indenture trustee. The controlling class may, in
some cases, waive any default, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of the trust
documents that cannot be modified without the waiver or consent of all the
holders of the outstanding notes. No holder of a note will have the right to
institute any proceeding under the trust documents, unless:
. the holder previously has given the indenture trustee written notice
of a continuing event of default;
. the holders of not less than 25% of the aggregate principal balance of
all outstanding notes have made written request to the indenture
trustee to institute the proceeding in its own name as indenture
trustee;
. the holder or holders have offered the indenture trustee reasonable
indemnity against costs, expenses and liabilities to be incurred in
complying with the request;
. the indenture trustee has for 60 days failed to institute the
proceeding; and
. no direction inconsistent with the written request has been given to
the indenture trustee during the 60-day period by the holders of a
majority of the aggregate principal balance of all outstanding notes.
In addition, the indenture trustee and the note owners, by accepting a
beneficial interest in the notes, will covenant that they will not at
any time institute against the trust or the bank, or join in any
institution against the trust or the bank of, any bankruptcy,
reorganization or other proceeding under any federal or state
bankruptcy or similar law.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
You should consider the following discussion of certain material
federal income tax consequences of the purchase, ownership and disposition of
the notes only in connection with "Material Federal Income Tax Considerations"
in the accompanying prospectus. The discussion in this prospectus supplement
and in the accompanying prospectus is based upon laws, regulations, rulings and
decisions now in effect, all of which are subject to change. The discussion in
this prospectus supplement and in the accompanying prospectus does not purport
to deal with all federal tax considerations applicable to all categories of
investors. Some holders, including insurance companies, tax-exempt
organizations, financial institutions or broker dealers, taxpayers subject to
the alternative minimum tax, and holders that will hold the notes as other than
capital assets, may be subject to special rules that are not discussed below.
It is recommended that investors consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the notes.
Tax Characterization of the Trust
Dewey Ballantine LLP is our tax counsel, and is of the opinion that,
assuming the parties will comply with the terms of the governing agreements, the
trust will not be an association, or publicly traded partnership, taxable as a
corporation for federal income tax purposes.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The seller, the servicer and
the trust agree and the noteholders will agree by their purchase of notes, to
treat the notes as indebtedness for all federal, state and local income tax
purposes. There are no regulations, published rulings or judicial decisions
involving the characterization for federal income tax purposes of notes with
terms substantially the same as the notes. In general, whether instruments such
as the notes constitute indebtedness for federal income tax purposes is a
question of fact, the resolution of which is based primarily upon the economic
substance of the instruments and the transaction under which they are issued
rather than merely upon the form of the transaction or the manner in which the
instruments are labeled.
The Internal Revenue Service and the courts have stated various
factors to be taken into account in determining, for federal income tax
purposes, whether or not an instrument constitutes indebtedness and whether a
transfer of property is a sale because the transferor has relinquished
substantial incidents of ownership in the property or whether the transfer is a
borrowing secured by the property.
On the basis of its analysis of the above factors as applied to the
facts and its analysis of the economic substance of the contemplated
transaction, tax counsel is of the opinion that, for federal income tax
purposes, the notes will be treated as indebtedness, and not as an ownership
interest in the auto loans, nor as an equity interest in the trust or in a
separate association taxable as a corporation or other taxable entity.
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If the notes are characterized as indebtedness, interest paid or
accrued on a note will be treated as ordinary income to the noteholders and
principal payments on a note will be treated as a return of capital to the
extent of the noteholder's basis in the note allocable thereto. An accrual
method taxpayer will be required to include in income interest on the notes when
earned, even if not paid, unless it is determined to be uncollectible. The
trust will report to noteholders of record and the IRS regarding the interest
paid and original issue discount, if any, accrued on the notes to the extent
required by law.
Possible Alternative Characterizations of the Notes. Although, as
described above, it is the opinion of tax counsel that, for federal income tax
purposes, the notes will be characterized as indebtedness, this opinion is not
binding on the IRS and thus no assurance can be given that this characterization
will prevail. If the IRS successfully asserted that one or more of the notes
did not represent indebtedness for federal income tax purposes, the noteholders
would likely be treated as owning an interest in a partnership and not an
interest in an association or publicly traded partnership, taxable as a
corporation. If the noteholders were treated as owning an equitable interest in
a partnership, the partnership itself would not be subject to federal income
tax; rather each partner would be taxed individually on their respective
distributive share of the partnership's income, gain, loss, deductions and
credits. The amount, timing and characterization of types of income and
deductions for a noteholder would differ if the notes were held to constitute
partnership interests, rather than indebtedness. Since the parties will treat
the notes as indebtedness for federal income tax purposes, the servicer will not
attempt to satisfy the tax reporting requirements that would apply under this
alternative characterization of the notes. Investors that are foreign persons
should consult their own tax advisors in determining the federal, state, local
and other tax consequences to them of the purchase, ownership and disposition of
the notes.
Original Issue Discount. We do not anticipate issuing notes with any
original issue discount. In general, a note will be considered to be issued
with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a note
is the initial offering price to the public, excluding bond houses and brokers,
at which a substantial number of the notes were sold. The issue price also
includes any accrued interest attributable to the period between the beginning
of the first remittance period and the closing date. The stated redemption
price at maturity of a note that has a notional principal amount or receives
principal only or that provides for or may provide for accruals of interest is
equal to the sum of all distributions to be made under the note. The stated
redemption price at maturity of any other note is its stated principal amount,
plus an amount equal to the excess, if any, of the interest payable on the first
payment date over the interest that accrues for the period from the closing date
to the first payment date. The indenture trustee will supply, at the time and
in the manner required by the IRS, to beneficial owners, brokers and middlemen
information with respect to the original issue discount accruing on the notes.
Notwithstanding the general definition, original issue discount will
be treated as zero if the discount is less than 0.25% of the stated redemption
price at maturity of the note
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multiplied by its weighted average life. The weighted average life of a note is
computed for this purpose as the sum, for all distributions included in the
stated redemption price at maturity, of the amounts determined by multiplying
(1) the number of complete years, rounding down for partial years, from the
closing date until the date on which each distribution is expected to be made
under the assumption that the auto loans prepay at the rate specified in this
prospectus supplement, the prepayment assumption, by (2) a fraction, the
numerator of which is the amount of the distribution and the denominator of
which is the note's stated redemption price at maturity. Even if original issue
discount is treated as zero under this rule, the actual amount of original issue
discount must be allocated to the principal distributions on the note and, when
each distribution is received, gain equal to the discount allocated to the
distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue
discount rules applicable to prepayable notes. Under these rules, described in
greater detail below, (a) the amount and rate of accrual of original issue
discount on each series of notes will be based on (1) a prepayment assumption as
described below, and (2) in the case of a note calling for a variable rate of
interest, an assumption that the value of the index upon which the variable rate
is based remains equal to the value of that rate on the closing date, and (b)
adjustments will be made in the amount of discount accruing in each taxable year
in which the actual prepayment rate differs from the prepayment assumption.
Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The trust anticipates that the prepayment assumption
for the notes will be consistent with this standard. The trust makes no
representation, however, that the auto loans for a given series will prepay at
the rate reflected in the prepayment assumption in this prospectus supplement or
at any other rate. Each investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the notes.
Each beneficial owner must include in gross income the sum of the
"daily portions" of original issue discount on its note for each day during its
taxable year on which it held the note. For this purpose, in the case of an
original beneficial owner, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." Original
issue discount calculations must be based on accrual periods of no longer than
one year either (1) beginning on a payment date, or, in the case of the first
period, the closing date, and ending on the day before the next payment date or
(2) beginning on the next day following a payment date and ending on the next
payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (a) the sum of (1) the
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present values of all the distributions remaining to be made on the note, if
any, as of the end of the accrual period and (2) the distribution made on the
note during the accrual period of amounts included in the stated redemption
price at maturity, over (b) the adjusted issue price of the note at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated based on
(1) the yield to maturity of the note, calculated as of the closing date, giving
effect to the prepayment assumption, (2) events, including actual prepayments,
that have occurred prior to the end of the accrual period, (3) the prepayment
assumption, and (4) in the case of a note calling for a variable rate of
interest, an assumption that the value of the index upon which the variable rate
is based remains the same as its value on the closing date over the entire life
of the note. The adjusted issue price of a note at any time will equal the issue
price of the note, increased by the aggregate amount of previously accrued
original issue discount with respect to the note, and reduced by the amount of
any distributions made on the note as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
A subsequent purchaser of a note that purchases the note at a cost
less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds the note, the
daily portion of original issue discount with respect to the note, but reduced,
if the cost of the note to the purchaser exceeds its adjusted issue price, by an
amount equal to the product of (1) the daily portion and (2) a constant
fraction, the numerator of which is the excess and the denominator of which is
the sum of the daily portions of original issue discount on the note for all
days on or after the day of purchase.
The prepayment assumption that will be used for purposes of computing
original issue discount, if any, for federal income tax purposes is 1.5% ABS.
See "Prepayment and Yield Considerations" in this prospectus supplement.
Market Discount. A beneficial owner that purchases a note at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of the note, or, in the case of a note with original issue
discount, its adjusted issue price, will be required to allocate each principal
distribution first to accrued market discount on the note, and recognize
ordinary income to the extent the distribution does not exceed the aggregate
amount of accrued market discount on the note not previously included in income.
For notes that have unaccrued original issue discount, the market discount must
be included in income in addition to any original issue discount. A beneficial
owner that incurs or continues indebtedness to acquire a note at a market
discount may also be required to defer the deduction of all or a portion of the
interest on the indebtedness until the corresponding amount of market discount
is included in income. In general terms, market discount on a note may be
treated as accruing either (1) under a constant yield method or (2) in
proportion to remaining accruals of original issue discount, if any, or if none,
in proportion to remaining distributions of interest on the note, in any case
taking into account the prepayment assumption. The indenture trustee will make
available, as required
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by the IRS, to beneficial owners of notes information necessary to compute the
accrual of market discount.
Regardless of the above rules, market discount on a note will be
considered to be zero if the discount is less than 0.25% of the remaining stated
redemption price at maturity of the note multiplied by its weighted average
remaining life. Weighted average remaining life would be calculated in a manner
similar to weighted average life, taking into account payments, including
prepayments, prior to the date of acquisition of the note by the subsequent
purchaser. If market discount on a note is treated as zero under this rule, the
actual amount of market discount must be allocated to the remaining principal
distributions on the note and, when each distribution is received, gain equal to
the discount allocated to the distribution will be recognized.
Premium. A purchaser of a note that purchases the note at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased the note, a premium note, at a premium. A
purchaser need not include in income any remaining original issue discount and
may elect, under section 171(c)(2) of the Code, to treat the premium as
"amortizable bond premium." If a beneficial owner makes an election, the amount
of any interest payment that must be included in the beneficial owner's income
for each period ending on a payment date will be reduced by the portion of the
premium allocable to that period based on the premium note's yield to maturity.
The premium amortization should be made using constant yield principles. If an
election is made by the beneficial owner, the election will also apply to all
fully taxable bonds, the interest on which is not excludible from gross income,
held by the beneficial owner at the beginning of the first taxable year to which
the election applies and to all fully taxable bonds thereafter acquired by it,
and is irrevocable without the consent of the IRS. If an election is not made,
(1) a beneficial owner must include the full amount of each interest payment in
income as it accrues, and (2) the premium must be allocated to the principal
distributions on the premium note and when each distribution is received a loss
equal to the premium allocated to the distribution will be recognized. Any tax
benefit from the premium not previously recognized will be taken into account in
computing gain or loss upon the sale or disposition of the premium note.
Special Election. A beneficial owner may elect to include in gross
income all "interest" that accrues on the note by using a constant yield method.
For purposes of the election, the term interest includes stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount and unstated interest as
adjusted by any amortizable bond premium or acquisition premium. A beneficial
owner should consult its own tax advisor regarding the time and manner of making
and the scope of the election and the implementation of the constant yield
method.
Sale or Redemption of the Notes. If a beneficial owner of a note
sells or exchanges the note, the beneficial owner will recognize gain or loss
equal to the difference, if any, between the amount received and the beneficial
owner's adjusted basis in the note. The adjusted basis in the note generally
will equal its initial cost, increased by any original issue
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discount or market discount previously included in the trust's gross income with
respect to the note and reduced by the payments previously received on the note,
other than payments of qualified stated interest, and by any amortized premium.
In general, except as described in "Market Discount," above, except
for financial institutions subject to section 582(c) of the Code, any gain or
loss on the sale or exchange of a note recognized by an investor who holds the
note as a capital asset, within the meaning of section 1221 of the Code, will be
capital gain or loss and will be long-term or short-term depending on whether
the note has been held for more than one year.
Backup Withholding and Information Reporting. Distributions of
interest and principal, as well as distributions of proceeds from the sale of
notes, may be subject to the "backup withholding tax" under section 3406 of the
Code at a rate of 31% if recipients of the distributions fail to furnish to the
payor certain information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from the tax. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit against
the recipient's federal income tax. Furthermore, penalties may be imposed by
the IRS on a recipient of distributions that is required to supply information
but that does not do so in the proper manner.
The IRS recently issued withholding regulations, which make certain
modifications to withholding, backup withholding and information reporting
rules. The withholding regulations attempt to unify certification requirements
and modify certain reliance standards. The withholding regulations will
generally be effective for payments made after December 31, 2000. Prospective
investors are urged to consult their own tax advisors regarding the withholding
regulations.
The indenture trustee will furnish to each beneficial owner of a note
with each distribution a statement setting forth the amount of a distribution
allocable to principal on the underlying auto loans and to interest on it at the
related interest rate. In addition, within a reasonable time after the end of
each calendar year, based on information provided by the servicer, the trustee
will furnish to each beneficial owner during a year the customary factual
information as the servicer deems necessary or desirable to enable beneficial
owners of notes to prepare their tax returns and will furnish comparable
information to the IRS as and when required to do so by law.
Foreign Investors. The withholding regulations would require, in the
case of notes held by a foreign partnership, that (1) the certification
referenced above be provided by the partners rather than by the foreign
partnership and (2) the partnership provide information, including a United
States taxpayer identification number. See "Backup Withholding and Information
Reporting" above. A look-through rule would apply in the case of tiered
partnerships. In addition, the withholding regulations may require that a
foreign beneficial owner, including, in the case of a foreign partnership, the
partners thereof, obtain a United States taxpayer identification number and make
certain certifications if the foreign beneficial owner wishes to claim exemption
from, or a reduced rate of, withholding under an income tax treaty.
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Non-U.S. persons should consult their own tax advisors regarding the application
to them of the withholding regulations.
Distributions made on a note, to, or on behalf of, a beneficial owner
that is not a U.S. person generally will be exempt from U.S. federal income and
withholding taxes. The term U.S. person means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
an estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States person has
the authority to control all substantial decisions of the trust. This exemption
is applicable provided (a) the beneficial owner is not subject to U.S. tax as a
result of a connection to the United States other than ownership of the note,
(b) the beneficial owner signs a statement under penalties of perjury that
certifies that the beneficial owner is not a U.S. person, and provides the name
and address of the beneficial owner, and (c) the last U.S. person in the chain
of payment to the beneficial owner receives a statement from a beneficial owner
or a financial institution holding on its behalf and does not have actual
knowledge that the statement is false. Beneficial owners should be aware that
the IRS might take the position that this exemption does not apply to a
beneficial owner that is a "controlled foreign corporation" described in section
881(c)(3)(C) of the Code.
State and Local Tax Considerations
Potential noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential noteholders should
consult their own tax advisors as to the various state and local tax
consequences of an investment in the notes.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 and the Code
impose certain restrictions on,
. employee benefit plans, as defined in Section 3(3) of ERISA,
. plans described in section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans,
. any entities whose underlying assets include plan assets by reason of a
plan's investment in such entities and
. persons who have certain specified relationships to such plans -- "parties-
in-interest" under ERISA and "disqualified persons" under the Code.
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Section 406 of ERISA prohibits plans from engaging in certain
transactions involving the assets of such plans with parties-in- interest with
respect to such plans, unless a statutory or administrative exemption is
applicable to the transaction. Excise taxes under Section 4975 of the Code,
penalties under Section 502 of ERISA and other penalties may be imposed on plan
fiduciaries and parties-in-interest, or disqualified persons, that engage in
"prohibited transactions" involving assets of a plan. Individual retirement
arrangements and other plans that are not subject to ERISA, but are subject to
Section 4975 of the Code, and disqualified persons with respect to such
arrangements and plans, also may be subject to excise taxes and other penalties
if they engage in prohibited transactions. Moreover, based on the reasoning of
the United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust
and Sav. Bank, 114 S. Ct. 517 (1993), an insurance company's general account may
be deemed to include assets of the plans investing in the general account --
e.g., through the purchase of an annuity contract. ERISA also imposes certain
duties on persons who are fiduciaries of plans subject to ERISA.
Certain transactions involving the purchase, holding or transfer of
the notes might be deemed to constitute prohibited transactions under ERISA and
the Code if assets of the trust were deemed to be assets of a plan. Under a
regulation issued by the United States Department of Labor, the assets of the
trust would be treated as plan assets of a plan for the purposes of ERISA and
the Code only if the plan acquires an "equity interest" in the trust and none of
the exceptions contained in this plan assets regulation is applicable. An
equity interest is defined under the plan assets regulation as an interest other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features. Although there is little guidance
on the subject, the notes should be treated as indebtedness without substantial
equity features for purposes of the plan assets regulation. This determination
is based in part on the traditional debt features of the notes, including the
reasonable expectation of purchasers of the notes that the notes will be repaid
when due, as well as the absence of conversion rights, warrants and other
typical equity features. The debt treatment of the notes could change if the
trust incurs losses. However, even if the notes are treated as debt for such
purposes, the acquisition or holding of notes by or on behalf of a plan could be
considered to give rise to a prohibited transaction if the trust or any of its
affiliates is or becomes a party-in-interest or a disqualified person with
respect to such plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable depending on the type and circumstances of
the plan fiduciary making the decision to acquire a note. Included among these
exemptions are: PTCE 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 95-60, regarding investments by insurance company
general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." Each investor using the assets of a plan which
acquires the notes, or to whom the notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the notes will be
covered by one of the exemptions listed above or by another Department of Labor
Class Exemption.
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Any plan fiduciary considering the purchase of a note may wish to
consult with its counsel as to the potential applicability of ERISA and the
Internal Revenue Code to the investment. Moreover, each plan fiduciary may wish
to determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the notes is appropriate for the
plan, taking into account the overall investment policy of the benefit plan and
the composition of the plan's investment portfolio.
The sale of notes to a plan is in no respect a representation by us or
the underwriters that this investment meets all relevant legal requirements for
investments by plans generally or any particular plan or that this investment is
appropriate for plans generally or any particular plan.
RATINGS
As a condition to issuance, the notes must receive at least the
following ratings from Moody's Investors Service, Inc. , Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. and Fitch IBCA, Inc. in order to be
issued:
Class Ratings
------------- ------------------------------------
S&P Moody's Fitch IBCA
--------- ---------- -------------
A-1 A-1+ Prime -1 F1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
B A A2 A
C BBB+ Baa2 BBB+
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. The
ratings assigned to the notes address the likelihood of the receipt by the
noteholders of all distributions to which the noteholders are entitled by their
respective final scheduled payment dates. The ratings assigned to the notes do
not represent any assessment of the likelihood that principal prepayments might
differ from those originally anticipated or address the possibility that
noteholders might suffer a lower than anticipated yield.
UNDERWRITING
Under the terms and subject to the conditions set forth in an
underwriting agreement, dated June 13, 2000, the underwriters named below have
agreed to purchase from the bank the following respective principal amounts of
the notes:
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Class A-1 Notes
----------------------------
Principal
Amount of
Underwriter Notes
--------------------------- -------------
Salomon Smith Barney Inc. $26,333,334
Deutsche Bank Securities Inc. $26,333,333
J. P. Morgan Securities Inc. $26,333,333
Total........................ $79,000,000
Class A-2 Notes
------------------------
Principal
Amount of
Underwriter Notes
------------------------ -------------
Salomon Smith Barney Inc. $23,333,334
Deutsche Bank Securities Inc. $23,333,333
J. P. Morgan Securities Inc. $23,333,333
Total........................ $70,000,000
Class A-3 Notes
--------------------------
Principal
Amount of
Underwriter Notes
------------------------- ---------------
Salomon Smith Barney Inc. $ 37,000,000
Deutsche Bank Securities Inc. $ 37,000,000
J. P. Morgan Securities Inc. $ 37,000,000
Total........................ $111,000,000
S-48
<PAGE>
Class A-4 Notes
-----------------------------
Principal
Amount of
Underwriter Notes
---------------------------- ------------
Salomon Smith Barney Inc. $24,502,668
Deutsche Bank Securities Inc. $24,502,666
J. P. Morgan Securities Inc. $24,502,666
Total........................ $73,508,000
Class B Notes
----------------------------
Principal
Amount of
Underwriter Notes
---------------------------- -----------
Salomon Smith Barney Inc. $7,059,000
Total........................ $7,059,000
Class C Notes
-----------------------------
Principal
Amount of
Underwriter Notes
---------------------------- ------------
Salomon Smith Barney Inc. $8,823,000
Total........................ $8,823,000
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will be obligated to purchase all the notes, if any are purchased.
The bank has been advised by the underwriters that they propose
initially to offer the notes to the public at the prices set forth on the cover
page of this prospectus supplement and to dealers at prices less the initial
selling concession, but not in excess of the percentages listed in the table
below. The underwriters may allow, and the dealers may reallow, a concession to
other dealers, but not in the excess of the reallowance concessions listed
below. After the initial public offering of the notes, the public offering
prices and the concessions, may be changed.
S-49
<PAGE>
<TABLE>
<CAPTION>
Selling
Concessions Reallowance
--------------- ---------------
<S> <C> <C>
Class A-1 Notes....................... 0.093% 0.056%
Class A-2 Notes....................... 0.115% 0.069%
Class A-3 Notes....................... 0.135% 0.081%
Class A-4 Notes....................... 0.165% 0.099%
Class B Notes......................... 0.240% 0.144%
Class C Notes......................... 0.300% 0.180%
</TABLE>
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Act of 1934. 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 notes 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 notes originally sold by such
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 notes to be higher than
it would otherwise be in the absence of such transactions.
The bank has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the underwriters may be required to make in respect thereof.
Each underwriter has represented and agreed that:
. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 (the regulations) with respect to anything done by it
in relation to the notes in, from or otherwise involving the United
Kingdom;
. it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection
with the issue of the notes if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to
whom such document may otherwise lawfully be issued or passed on; and
S-50
<PAGE>
. it has not offered or sold and, during the period of six months from
the date hereof, will not offer or sell any notes to persons in the
United Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise
in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the
Regulations.
In the ordinary course of its business, each underwriter and its
respective affiliates have engaged and may in the future engage in commercial
banking and investment banking transactions with the bank and its affiliates.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes will be
passed upon for the bank by Shaw Pittman, New York, New York and Washington,
D.C. and for the underwriters by Dewey Ballantine LLP, New York, New York.
George M. Rogers, Jr., who is associated with Shaw Pittman, is a director of
the bank and a trustee of the parent of the bank.
S-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Certificateholder of Chevy Chase Auto Receivables Trust 2000-1:
We have audited the accompanying balance sheet of Chevy Chase Auto
Receivables Trust 2000-1 (the "Trust") as of June 6, 2000. This financial
statement is the responsibility of the Trust's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly,
in all material respects, the financial position of the Trust as of June 6,
2000, in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen LLP
Vienna, Virginia
June 6, 2000
S-52
<PAGE>
CHEVY CHASE AUTO RECEIVABLES TRUST 2000-1
BALANCE SHEET
June 6, 2000
ASSETS
<TABLE>
<S> <C>
Cash.................................................. $1,000
------
Total Assets.......................................... $1,000
======
</TABLE>
LIABILITIES AND TRUST PRINCIPAL
<TABLE>
<CAPTION>
<S> <C> <C>
Interest in trust........................................... $1,000
------
Total liabilities and trust principal....................... $1,000
======
The accompanying notes are an integral part of this financial statement.
</TABLE>
S-53
<PAGE>
CHEVY CHASE AUTO RECEIVABLES TRUST 2000-1
NOTES TO FINANCIAL STATEMENT
-----------------
1. Nature of Operations:
Chevy Chase Auto Receivables Trust 2000-1 (the "Trust"), was formed in
the State of Delaware on June 2, 2000. The Trust has been inactive since that
date.
The Trust was organized to engage exclusively in the following
business and financial activities: to acquire motor vehicle retail installment
sale contracts from the bank to issue and sell notes collateralized by its
assets; and to engage in any lawful act or activity and to exercise any power
that is incidental and is necessary or convenient to the foregoing.
2. Capital Contribution:
Chevy Chase Bank F.S.B. purchased, for $1,000, a 100% beneficial
ownership interest in the Trust.
S-54
<PAGE>
PROSPECTUS
Auto Receivables Backed Securities Issuable in Series
CHEVY CHASE BANK, F.S.B.
-------------
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be issued and sold from
time to time in one or more series, in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (each, a "Prospectus Supplement"). Each series of Securities may
include one or more classes of Notes and one or more classes of Certificates,
which will be issued either by Chevy Chase Bank, F.S.B. (the "Bank") or by a
trust to be formed or managed by the Bank for the purpose of issuing one or
more series of such Securities (each, a "Trust"). The Bank together with any
Trust issuing Securities as described in this Prospectus and the related
Prospectus Supplement shall be referred to herein as the "Issuer."
Each series of Certificates will evidence beneficial interests in a
segregated pool of assets (the related "Trust Property") and each series of
Notes will represent indebtedness of the related Issuer secured by the related
Trust Property, as described herein and in the related Prospectus Supplement.
The Trust Property may consist of any combination of retail installment sale
or finance contracts between manufacturers, dealers or certain other
originators and retail consumers for the purchase of new and used automobiles,
light duty trucks and vans (the "Contracts"), or participation interests
therein, along with the related security interests in the underlying new and
used automobiles, light duty trucks and vans, and property relating thereto
(the "Vehicles"; together with the Contracts and the proceeds thereof the
"Receivables") together with all monies received relating thereto. If and to
the extent specified in the related Prospectus Supplement, credit or cash flow
enhancement with respect to the related Trust Property or any Class of
Securities may include any one or more of the following: a financial guaranty
insurance policy issued by an insurer specified in the related Prospectus
Supplement, a reserve account, yield maintenance account, letters of credit,
credit or liquidity facilities, third party payments or other support, cash
deposits or other arrangements, including hedging or derivatives contracts. In
addition to or in lieu of the foregoing, such credit or cash flow enhancement
may be provided by means of subordination, cross-support among the Trust
Properties or over-collateralization. See "Description of the Securities--
Credit and Cash Flow Enhancements." The Receivables in the Trust Property for
a series have been or will be originated or acquired by the Bank or the Bank's
wholly owned subsidiary Consumer Finance Corporation ("CFC"), or another
affiliate of the Bank (each an "Affiliate"), as described herein and in the
related Prospectus Supplement. Such Receivables will be serviced by a servicer
(the "Servicer"), which will be the Bank unless otherwise described in the
related Prospectus Supplement.
Each series of Securities may include one or more classes (each, a "Class")
entitled to disproportionate, nominal or no interest or principal
distributions. The rights of one or more Classes of Securities of any series
may be senior or subordinate to the rights of one or more of the other Classes
of such series of Securities. A series may include two or more Classes of
Securities which differ as to the timing, order or priority of payment,
interest rate or amount of distributions of principal or interest or both.
Information regarding each Class of Securities of a series offered hereby,
together with certain characteristics of the related Receivables, will be set
forth in the related Prospectus Supplement. The rate of payment in respect of
principal of the Securities of any Class will depend on the priority of
payment of such a Class and the rate and timing of payments (including
prepayments, defaults, liquidations or repurchases of Receivables) on the
related Receivables. A rate of payment lower or higher than that anticipated
may affect the weighted average life of each Class of Securities in the manner
described herein and in the related Prospectus Supplement. See "Description of
the Securities" and "Risk Factors--Maturity and Prepayment Considerations."
(cover continued on next page)
Prospective investors should consider the factors set forth under "Risk
Factors" at page 12 herein and in the related Prospectus Supplement.
-------------
THE NOTES OF A GIVEN SERIES REPRESENT NON-RECOURSE OBLIGATIONS OF THE ISSUER
ONLY AND DO NOT REPRESENT OBLIGATIONS OF CFC, ANY SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL
INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF THE BANK, CFC, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES
WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR
BY THE BANK, CFC, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER
THE SECURITIES NOR THE UNDERLYING RECEIVABLES OR ANY COLLECTIONS THEREON ARE
INSURED OR GUARANTEED BY THE SAVINGS ASSOCIATION INSURANCE FUND, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE OR FOREIGN JURISDICTION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE OR FOREIGN SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters as more fully described under "Method
of Distribution" herein and in the related Prospectus Supplement.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is September 17, 1997.
<PAGE>
(cover continued from previous page)
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Securities (or the Classes
of a series of Securities) to be offered hereunder will set forth, among other
things, with respect to such series of Securities (or such Classes): (i) a
description of the Class or Classes of such Securities offered hereby; (ii)
the rate of interest, the "Pass-Through Rate" or "Interest Rate" or other
applicable rate (or the manner of determining such rate) and authorized
denominations of such Class of such Securities; (iii) certain information
concerning the Receivables; (iv) a description of insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies, third
party guarantees, hedging agreements, derivatives contracts or other forms of
Credit Enhancement, if any, relating to one or more pools of Receivables or
all or part of such Class of such Securities; (v) the specified interest, if
any, of such Class of such Securities in, and manner and priority of, the
distributions from the Trust Property; (vi) information as to the nature and
extent of subordination with respect to such series or Class of Securities, if
any; (vii) the payment or distribution dates to Securityholders (as defined
hereinafter); (viii) if other than the Bank, information regarding the
Servicer(s) for the related Receivables; (ix) events of default or
amortization events; (x) the circumstances, if any, under which the
Certificates or the Notes may be subject to redemption, at the option of the
Securityholder or of the Issuer; (xi) the operation of any Pre-Funding Account
(as defined hereinafter); (xii) a description of the Issuer with respect to
such series of Securities; (xiii) information regarding tax and ERISA (as
defined hereinafter) considerations, including whether the Issuer will
constitute a Financial Asset Securitization Trust ("FASIT") and the tax
effects thereof; and (xiv) additional information with respect to the method
of distribution of such Class of such Securities.
AVAILABLE INFORMATION
The Bank has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Securities offered hereby and thereby, nor an offer of the Securities to any
person in any state or other jurisdiction in which such offer would be
unlawful. The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Bank with respect to the Registration Statement,
either on its own behalf or on behalf of an Issuer, relating to any series of
Securities (or Class thereof) referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after
the date of this Prospectus and prior to the termination of any offering of
such Securities, shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in the accompanying Prospectus Supplement) or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or replaces such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
2
<PAGE>
REPORTS TO SECURITYHOLDERS
So long as the Securities are in book-entry form, monthly and annual reports
concerning the Securities, the Issuer and the Trust Property will be furnished
to the Depository Trust Company ("DTC") as registered holder of the
Securities. DTC will supply such reports to Securityholders in accordance with
its procedures. To the extent required by the Exchange Act, the Bank will
provide financial information to the Securityholders which has been examined
and reported upon, with an opinion expressed by, an independent public
accountant; to the extent not so required, such financial information will be
unaudited.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title Page No
----- -------
<S> <C>
Prospectus Supplement.............................................................. 2
Available Information.............................................................. 2
Incorporation of Certain Documents by Reference.................................... 2
Reports to Securityholders......................................................... 3
Prospectus Summary................................................................. 4
Risk Factors....................................................................... 12
The Trust Property................................................................. 16
The Issuers........................................................................ 17
The Receivables.................................................................... 17
Automobile Financing Programs...................................................... 19
Pool Factors....................................................................... 19
Use of Proceeds.................................................................... 20
The Lenders........................................................................ 20
The Trustee(s)..................................................................... 20
Description of the Securities...................................................... 21
Description of the Trust Agreements................................................ 28
Certain Legal Aspects of the Receivables........................................... 37
Certain Tax Considerations......................................................... 41
ERISA Considerations............................................................... 41
Methods of Distribution............................................................ 41
Legal Opinions..................................................................... 42
Index of Terms..................................................................... 43
Annex I............................................................................ A-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series (or any Class
thereof) offered hereby contained in the related Prospectus Supplement to be
prepared and delivered in connection with the offering of such Securities.
Certain capitalized terms used in the summary are defined elsewhere in the
Prospectus on the pages indicated in the "Index of Terms."
Issuer...................... With respect to each series of Securities, either
the Bank or a Trust to be formed or managed by
the Bank. The Bank and any Trust issuing
Securities pursuant to this Prospectus and the
related Prospectus Supplement shall be referred
to herein as the "Issuer" with respect to the
related Securities. See "The Issuers."
Bank........................ Chevy Chase Bank, F.S.B., a federally chartered
stock savings bank. The Bank's principal
executive offices are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and its
telephone number is (301) 986-7000. See "The
Lenders."
Servicer.................... Unless otherwise disclosed in a Prospectus
Supplement, the Servicer for each series of
Securities will be the Bank.
Trustee..................... The Trustee for each series of Securities (the
"Trustee") will be specified in the related
Prospectus Supplement. In addition, a Trust may
separately enter into an Indenture and may issue
Notes pursuant to such Indenture; in any such
case the Trust and the Indenture will be
administered by separate, independent trustees to
the extent required by the rules and regulations
under the Trust Indenture Act of 1939 and the
Investment Company Act of 1940, as amended (the
"Investment Company Act").
The Securities.............. Each Class of Securities of any series offered
hereby will either comprise Certificates
evidencing beneficial ownership interests in the
related Trust Property, or Notes representing
indebtedness of the related Issuer secured by the
related Trust Property, as described herein and
in the related Prospectus Supplement.
With respect to Certificates issued by a Trust,
each Trust will be established, and the
Certificates issued, pursuant to an agreement
(each, a "Pooling Agreement") by and between the
Bank, as transferor, and the Trustee named
therein. Each Pooling Agreement will describe the
related Trust Property.
With respect to Notes that represent debt issued
by the related Issuer (which may be the Bank or a
Trust), the Issuer will enter into an indenture
(each, an "Indenture") by and between the Issuer
and the Trustee named in such Indenture. Each
Indenture will describe the related Trust
Property which secures the debt issued by the
related Issuer.
The Receivables comprising the Trust Property
will be serviced by the Servicer pursuant to a
servicing agreement (each, a "Servicing
Agreement") by and between the Servicer and the
related Issuer.
4
<PAGE>
In the case of the Trust Property of any class of
Securities, the contractual arrangements relating
to the establishment of the related Trust, if
any, the servicing of the related Receivables and
the issuance of the related Securities may be
contained in a single agreement, or in several
agreement which combine certain aspects of the
Pooling Agreement, the Servicing Agreement and
the Indenture described above (for example, a
pooling and servicing agreement or a servicing
and collateral management agreement). For
purposes of this Prospectus, the term "Trust
Agreement" as used with respect to Trust Property
means, collectively, and except as otherwise
described in the related Prospectus Supplement,
any and all agreements relating to the
establishment of the related Trust, if any, the
servicing of the related Receivables and the
issuance of the related Securities. The term
"Trustee" means any and all persons acting as a
trustee pursuant to a Trust Agreement.
Securities Will Be Non-Recourse.
The Notes of a given series will represent non-
recourse obligations of the related Issuer, and
the Certificates of a given series will
represent beneficial interests in the related
Issuer and Trust Property only and will not
represent interests in or recourse obligations
of the Bank. In the case of Certificates that
represent beneficial ownership interests in the
related Issuer, the sole source of payment will
be the related Trust Property and any other
property specified in the related Prospectus
Supplement. In the case of Notes that represent
debt issued by the related Issuer, such
Securities will have recourse solely to, and
will be secured by, the related Trust Property
and any other property specified in the related
Prospectus Supplement. Notwithstanding the
foregoing, and as to be described in the
related Prospectus Supplement, certain types of
Credit Enhancement, such as a letter of credit
or financial guaranty insurance policy, may
constitute a full recourse obligation of the
issuer of such Credit Enhancement.
General Nature of the Securities as Investments.
Unless otherwise disclosed in a Prospectus
Supplement, each Class of Securities offered
pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of
the four highest rating categories by one or
more Rating Agencies (as defined herein).
Additionally, except to the extent provided in
the related Prospectus Supplement, all of the
Securities offered pursuant to this Prospectus
and the related Prospectus Supplement will be
of the fixed-income type ("Fixed Income
Securities"). Fixed Income Securities will
generally be styled as having a notional or
principal balance and a specified Interest
Rate. Fixed Income Securities may consist of
either Certificates representing beneficial
ownership interests in the related Issuer, or
Notes evidencing debt secured by the Trust
Property held by the related Issuer.
5
<PAGE>
Each series or Class of Fixed Income Securities
offered pursuant to this Prospectus may have a
different Interest Rate, which may be a fixed
or variable Interest Rate, or determined
pursuant to an index. The related Prospectus
Supplement will specify the Interest Rate for
each series or Class of Fixed Income Securities
described therein, or the initial Interest Rate
and the method for determining subsequent
changes to the Interest Rate. The applicable
Prospectus Supplement will disclose the method
for accruing interest on Fixed Income
Securities.
A series may include one or more Classes of
Fixed Income Securities ("Strip Securities")
entitled (i) to principal distributions, with
disproportionate, nominal or no interest
distributions, or (ii) to interest
distributions, with disproportionate, nominal
or no principal distributions. In addition, a
series of Securities may include two or more
Classes of Fixed Income Securities that differ
as to timing, sequential order, priority of
payment, Interest Rate or amount of
distribution of principal or interest or both,
or as to which distributions of principal or
interest or both on any Class may be made upon
the occurrence of specified events, in
accordance with a schedule or formula, or on
the basis of collections from designated
portions of the related pool of Receivables.
Any such series may include one or more Classes
of Fixed Income Securities ("Accrual
Securities"), as to which certain accrued
interest will not be distributed but rather
will be added to the principal balance (or
nominal balance, in the case of Accrual
Securities which are also Strip Securities)
thereof on each Distribution Date, as
hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus
Supplement, a series may include one or more
other Classes of Fixed Income Securities
(collectively, the "Senior Securities") that
are senior to one or more other Classes of
Fixed Income Securities (collectively, the
"Subordinate Securities") in respect of certain
distributions of principal and interest and
allocations of losses on Receivables.
In addition, certain Classes of Senior (or
Subordinate) Securities may be senior to other
Classes of Senior (or Subordinate) Securities
in respect of such distributions or losses.
General Payment Terms of Securities.
As provided in the related Trust Agreement and
as described in the related Prospectus
Supplement, the holders of the Securities (the
related "Securityholders") will be entitled to
receive payments on their Securities on
specified dates (each, a "Distribution Date").
Distribution Dates with respect to Fixed Income
Securities will occur as described in the
related Prospectus Supplement.
The related Prospectus Supplement will describe
a date (the "Record Date") preceding such
Distribution Date, as of which the Trustee or
its paying agent will fix the identity of the
6
<PAGE>
Securityholders for the purpose of receiving
payments on the next succeeding Distribution
Date. As described in the related Prospectus
Supplement, the Distribution Date will be a
specified day occurring monthly, quarterly or
semi-annually.
Each Trust Agreement will describe a period
(each, a "Collection Period") preceding each
Distribution Date (for example, in the case of
monthly-pay Securities, the calendar month
preceding the month in which a Distribution
Date occurs). As more fully described in the
related Prospectus Supplement, collections
received on or with respect to the related
Receivables constituting the related Trust
Property during a Collection Period will be
required to be remitted by the Servicer to the
related Trustee prior to the related
Distribution Date and will be used to fund
payments to Securityholders on such
Distribution Date. As may be described in the
related Prospectus Supplement, the related
Trust Agreement may provide that all or a
portion of the payments collected on or with
respect to the related Receivables may be
applied by the related Trustee to the
acquisition of additional Receivables during a
specified period (rather than be used to fund
payments of principal to Securityholders during
such period), with the result that the related
Securities will possess an interest- only
period, also commonly referred to as a
revolving period, which will be followed by an
amortization period. Any such interest-only or
revolving period may, upon the occurrence of
certain events to be described in the related
Prospectus Supplement, terminate prior to the
end of the specified period and result in the
earlier than expected amortization of the
related Securities.
In addition, and as may be described in the
related Prospectus Supplement, the related
Trust Agreement may provide that all or a
portion of such collected payments may be
retained by the Trustee (and held in certain
temporary investments, including Receivables)
for a specified period prior to being used to
fund payments of principal to Securityholders.
Such retention and temporary investment by the
Trustee of such collected payments may be
required by the related Trust Agreement for the
purpose of (a) slowing the amortization rate of
the related Securities relative to the
installment payment schedule of the related
Receivables, or (b) attempting to match the
amortization rate of the related Securities to
a specified amortization schedule. Any such
feature applicable to any Securities may
terminate upon the occurrence of events to be
described in the related Prospectus Supplement,
resulting in distributions to the specified
Securityholders and an acceleration of the
amortization of such Securities.
As more fully specified in the related
Prospectus Supplement, neither the Securities
nor the underlying Receivables will be
guaranteed or insured by any governmental
agency or instrumentality or the Bank, the
related Servicer, any Trustee, or any of their
respective affiliates.
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Credit Enhancement.
If and to the extent specified in the related
Prospectus Supplement, credit or cash flow
enhancement with respect to any Class or series
of Securities or the related Trust Property may
include any one or more of the following: a
financial guaranty insurance policy issued by
an insurer specified in the related Prospectus
Supplement, a reserve account, yield
maintenance account, letters of credit, credit
or liquidity facilities, third party payments
or other support, cash deposits or other
arrangements, including hedging and derivatives
contracts (collectively "Credit Enhancement").
In addition to or in lieu of the foregoing,
Credit Enhancement may be provided by means of
subordination, cross-support among the
Receivables or over-collateralization. See
"Description of the Securities--Credit and Cash
Flow Enhancements."
Master Trusts; Issuance of
Additional Series.......... As may be described in the related Prospectus
Supplement, the Bank may cause one or more of the
Trusts (such a Trust, a "Master Trust") to issue
additional series of Securities from time to
time. Under each Trust Agreement relating to a
Master Trust (each, a "Master Trust Agreement"),
the Bank may determine the terms of any such new
series and may offer any such new series to the
public or other investors, in transactions either
registered under the Securities Act or exempt
from registration thereunder, directly or through
one or more underwriters or placement agents, in
fixed-price offerings or in negotiated
transactions or otherwise. See "Description of
the Trust Agreements--Master Trusts."
A new series to be issued by a Master Trust which
has a series outstanding may only be issued upon
satisfaction of the conditions described herein
under "Description of the Trust Agreements--
Master Trusts". Securities issued out of a Master
Trust generally will represent undivided
interests in the entire pool of Receivables
subject to such Master Trust.
The Residual Interest....... With respect to certain Trusts, such as Master
Trusts, the "Residual Interest" at any time
represents the rights to the related Trust
Property in excess of the Securityholders'
interest of all series then outstanding that were
issued by such Trust. The Residual Interest in
any Trust Property will fluctuate as the
aggregate principal balance of Receivables of
such Trust (the "Pool Balance") changes from time
to time. A portion of the Residual Interest in
any Trust may be sold separately in one or more
public or private transactions. See "Description
of the Trust Agreements--Master Trusts."
Cross-Collateralization..... As described in the related Trust Agreement and
the related Prospectus Supplement, the primary
source of payment for Securities of each series
will be the related Trust Property only.
However, as may be described in the related
Prospectus Supplement, a series or Class of
Securities may include the right to receive
moneys from a common pool of Credit Enhancement
which may be available for more than one series
of Securities, such as a master
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reserve account, master insurance policy or a
master collateral pool consisting of similar
Receivables.
Trust Property.............. As more fully specified in the related Prospectus
Supplement, the Trust Property will consist of
certain Contracts, and generally will include a
security interest in the related Vehicles. The
Contracts are obligations for the purchase of the
Vehicles, or evidence borrowings used to purchase
the Vehicles. As specified in the related
Prospectus Supplement, the Contracts may consist
of any combination of Rule of 78s Contracts,
Actuarial Contracts, Simple Interest Contracts
(each, as defined hereinafter) or other forms of
Contracts as described therein. See "The
Receivables--The Contracts."
The related Prospectus Supplement will further
describe the type and characteristics of the
Contracts included in the Trust Property relating
to the Securities offered pursuant to this
Prospectus and the related Prospectus Supplement.
The Receivables comprising the Trust Property
will be originated by the Bank or its affiliates
or acquired by the Bank from other originators or
owners of Receivables.
The Bank will either transfer a pool of
Receivables to a Trust pursuant to a Pooling
Agreement or a sale agreement, or will pledge the
Bank's right, title and interest in and to such
Receivables to a Trustee on behalf of
Securityholders pursuant to an Indenture. The
relative rights and duties of the Bank, the
Servicer and the related Trustee, if any, under
the related Trust Agreement include those
specified below and in the related Prospectus
Supplement.
In addition, if so specified in the related
Prospectus Supplement, the Trust Property will
include monies on deposit in a Pre-Funding
Account (the "Pre-Funding Account") to be
established with the related Trustee, which will
be used to acquire Additional Receivables (as
hereinafter defined) from time to time during the
"Pre-Funding Period" specified in the related
Prospectus Supplement. The amount on deposit in
any Pre-Funding Account, if any, will be reduced
during the related Pre-Funding Period by the
amount thereof used to purchase Additional
Receivables. Any amount remaining in the Pre-
Funding Account at the end of the related Pre-
Funding Period will be distributed to the related
Securityholders on the Distribution Date
immediately following the end of the Pre-Funding
Period.
If and to the extent provided in the related
Prospectus Supplement, the Bank will be obligated
(subject only to the availability thereof either
to transfer to the related Trust or pledge to the
related Trustee on behalf of the related
Securityholders, additional Receivables
(the "Additional Receivables") from time to time
during any Pre-Funding Period specified in the
related Prospectus Supplement. See "Description
of the Trust Agreements--Pre-Funding Accounts."
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<PAGE>
Yield Maintenance
Accounts................... Certain of the Receivables may have annual
percentage rates of interest ("APR") which are
less than the sum of the related Interest Rate,
the Servicing Fee Rate and, if applicable, the
rates at which the premium of a Credit Enhancer
(as defined hereinafter) and the Trustee's fee
are calculated (the sum of such rates, the
"Required Rate"). In such event, a Yield
Maintenance Account may be established as a
segregated trust account into which the Issuer
may make one or more deposits in an aggregate
amount (the "Yield Maintenance Amount") necessary
to fund any shortfall on interest collections
which results from Receivables having an APR of
less than the Required Rate.
Registration of Securities;
Clearance and Settlement... Unless otherwise set forth in a Prospectus
Supplement, the Securities of the series (or
Class thereof) offered hereby will initially be
represented by one or more global securities
registered in the name of Cede & Co. ("Cede") as
the nominee of DTC or another depository.
Securityholders must elect to hold their
Securities through any of DTC (in the United
States), Cedel Bank, societe anonyme ("Cedel") or
Euroclear System ("Euroclear") (in Europe).
Transfers within DTC, Cedel or Euroclear, as the
case may be, will be in accordance with the usual
rules and operating procedures of the relevant
system. In such case, Securityholders will not be
entitled to receive definitive securities
representing such Securityholders' interests,
except in certain circumstances described in the
related Prospectus Supplement. See "Description
of the Securities--Book-Entry Registration."
Repurchase Obligations of
the Bank................... As more fully described in the related Prospectus
Supplement, the Bank will be obligated to
reacquire from the related Trust Property any
Receivable which was transferred pursuant to a
Pooling Agreement or pledged pursuant to an
Indenture if the interest of the Securityholders
therein is materially and adversely affected by a
breach of any representation or warranty made by
the Bank with respect to such Receivable, which
breach has not been cured. In addition, if so
specified in the related Prospectus Supplement,
the Bank may from time to time reacquire certain
Receivables of the Trust Property, subject to
specified conditions set forth in the related
Trust Agreement.
Servicer's Compensation..... The related Servicer shall be entitled to receive
a fee for servicing the related Trust Property
equal to a specified percentage of the value of
such Trust Property, as set forth in the related
Prospectus Supplement. See "Description of the
Trust Agreements--Servicing Compensation and
Payment of Expenses" herein and in the related
Prospectus Supplement.
Optional Termination........ The Servicer, the Issuer, or, if specified in the
related Prospectus Supplement, certain other
entities may, at their respective options, effect
early retirement of a series of Securities under
the circumstances and in the manner set forth
herein under "Description of the Trust
Agreements--Termination" herein and in the
related Prospectus Supplement.
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Mandatory Termination....... The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a series of
Securities by soliciting competitive bids for the
purchase of the Trust Property or otherwise,
under other circumstances and in the manner
specified in "Description of the Trust
Agreements--Termination" herein and in the
related Prospectus Supplement.
Tax Considerations.......... Securities of each series offered hereby will,
for federal income tax purposes, constitute
either (i) interests in a Trust treated as a
grantor trust under applicable provisions of the
Internal Revenue Code of 1986, as amended (the
"Code"), (ii) debt issued by a Trust or by the
Bank, (iii) interests in a Trust treated as a
partnership, (iv) interests in a Trust treated as
debt of the Bank, or (v) "regular" or "high-yield
interests" issued by a FASIT.
The Prospectus Supplement for each series of
Securities (or Class thereof) offered hereby will
summarize, subject to the limitations stated
therein, federal income tax considerations
relevant to the purchase, ownership and
disposition of such Securities.
Investors are advised to consult their tax
advisors and to review "Certain Federal Income
Tax Consequences" in the related Prospectus
Supplement.
ERISA Considerations........ The Prospectus Supplement for each series of
Securities (or Class thereof) offered hereby will
summarize, subject to the limitations discussed
therein, considerations under the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), relevant to the purchase of
such Securities by employee benefit plans and
individual retirement accounts. See "ERISA
Considerations" in the related Prospectus
Supplement.
Legal Investment............ The related Prospectus Supplement will describe
each Class of Securities, if any, that will be
eligible for purchase by money market funds under
Rule 2a-7 under the Investment Company Act.
Ratings..................... Each Class of Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more "national statistical
rating organizations," as defined in the Exchange
Act, and commonly referred to as "Rating
Agencies." Such ratings will address, in the
opinion of such Rating Agencies, the likelihood
that the Issuer will be able to make timely
payment of all amounts of interest due on the
related Securities and ultimate payment of all
amounts of principal due thereon in accordance
with the terms thereof. Such ratings will neither
address any prepayment or yield considerations
applicable to any Securities nor constitute a
recommendation to buy, sell or hold any
Securities.
The ratings expected to be received with respect
to each Class of Securities offered pursuant to
this Prospectus and the related Prospectus
Supplement will be set forth in the related
Prospectus Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Limited Liquidity. There can be no assurance that a secondary market for the
Securities of any series or Class will develop or, if it does develop, that it
will provide Securityholders with liquidity of investment or that it will
continue for the life of such Securities. The Prospectus Supplement for any
series of Securities may indicate whether or not such series or any Class
thereof will be listed on any securities exchange or whether any underwriter
specified therein intends to establish and maintain a secondary market in such
Securities.
Ownership of Contracts. In connection with the issuance of any series of
Securities, the Bank will originate or acquire Contracts or CFC will originate
or acquire Contracts and assign them to the Bank. The Bank will warrant in the
related Trust Agreement (i) if the Bank retains title to the Contracts, that
the Trustee for the benefit of Securityholders has a valid security interest
in such Contracts, or (ii) if the Bank transfers such Contracts to a Trust,
that the transfer of the Contracts to such Trust either (x) is a valid
assignment, transfer and conveyance of the Contracts to the Trust or (y)
results in the related Trustee on behalf of the Securityholders having a valid
security interest in such Contracts. As to be described in the related
Prospectus Supplement, the related Trust Agreement will provide either that
the Trustee will be required to maintain possession of the original copies of
all Contracts that constitute chattel paper or that the Bank or the Servicer
will retain possession of such Contracts; provided that in case the Bank
retains possession of the related Contracts, the Servicer may take possession
of such original copies as necessary for the enforcement of any Contract. If
any Contracts remain in the possession of the Bank, the related Prospectus
Supplement may describe specific trigger events that will require delivery of
the Contracts to the Trustee. If the Bank, the Servicer, the Trustee or other
third party, while in possession of the Contracts, sells or pledges and
delivers such Contracts to another party, in violation of the Trust Agreement,
there is a risk that such other party could acquire an interest in such
Contracts having a priority over the Issuer's interest. Furthermore, if the
Bank, the Servicer or a third party, while in possession of the Contracts, is
rendered insolvent, such event of insolvency may result in competing claims to
ownership or security interests in the Contracts. Such an attempt, even if
unsuccessful, could result in delays in payments on the Securities. If
successful, such attempt could result in losses to the Securityholders or an
acceleration of the repayment of the Securities. The Bank will be obligated to
repurchase any Contract transferred to a Trust by the Bank which remains a
part of the related Trust Property if there is a breach of the Bank's
representations and warranties that materially and adversely affects the
interests of the Trust in such Contract and such breach has not been cured.
Security Interests. The transfer of the Receivables and other property of
the Trust by the Bank to a Trustee or a Trust pursuant to the related Trust
Agreement, the perfection of the security interests in the Receivables and the
enforcement of rights to realize on the Vehicles as collateral for the
Receivables are subject to a number of federal and state laws, including the
UCC as in effect in various states. As described in each Prospectus
Supplement, the Servicer will take such action as is required to perfect the
rights of the Trustee or Trust in the Receivables. Except as specified in each
Prospectus Supplement, no action will be taken to perfect the rights of the
Trustee in proceeds of any insurance policies covering individual Vehicles or
Obligors. Therefore, the rights of a third party with an interest in such
proceeds could prevail against the rights of the related Issuer. See "Certain
Legal Aspects of the Receivables".
Each Contract will create a perfected security interest in the related
Vehicle in favor of CFC or the Bank or their designees (and, if perfected in
the name of CFC or the Bank, assigned pursuant to the related Trust Agreement
to the related Trustee for the benefit of the Securityholders). However, to
the extent provided in the related Prospectus Supplement, due to the
administrative burden and expense, the certificates of title of the Vehicles
securing certain Contracts which reflect the security interest of the
applicable Lender (as defined herein) in such Vehicles may not be endorsed or
amended to reflect the Trustee's interest therein or delivered to the Trustee.
In the absence of such endorsement or amendment and delivery, the Trustee may
not have a perfected security interest in such Vehicles. As a result, a
trustee in bankruptcy of a Lender, or a receiver for the Bank,
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<PAGE>
may be able to assert successfully that the Trust or the Trustee did not have
a security interest in the Vehicle. In addition, statutory liens for repairs
or unpaid taxes and other liens arising by operation of law may have priority
even over prior perfected security interests in the name of the Trustee in the
Vehicles.
Restrictions on Recoveries. Unless specific limitations are described in the
related Prospectus Supplement with respect to specific Contracts, all
Contracts will provide that the obligations of the Obligors thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Obligor may have against the Bank or any other person or entity
whatsoever. At the time of transfer to the related Trustee, the Bank will
warrant that no claims or defenses have been asserted or threatened with
respect to the Contracts and that all requirements of applicable law with
respect to the Contracts have been satisfied.
In the event that the Bank or the Servicer must rely on repossession and
disposition of Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Trust Agreement), the Issuer may not
realize the full amount due on a Contract (or may not realize the full amount
on a timely basis). Other factors that may affect the ability of the Issuer to
realize the full amount due on a Contract include whether endorsements or
amendments to certificates of title relating to the Vehicles had been filed or
such certificates have been delivered to the Trustee, whether financing
statements to perfect the security interest in the Vehicles had been filed,
depreciation, obsolescence, damage or loss of any Vehicle, and the application
of federal and state bankruptcy and insolvency laws. As a result, the
Securityholders may be subject to delays in receiving payments and suffer loss
of their investment in the Securities.
Financial Institution Insolvency Risks. The Bank intends that each transfer
by it to a Trustee or Trust will constitute either a valid sale and assignment
of the Receivables or a grant of a security interest in the Receivables. To
the extent the Bank grants a security interest in the Receivables transferred
by it to the related Trustee, and such security interest is validly perfected
before the occurrence of an insolvency event and is not taken or granted in
contemplation of insolvency or with the intent to hinder, delay or defraud the
Bank, its creditors, the FDIC, or other conservator or receiver or any federal
banking agency or any other person, the Federal Deposit Insurance Act, as
amended ("FDIA"), including as amended by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, as amended ("FIRREA"), provides
generally that such security interest should not be subject to avoidance by
the Federal Deposit Insurance Corporation (the "FDIC") as receiver or
conservator for the Bank. Subject to clarification by regulations or
interpretations, positions taken by the FDIC staff prior to the passage of
FIRREA do not suggest that the FDIC, as receiver or conservator for the Bank,
would interfere with the timely transfer to the related Trustee of payments
collected on the related Receivables. If, however, the FDIC were to assert a
contrary position, such as requiring the Trustee to establish its right to
those payments by submitting to and completing the administrative claims
procedure under the FDIA, or the conservator or receiver were to request a
stay of proceedings with respect to the Bank as provided under the FDIA,
delays in payments on the Securities and possible reductions in the amount of
those payments could occur. In addition, the FDIC, if appointed as conservator
or receiver for the Bank, has the power under the FDIA to repudiate contracts,
including secured contracts of the Bank. The FDIA provides that a claim for
damages arising from the repudiation of a contract is limited to "actual
direct compensatory damages." In the event the FDIC were to be appointed as
conservator or receiver of the Bank and were to repudiate a Trust Agreement,
then the amount payable out of available collections on the related
Receivables to the related Securityholders could be lower than the outstanding
principal and accrued interest on the related Securities.
Insurance on Vehicles. Each Receivable generally requires the related
Obligor to maintain insurance covering physical damage to the Vehicle in an
amount not less than the unpaid principal balance of such Receivable pursuant
to which the Bank (or CFC in the case of Receivables originated or acquired by
CFC) is named as a loss payee. Since the Obligors select their own insurers to
provide the requisite coverage, the specific terms and conditions of their
policies vary.
In addition, although each Receivable generally gives the applicable Lender
the right to force place insurance coverage in the event the required physical
damage insurance on a Vehicle is not maintained by an Obligor, neither the
Lender nor the Servicer is obligated to place such coverage. In the event
insurance coverage
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<PAGE>
is not maintained by Obligors and coverage is not force placed, then insurance
recoveries may be limited in the event of losses or casualties to Vehicles
included in the Trust Property, as a result of which Securityholders could
suffer a loss on their investment.
Delinquencies and Losses. There can be no assurance that the historical
levels of delinquencies and losses experienced by a Lender on its respective
loan and vehicle portfolio will be indicative of the performance of the
Contracts included in a Trust or that such levels will continue in the future.
Delinquencies and losses could increase significantly for various reasons,
including changes in the local, regional or national economies or other
events.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Securities of a series may be subordinated in priority of payment to interest
and principal due on other Classes of Securities of a related series.
Moreover, the Trust Property will not have, nor is it permitted or expected to
have, any significant assets or sources of funds other than the related
Receivables and, to the extent provided in the related Prospectus Supplement,
the related reserve account and any other Credit Enhancement. The Securities
represent obligations solely of the related Trust or debt secured by the
related Trust Property, and will not represent a recourse obligation to other
assets of the Bank or any of its affiliates. No Securities of any series will
be insured or guaranteed by the Bank, CFC, the Servicer, or the applicable
Trustee. Consequently, holders of the Securities of any series must rely for
repayment primarily upon payments on the Receivables and, if and to the extent
available, the reserve account, if any, and any other Credit Enhancement, all
as specified in the related Prospectus Supplement.
Master Trusts. As may be described in the related Prospectus Supplement, a
Master Trust may issue from time to time more than one series. While the terms
of any additional series will be specified in a supplement to the related
Master Trust Agreement, the provisions of such supplement and, therefore, the
terms of any additional series, will not be subject to prior review by, or
consent of, holders of the Securities of any series previously issued by such
Master Trust. Such terms may include methods for determining applicable
investor percentages and allocating collections, provisions creating different
or additional security or Credit Enhancements and any other provisions which
are made applicable only to such series. The obligation of the related Trustee
to issue any new series is subject to the condition, among others, that such
issuance will not result in any Rating Agency reducing or withdrawing its
rating of the Securities of any outstanding series (any such reduction or
withdrawal is referred to herein as a "Ratings Effect"). There can be no
assurance, however, that the terms of any series might not have an impact on
the timing or amount of payments received by a Securityholder of another
series issued by the same Master Trust. See "Description of the Trust
Agreements--Master Trusts."
Book-Entry Registration. Issuance of the Securities in book-entry form may
reduce the liquidity of such Securities in the secondary trading market since
investors may be unwilling to purchase Securities for which they cannot obtain
definitive physical securities representing such Securityholders' interests,
except in certain circumstances described in the related Prospectus
Supplement. In addition, beneficial owners of Securities may not be recognized
as Securityholders under the terms of a Trust Agreement and may exercise
rights only indirectly through DTC, Cedel or Euroclear.
Since transactions in Securities will, in most cases, be able to be effected
only through DTC, direct or indirect participants in DTC's book-entry system
or certain banks, the ability of a Securityholder to pledge a Security to
persons or entities that do not participate in the DTC system, or otherwise to
take actions in respect to such Securities, may be limited due to lack of a
physical security representing the Securities.
Securityholders may experience some delay in their receipt of distributions
of interest on and principal of the Securities since distributions may be
required to be forwarded by the Trustee to DTC and, in such case, DTC will be
required to credit such distributions to the accounts of its Participants (as
defined hereinafter) which thereafter will be required to credit them to the
accounts of the applicable Class of Securityholders either directly or
indirectly through Indirect Participants (as defined hereinafter). See
"Description of the Securities--Book Entry Registration."
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Security Rating. The rating of Securities secured by external Credit
Enhancement will depend primarily on the creditworthiness of the issuer of
such external Credit Enhancement (a "Credit Enhancer"). Any reduction in the
rating assigned to the claims-paying ability of the related Credit Enhancer to
honor its obligations pursuant to any such Credit Enhancement below the rating
initially given to the Securities would likely result in a reduction in the
rating of the related Securities.
Maturity and Prepayment Considerations. Because the rate of payment of
principal on the Securities will depend, among other things, on the rate of
payment on the related Contracts, the rate of payment of principal on the
Securities cannot be predicted. Payments on the Contracts will include
scheduled payments as well as partial and full prepayments (to the extent not
replaced with substitute Contracts), payments upon the liquidation of
Defaulted Contracts, payments upon acquisitions by the Servicer or the Bank of
Contracts from the related Trust Property on account of a breach of certain
representations and warranties in the related Trust Agreement, and payments
upon an optional acquisition by the Servicer or the Bank of Contracts from the
related Trust Property (any such voluntary or involuntary prepayment or other
early payment of a Contract, a "Prepayment"). The rate of early terminations
of Contracts due to Prepayments and defaults may be influenced by a variety of
economic and other factors, including, among others, obsolescence, then
current economic conditions and tax considerations. The risk of reinvesting
distributions of the principal of the Securities will be borne by the
Securityholders. The yield to maturity on Strip Securities or Securities
purchased at premiums or discounts to par will be extremely sensitive to the
rate of Prepayments on the related Receivables. In addition, the yield to
maturity on certain other types of classes of Securities, including Strip
Securities, Accrual Securities or certain other Classes in a series including
more than one Class of Securities, may be relatively more sensitive to the
rate of prepayment of the related Contracts than other Classes of Securities.
The rate of Prepayments of Contracts cannot be predicted and is influenced
by a wide variety of economic, social, and other factors, including prevailing
interest rates, the availability of alternate financing and local, regional
and national economic conditions. Therefore, no assurance can be given as to
the level of Prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at a
discount, the risk that a slower than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that
a faster than anticipated rate of Prepayments on the Receivables could result
in an actual yield that is less than the anticipated yield.
Limitations on Interest Payments and Repossessions. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, an Obligor who enters military
service after the origination of the related Receivable (including an Obligor
who is a member of the National Guard or is in reserve status at the time of
the origination of the Receivable and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Obligor's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such action
could have an effect, for an indeterminate period of time, on the ability of
the Servicer to collect full amounts of interest on certain of the
Receivables. In addition, the Relief Act imposes limitations that would impair
the ability of the Servicer to repossess a Vehicle during the Obligor's period
of active duty status. Thus, in the event that such a Receivable goes into
default, there may be delays and losses occasioned by the inability of the
Servicer to realize upon the Vehicle in a timely fashion.
Financial Condition of the Bank. The Bank is generally not obligated to make
any payments in respect of the Securities or the Receivables of a specific
Trust. If the Bank were acting as the Servicer and thereafter ceases so to
act, delays in processing payments on the Receivables and information in
respect thereof could occur and result in delays in payments to the
Securityholders.
In certain circumstances, the Bank will be required to acquire Receivables
from the related Trust Property with respect to which such representations and
warranties have been breached. In the event that the Bank is incapable of
complying with its reacquire obligations and no other party is obligated to
perform or satisfy such
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<PAGE>
obligations, Securityholders may be subject to delays in receiving payments
and suffer loss of their investment in the Securities.
The related Prospectus Supplement will set forth certain information
regarding the Bank. In addition, the Bank files reports and other information
with the OTS.
Consumer Protection Laws. The Receivables are subject to federal and state
consumer protection laws which impose requirements with respect to the making,
transfer, acquisition, enforcement and collection of consumer loans. Such
laws, as well as any new laws or rules which may be adopted, may adversely
affect the Servicer's ability to collect on the Receivables. In addition,
failure by the Bank to have complied, or the Servicer to comply, with such
requirements could adversely affect the enforceability of the Receivables. The
Bank will make representations and warranties relating to the validity and
enforceability of the Receivables and its compliance with applicable law in
connection with its performance of the transactions contemplated by the
related Trust Agreement. Pursuant to such Trust Agreement, if the Trust's
interest in a Receivable is materially and adversely affected by the failure
of a Receivable to comply with applicable requirements of consumer protection
law, such Receivable will be repurchased by the Bank. The sole remedy if any
such representation or warranty is not complied with and such noncompliance
continues beyond the applicable cure period is that the Receivables affected
thereby will be repurchased by the Bank.
THE TRUST PROPERTY
The Trust Property will include, as specified in the related Prospectus
Supplement, (i) a pool of Receivables, (ii) all monies (including accrued
interest) due or received thereunder on or after the date on which the
payments made with respect to the Receivables are payable to the related
Trustee (the applicable "Cut-off Date"), (iii) such amounts as from time to
time may be held in one or more accounts established and maintained by the
Servicer pursuant to the related Trust Agreement, as described below and in
the related Prospectus Supplement, (iv) the security interests, if any, in the
Vehicles relating to such pool of Receivables, (v) unless otherwise specified
in the related Prospectus Supplement, the right to proceeds from claims on
physical damage, credit life insurance and disability policies or other
policies, if any, covering such Vehicles or the related Obligors, as the case
may be, (vi) the proceeds of any repossessed Vehicles related to such pool of
Receivables, (vii) the rights of the Bank under agreements pursuant to which
the Bank may have acquired such Receivables, (viii) interest earned on certain
short-term investments held as part of such Trust Property, unless the related
Prospectus Supplement specifies that such earnings may be paid to the
Servicer, the Bank or another person, and (ix) if so specified in the related
Prospectus Supplement, Additional Receivables which may be added to the Trust
Property from time to time. The Trust Property will also include, if so
specified in the related Prospectus Supplement, monies on deposit in a Pre-
Funding Account, which will be used by the Trustee to acquire or receive a
security interest in Additional Receivables from time to time during the Pre-
Funding Period specified in the related Prospectus Supplement. See
"Description of the Trust Agreement--Pre-Funding Accounts." In addition, to
the extent specified in the related Prospectus Supplement, some combination of
Credit Enhancements may be issued to or held by the Trustee on behalf of the
related Trust for the benefit of the holders of one or more Classes of
Securities.
The Receivables comprising the Trust Property will, as specifically
described in the related Prospectus Supplement, be purchased or originated by
the Bank, its wholly-owned subsidiary, CFC, or another originator (each, a
"Lender" and together, the "Lenders"). The underwriting criteria applicable to
the Receivables included in any Trust Property will be described in all
material respects in the related Prospectus Supplement.
The Trust Property will include Receivables with respect to which the
related Contract or the related Vehicles are subject to federal or state
registration or titling requirements applicable to motor vehicles.
The Receivables included in the Trust Property will be selected from those
Receivables held by the Lenders based on the criteria specified in the
applicable Trust Agreement and described herein or in the related Prospectus
Supplement.
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With respect to each series of Securities, on or prior to the date on which
the Securities are delivered to Securityholders (the "Closing Date"), the Bank
will either (i) transfer the related Receivables into a Trust pursuant to a
Pooling Agreement between the Bank and the Trustee or (ii) enter into an
Indenture with a Trustee relating to the issuance of such Securities, secured
by the related Receivables.
THE ISSUERS
With respect to each series of Securities, the Bank will either issue such
Securities or will establish a separate Trust that will issue such Securities,
in either case pursuant to the related Trust Agreement. For purposes of this
Prospectus and the related Prospectus Supplement, the Bank or, in the case of
Securities issued by a Trust, such Trust shall be referred to as the Issuer
with respect to the related Securities.
Upon the issuance of the Securities of a given series, the proceeds from
such issuance will be used by the related Trustee to acquire the related
Receivables. The Servicer will service the related Receivables pursuant to the
applicable Servicing Agreement, and will be compensated for acting as the
Servicer. To facilitate servicing and to minimize administrative burden and
expense, the Servicer may be appointed custodian for the related Receivables
by each Trustee and the Bank, as may be set forth in the related Prospectus
Supplement.
If the protection provided to the Securityholders of a given Class by the
subordination of another Class of Securities of such series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such series is insufficient, the Issuer must rely solely on
the payments from the Obligors on the related Contracts, and the proceeds from
the sale of Vehicles which secure the Defaulted Contracts. In such event,
certain factors may affect such Issuer's ability to realize on the collateral
securing such Contracts, and thus may reduce the proceeds to be distributed to
the Securityholders of such series or Class.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in the related Trust Property
will be set forth in the related Prospectus Supplement, including, to the
extent appropriate, the composition of such Receivables and the distribution
of such Receivables by geographic concentration, APR and current principal
balance as of the applicable Cut-off Date.
The Contracts
As specified in the related Prospectus Supplement, the Contracts may consist
of any combination of Rule of 78s Contracts, Actuarial Contracts or Simple
Interest Contracts. Generally, "Rule of 78s Contracts" provide for fixed level
monthly payments which will amortize the full amount of the Contract over its
term. The Rule of 78s Contracts provide for allocation of payments according
to the "sum of periodic balances" or "sum of monthly payments" method (the
"Rule of 78s"). Each Rule of 78s Contract provides for the payment by the
Obligor of a specified total amount of payments, payable in monthly
installments on the related due date, which total represents the principal
amount financed and finance charges in an amount calculated on the basis of
APR for the term of such Contract. The rate at which such amount of finance
charges is earned and, correspondingly, the amount of each fixed monthly
payment allocated to reduction of the outstanding principal balance of the
related Contract are calculated in accordance with the Rule of 78s. Under the
Rule of 78s, the portion of each payment allocable to interest is higher
during the early months of the term of a Contract and lower during later
months than that under a constant yield method for allocating payments between
interest and principal. Notwithstanding the foregoing, as specified in the
related Prospectus Supplement, all payments received by the Servicer on or in
respect of the Rule of 78s Contracts may be allocated on an actuarial or
simple interest basis.
If an Obligor elects to prepay a Rule of 78s Contract in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest
Contract
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is prepaid, rather than receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount of a rebate under a Rule
of 78s Contract calculated in accordance with the Rule of 78s will always be
less than had such rebate been calculated on an actuarial basis and generally
will be less than the remaining scheduled payments of interest that would be
due under a Simple Interest Contract for which all payments were made on
schedule. Distributions to Securityholders may not be affected by Rule of 78s
rebates under the Rule of 78s Contract because pursuant to the related
Prospectus Supplement such distributions may be determined using the actuarial
or simple interest method.
Generally, the "Actuarial Contracts" provide for amortization of the loan
over a series of fixed level payment monthly installments. A fixed, scheduled
amount is due monthly on a specified date; the application of the payment to
principal and interest is not affected by whether the payment was received on
the scheduled due date, or early or late.
"Simple Interest Contracts" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Contracts, each monthly
payment consists of an installment of interest which is calculated on the
basis of the outstanding principal balance of the receivable multiplied by the
stated APR and further multiplied by the period elapsed (as a fraction of a
calendar year) since the preceding payment of interest was made. As payments
are received under a Simple Interest Contract, the amount received is applied
first to interest accrued to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if an Obligor pays a fixed
monthly installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be less than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be
greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount
of the final installment is increased or decreased as necessary to repay the
then outstanding principal balance.
Delinquencies and Losses
Certain information relating to a Lender's delinquency and loss experience
with respect to Contracts it has originated or acquired will be set forth in
each Prospectus Supplement. This information may include, among other things,
the experience with respect to all Contracts in such Lender's portfolio during
certain specified periods. There can be no assurance that the delinquency and
loss experience on any Trust Property will be comparable to such Lender's
prior experience.
Maturity and Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a Contract
permits a Prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities.
The rate of Prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain
circumstances, the Bank will be obligated to and may have the right to
reacquire Receivables from the related Trust Property pursuant to the
applicable Trust Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from Prepayments will be
borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities, together with a description of any applicable prepayment
penalties.
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AUTOMOBILE FINANCING PROGRAMS
Underwriting Procedures
Each Receivable was originated or purchased by a Lender after a review by
such Lender in accordance with its established underwriting procedures. Each
Lender has its own underwriting procedures which will be described in all
material respects in the related Prospectus Supplement; however, some of the
current underwriting practices of the Lenders are noted in the following
paragraphs.
Generally, the underwriting procedures of the Lenders are designed to
provide a basis for assessing the Obligor's ability and willingness to repay
the loan. In conducting this assessment, the Lenders consider the Obligor's
ratio of debt to income and evaluate the Obligor's credit history through a
review of a written credit report compiled by a recognized consumer credit
reporting bureau. The Obligor's equity in the collateral and the terms of the
loan are of secondary importance in the Lender's analysis. The Lenders'
guidelines are intended only to provide a basis for lending decisions, and
exceptions to such guidelines may, within certain limits, be made based upon
the credit judgment of the lending officer. The Lenders periodically conduct
quality audits to ensure compliance with their established policies and
procedures.
CFC's underwriting guidelines relate to a category of lending in which loans
may be made to applicants who have experienced certain adverse credit events
(and therefore would not necessarily meet all of the Bank's guidelines for its
traditional loan program) but who meet certain other creditworthiness tests.
Such loans generally experience higher rates of delinquencies, repossessions
and losses, especially under adverse economic conditions, as compared with
loans originated pursuant to the Bank's traditional lending program.
Selection Criteria
The Receivables with respect to each issuance of Securities will be selected
from the applicable Lender's portfolios on the basis of a number of criteria
specified in the related Prospectus Supplement, including the following:
(i) original term to maturity, (ii) final maturity date, (iii) except as
otherwise disclosed, Contracts which provide for level monthly payments that
fully amortize the amount financed over the original term, (iv) maximum number
of days delinquent and (v) Contracts which have an unpaid principal balance of
not less than a specified amount as of the applicable Cut-Off Date.
Contracts are generally prepayable at any time. The Bank can make no
prediction as to the actual prepayment experience on the Receivables.
The composition, distribution by APR and geographical distribution of the
Receivables as of the applicable Cut-Off Date will be as set forth in the
applicable Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with
respect to such Class of Securities, indicating the remaining outstanding
principal balance of such Class of Securities as of the applicable
Distribution Date, as a fraction of the initial outstanding principal balance
of such Class of Securities. Each Pool Factor will be initially 1.0000000, and
thereafter will decline to reflect reductions in the outstanding principal
balance of the applicable Class of Securities. A Securityholder's portion of
the aggregate outstanding principal balance of the related Class of Securities
is the product of (i) the original face amount of such Securityholder's
Securities and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement with
respect to each series of Securities, the related Securityholders of record
will receive reports on or about each Distribution Date
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concerning the payments received on the Receivables, the Pool Balance, each
Pool Factor and various other items of information. In addition,
Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date
permitted by law.
USE OF PROCEEDS
Except as provided in the related Prospectus Supplement, the proceeds from
the sale of the Securities of a given series will be used by the Bank or a
Trust for the acquisition of the related Receivables, to fund reserve
accounts, for issuance expenses, and/or general corporate purposes, including,
without limitation, the acquisition of additional Receivables, the repayment
of indebtedness and general working capital purposes.
THE LENDERS
General
The Bank, which is one of the Lenders, is a federally chartered stock
savings bank. The Bank's home office is located at 7926 Jones Branch Drive,
McLean, Virginia 22102, and the Bank's principal executive offices are located
at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815. The Bank's telephone
number is (301) 986-7000. The Bank is subject to comprehensive regulation,
examination and supervision by the Office of Thrift Supervision (the "OTS")
within the Department of the Treasury and by the FDIC. Deposits at the Bank
are fully insured up to $100,000 per insured depositor by the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC. For
further information regarding the Bank, its assets, capitalization, and
regulatory status and the effect of current legislation, see the related
Prospectus Supplement.
The other Lender, CFC, is a wholly-owned subsidiary of the Bank, formed in
December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events.
THE TRUSTEE(S)
The Trustee for each series of Securities will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Agreement.
With respect to each series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor
Trustee shall be specified in the related Prospectus Supplement to the extent
such procedures differ from those described herein under "Description of the
Trust Agreements--Duties and Immunities of the Trustee."
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DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series. Each series of Securities (or, in
certain instances, two or more series of Securities) will be issued pursuant
to a Trust Agreement. The following summaries (together with additional
summaries under "Description of the Trust Agreements" below) describe all
material terms and provisions relating to the Securities common to each Trust
Agreement. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Trust Agreement for the related Securities and the related Prospectus
Supplement.
This Prospectus refers to series of Securities offered hereunder and under
the related Prospectus Supplement; however, if only certain Classes of a
Series are offered hereunder and under the related Prospectus Supplement, such
reference shall be limited to the Classes offered hereunder and under the
related Prospectus Supplement, unless the context otherwise requires.
All of the Securities of a series (or Class thereof) offered pursuant to
this Prospectus and the related Prospectus Supplement will be rated in one of
the four highest rating categories by one or more Rating Agencies.
The Securities will generally be styled as having a principal or notional
balance and a specified Interest Rate. The Securities may either represent
beneficial ownership interests in the related Receivables held by the related
Trust or debt secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this Prospectus may
have a different Interest Rate, which may be a fixed or adjustable interest
rate, or tied to an index. The related Prospectus Supplement will specify the
Interest Rate for each series or Class of Securities offered thereby, or the
initial interest rate and the method for determining subsequent changes to the
Interest Rate.
A series may include one or more Classes of Strip Securities entitled (i) to
principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate,
nominal or no principal distributions. In addition, a series of Securities may
include two or more Classes of Securities that differ as to timing, sequential
order, priority of payment, Interest Rate or amount of distribution of
principal or interest or both, or as to which distributions of principal or
interest or both on any Class may be made upon the occurrence of specified
events, in accordance with a schedule or formula, or on the basis of
collections from designated portions of the related pool of Receivables. Any
such series may include one or more Classes of Accrual Securities, as to which
certain accrued interest will not be distributed but rather will be added to
the principal balance (or nominal balance, in the case of Accrual Securities
which are also Strip Securities) thereof on each Distribution Date (as
hereinafter defined) or in the manner described in the related Prospectus
Supplement.
If so provided in the related Prospectus Supplement, a series may include
one or more other Classes of Senior Securities that are senior to one or more
other Classes of Subordinate Securities in respect of certain distributions of
principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
General Payment Terms of Securities
As provided in the related Trust Agreement and as described in the related
Prospectus Supplement, Securityholders will be entitled to receive payments on
their Securities on the specified Distribution Dates. Distribution Dates with
respect to the Securities will occur monthly, quarterly or semi-annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date preceding
such Distribution Date, as of which the Trustee or its paying agent will fix
the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Distribution Date. Unless otherwise described in the
related Prospectus Supplement, the Distribution Date may be the fifteenth day
of each month (or, in the case of quarterly-pay Securities, the fifteenth day
of every third month; and in the case of semi-annual pay Securities, the
fifteenth day
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of every sixth month) and the Record Date will be the close of business as of
the last day of the calendar month that precedes the calendar month in which
such Distribution Date occurs.
Each Trust Agreement will describe a Collection Period preceding each
Distribution Date (for example, in the case of monthly-pay Securities, the
calendar month preceding the month in which a Distribution Date occurs). As
more fully provided in the related Prospectus Supplement, collections received
on or with respect to the related Receivables constituting the related Trust
Property during a Collection Period will be required to be remitted by the
Servicer to the related Trustee prior to the related Distribution Date and
will be used to fund payments to Securityholders on such Distribution Date. As
may be described in the related Prospectus Supplement, the related Trust
Agreement may provide that all or a portion of the payments collected on or
with respect to the related Receivables may be applied by the related Trustee
to the acquisition of additional Receivables during a specified period (rather
than be used to fund payments of principal to Securityholders during such
period) with the result that the related Securities will possess an interest-
only period, also commonly referred to as a revolving period, which will be
followed by an amortization period. Any such interest only or revolving period
may, upon the occurrence of certain events to be described in the related
Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Trust Agreement may provide that all or a portion of such
collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders. Such retention
and temporary investment by the Trustee of such collected payments may be
required by the related Trust Agreement for the purposes of (a) slowing the
amortization rate of the related Securities relative to the installment
payment schedule of the related Receivables, or (b) attempting to match the
amortization rate of the related Securities to an amortization schedule
established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of the amortization of such
Securities.
Neither the Securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or the Bank, CFC, the
Servicer, any Trustee or any of their respective affiliates unless
specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of each
series covered by a particular Trust Agreement will either evidence specified
beneficial ownership interests in the Trust Property, or will represent debt
secured by the related Trust Property. To the extent that any Trust Property
includes certificates of interest or participations in Receivables, the
related Prospectus Supplement will describe the material terms and conditions
of such certificates or participations.
Book-Entry Registration
As may be described in the related Prospectus Supplement, Securityholders of
a given series may hold their Securities through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of a
given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as
defined below) (collectively, the "Participants"), respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books
of their respective depositaries (collectively, the "Depositaries") which in
turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing
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agency" registered pursuant to Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entries, thereby eliminating the need for physical
movement of notes or certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depository to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. CEDEL Participants
and Euroclear Participants may not deliver instructions directly to the
Depositories.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant CEDEL Participant or Euroclear Participant on such business day. Cash
received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available
in the relevant CEDEL or Euroclear cash account only as of the business day
following settlement in DTC.
The Securityholders of a given series or Class thereof that are not
Participants or Indirect Participants but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, Securities of such
series or Class may do so only through Participants and Indirect Participants.
In addition, Securityholders of a given series or Class thereof will receive
all distributions of principal and interest through the Participants who in
turn will receive them from DTC. Under a book-entry format, Securityholders of
a given series or Class thereof may experience some delay in their receipt of
payments, since such payments will be forwarded by the applicable Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or such
Securityholders. It is anticipated that the only "Securityholder" in respect
of any series or Class thereof that is issued in book-entry form will be Cede,
as nominee of DTC. Securityholders of such series or Class thereof will not be
recognized as Securityholders of such series or Class, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series or Class only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities of a given series or Class among Participants on whose behalf it
acts with respect to such Securities and to receive and transmit distributions
of principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series or Class have
accounts with respect to such Securities similarly are required to make book-
entry transfers and receive and transmit such payments on behalf of their
respective Securityholders of such series or Class. Accordingly, although such
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series or Class to pledge Securities of such series
or
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Class to persons or entities that do not participate in the DTC system, or to
otherwise act with respect to such Securities, may be limited due to the lack
of a physical certificate for such Securities.
DTC will advise the Trustee in respect of each series or Class that it will
take any action permitted to be taken by a Securityholder of the related
series or Class only at the direction of one or more Participants to whose
accounts with DTC the Securities of such series or Class are credited. DTC may
take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of Participants whose holdings
include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 28 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 above. Euroclear is operated by
Morgan Guaranty Trust Bank of New York, Brussels, Belgium office, under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the
"Euroclear Operator" (as defined below), 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.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern 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 relationship with persons holding through
Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not have
any liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the related Securities held
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by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Securities
As may be described in the related Prospectus Supplement, the Securities
will be issued in fully registered, certificated form ("Definitive
Securities") to the Securityholders of a given series or Class thereof or
their nominees, rather than to DTC or its nominee, only if (i) the Servicer
advises the Trustee of the applicable series or Class in writing that DTC is
no longer willing or able to discharge properly its responsibilities as
depository with respect to such series or Class of Securities and such Trustee
or the Servicer is unable to locate a qualified successor, (ii) the Servicer,
at its option, elects to terminate the book-entry system through DTC with
respect to such series or Class, or (iii) after the occurrence of a default by
the Servicer under the related Trust Agreement, Securityholders representing
at least a majority of the outstanding principal amount of such series or
Class of Securities advise the Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in such Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the
applicable Trustee will reissue such Securities as Definitive Securities to
such Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be
made by check mailed to the address of such holder as it appears on the
register maintained by the applicable Trustee. The final payment on any such
Security, however, will be made only upon presentation and surrender of such
Security at the office or agency specified in the notice of final distribution
to the applicable Securityholders.
Definitive Securities in respect of a given series or Class of Securities
will be transferable and exchangeable at the offices of the applicable Trustee
or of a certificate registrar named in a notice delivered to holders of such
Definitive Securities. No service charge will be imposed for any registration
of transfer or exchange, but the applicable Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
Distributions
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of
principal and interest (or, where applicable, of principal or interest only)
on each Class of such Securities entitled thereto will be made by the
applicable Indenture Trustee to the holders of Notes (the "Noteholders") and
by the applicable Trustee to the holders of Certificates (the
"Certficateholders") of such series. The timing, calculation, allocation,
order, source, priorities of and requirements for each Class of Noteholders
and all distributions to each Class of Certificateholders of such series will
be set forth in the related Prospectus Supplement.
With respect to each series of Securities, on each Distribution Date
collections on the related Receivables will be distributed to Securityholders,
to the extent provided in the related Prospectus Supplement. Credit
Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the
extent specified in the related Prospectus Supplement. As more fully described
in the related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a Class of Securities of a given
series will be subordinate to distributions in respect of interest on such
Class, and distributions in respect of the Certificates of such series may be
subordinate to payments in respect of the Notes of such series.
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Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each Class of Securities of a
given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, Credit Enhancement
may be in the form of an insurance policy, subordination of one or more
Classes of Securities, reserve accounts, yield maintenance accounts,
overcollateralization, letters of credit, credit or liquidity facilities,
third party payments or other support, surety bonds, guaranteed cash deposits
or such other arrangements as may be described in the related Prospectus
Supplement, or any combination of two or more of the foregoing. If specified
in the applicable Prospectus Supplement, Credit Enhancement for a Class of
Securities may cover one or more other Classes of Securities of the same
series, and Credit Enhancement for a series of Securities may cover one or
more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or series of
Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses on their Securities. As more specifically provided in
the related Prospectus Supplement, the Credit Enhancement for a Class or
series of Securities will not provide protection against all risks of loss and
will not guarantee repayment of the entire principal balance and interest
thereon under all circumstances. If losses occur which exceed the amount
covered by any Credit Enhancement or which are not covered by any Credit
Enhancement, Securityholders of any Class or series will bear their allocable
share of deficiencies, as described in the related Prospectus Supplement. In
addition, if a form of Credit Enhancement covers more than one series of
Securities, Securityholders of any such series will be subject to the risk
that such Credit Enhancement will be exhausted by the claims of
Securityholders of other series.
Waiver of Past Defaults
The Securityholders of Securities evidencing more than the percentage
specified in the related Trust Agreement of the outstanding principal balance
of the related Securities (the "Security Principal Balance"), with the consent
of the related Credit Enhancer, or a Credit Enhancer, may waive certain
defaults by the Servicer in the performance of its obligations under a Trust
Agreement. No such waiver shall impair any Credit Enhancer's or the
Securityholders' rights with respect to subsequent defaults.
Optional Termination
A Trust Agreement may provide that on any Distribution Date following the
Record Date on which the Pool Balance is a specified percentage or less of the
Security Principal Balance of the related Securities at issuance (the
"Original Security Principal Balance"), the Bank will have the option to
acquire all rights, title and interest in all, but not less than all,
Receivables held as part of the related Trust Property, by paying to the
related Trustee for retirement of the Securities an amount equal to the
aggregate Purchase Amounts for the Receivables, together with any
Reimbursement Amounts then owed to any Credit Enhancer pursuant to the terms
of the Credit Enhancement and the related agreements (the "Reimbursement
Amounts").
Reports to Securityholders
With respect to each series of Securities, on or about each Distribution
Date for such series, the Servicer or the related Trustee will forward or
cause to be forwarded to each holder of record of such Class of Securities a
statement or statements with respect to the related Trust Property setting
forth the information specifically described in the related Trust Agreement,
which generally will include the following information:
(i) the amount of the distribution with respect to each Class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of business on the
last day of the related Collection Period;
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(v) the aggregate outstanding principal balance and the Pool Factor for
each Class of Securities after giving effect to all payments reported under
(ii) above on such Distribution Date;
(vi) the amount paid to the Servicer, if any, with respect to the related
Collection Period;
(vii) the amount of the aggregate Purchase Amounts for Receivables that
have been reacquired, if any, for such Collection Period; and
(viii) the amount of coverage under any letter of credit, financial
guaranty insurance policy, reserve account, yield maintenance account or
other form of Credit Enhancement covering default risk as of the close of
business on the applicable Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) with
respect to the Securities of any series will be expressed as a dollar amount
per $1,000 of the initial principal balance of such Securities, as applicable.
The actual information to be set forth in statements to Securityholders of a
series will be described in the related Prospectus Supplement.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal
income tax returns.
Indexed Securities
To the extent so specified in any Prospectus Supplement, any Class of
Securities of a given series may consist of Securities ("Indexed Securities")
in which the principal amount payable at the final scheduled Distribution Date
(the "Indexed Principal Amount") is determined by reference to a measure (the
"Index") which will be related to (i) the difference in the rate of exchange
between United States dollars and a currency or composite currency (the
"Indexed Currency") specified in the applicable Prospectus Supplement (such
Indexed Securities, "Currency Indexed Securities"); (ii) the difference in the
price of a specified commodity (the "Indexed Commodity") on specified dates
(such Indexed Securities, "Commodity Indexed Securities"); (iii) the
difference in the level of a specified stock index (the "Stock Index"), which
may be based on U.S. or foreign stocks, on specified dates (such Indexed
Securities, "Stock Indexed Securities"); or (iv) such other objective price or
economic measures as are described in the applicable Prospectus Supplement.
The manner of determining the Indexed Principal Amount of an Indexed Security
and historical and other information concerning the Indexed Currency, the
Indexed Commodity, the Stock Index or other price or economic measures used in
such determination will be set forth in the applicable Prospectus Supplement,
together with information concerning tax consequences to the holders of such
Indexed Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then
such Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to
the original third party, then the Indexed Principal Amount of such Indexed
Security shall be calculated in the manner set forth in the applicable
Prospectus Supplement. Any determination of such independent calculation agent
shall in the absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the "Face Amount"). The
applicable Prospectus Supplement will describe whether the principal amount of
the related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable final scheduled Distribution Date will be
the Face Amount of such Indexed Security, the Indexed Principal Amount of such
Indexed Security at the time of redemption or repayment, or another amount
described in such Prospectus Supplement.
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DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement
pursuant to which the related Trust Property will be held and the related
Securities will be issued. For purposes of this Prospectus, the term Trust
Agreement as used with respect to a series of Securities means, collectively,
and except as otherwise specified, any and all agreements relating to the
establishment of the related Trust Property, the servicing of the related
Receivables and the issuance of the related Securities, including without
limitation the Indenture, (i.e. pursuant to which any Notes shall be issued).
Forms of the Trust Agreement have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. The summary does not purport
to be complete. It is qualified in its entirety by reference to the provisions
of the Trust Agreements.
Conveyance of Receivables
Except as expressly set forth in the related Trust Agreement, on the Closing
Date, the Bank will transfer, without recourse, Receivables acquired by the
Bank and originated or acquired by the Bank, another Lender or another
originator either to a Trust pursuant to a Pooling Agreement or a Sale
Agreement, or will pledge, without recourse, the Bank's right, title and
interests in and to such Receivables to a Trustee on behalf of the related
Securityholders pursuant to an Indenture. The obligations of the Bank and the
Servicer under the related Trust Agreement include those specified below and
in the related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, the Bank will
be obligated to reacquire from the related Trust Property its interest in any
Receivable transferred to a Trust or pledged to a Trustee on behalf of
Securityholders if the interest of the Securityholders therein is materially
and adversely affected by a breach of any representation or warranty made by
the Bank with respect to such Receivable, which breach has not been cured
following the discovery by or notice to the Bank of the breach. In addition,
if so specified in the related Prospectus Supplement, the Bank may from time
to time reacquire certain Receivables or substitute other Receivables for such
Receivable subject to specified conditions set forth in the related Trust
Agreement.
Possible representations and warranties may include, among other things,
that (i) the information provided with respect to the Receivables is correct
in all material respects; (ii) the Obligor on each Receivable is generally
required to obtain physical damage and theft insurance in accordance with the
related Lender's normal requirements; (iii) at the date of issuance of the
Securities, the Receivables are free and clear of all security interests,
liens, charges, and encumbrances and no setoffs, defenses, or counterclaims
against the Bank have been asserted or threatened (other than the interest of
the Trustee); (iv) on the Closing Date, each of the Receivables is or will be
secured by a first priority perfected security interest in the Vehicle in
favor of the applicable Lender; and (v) each Receivable, at the time it was
originated or purchased, complied, and on the Closing Date complies, in all
material respects, with applicable federal and state laws, including consumer
credit, truth in lending, equal credit opportunity, and disclosure laws.
Accounts
With respect to each series of Securities, the Servicer will establish and
maintain one or more accounts, in the name of such Trustee on behalf of the
related Securityholders, into which all payments made on or with respect to
the related Receivables will be deposited (the "Collection Account"). Unless
otherwise specified in the related Prospectus Supplement, the Servicer will
also establish and maintain with such Trustee separate accounts, in the name
of such Trustee on behalf of such Securityholders, in which amounts withdrawn
from the Collection Account and the reserve account or received under other
Credit Enhancement, if any, for distribution to such Securityholders will be
deposited and from which distributions to such Securityholders will be made
(the "Distribution Account").
Any other accounts to be established with respect to a Trust, including any
reserve account, will be described in the related Prospectus Supplement.
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For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as
such in the related Prospectus Supplement (collectively, the "Trust Accounts")
shall be invested as provided in the related Trust Agreement in Eligible
Investments. "Eligible Investments" are generally limited to investments
acceptable to the Rating Agencies as being consistent with the rating of such
Securities. Subject to certain conditions, Eligible Investments may include
securities issued by the Bank, the Servicer or their respective affiliates or
other trusts created by the Bank or its affiliates. Except as described below
or in the related Prospectus Supplement, Eligible Investments are limited to
obligations or securities that mature not later than the business day
immediately preceding the related Distribution Date. However, subject to
certain conditions, funds in the reserve account may be invested in securities
that will not mature prior to the date of the next distribution and will not
be sold to meet any shortfalls. Thus, the amount of cash in any reserve
account at any time may be less than the balance of such reserve account. If
the amount required to be withdrawn from any reserve account to cover
shortfalls in collections on the related Receivables exceeds the amount of
cash in such reserve account, a temporary shortfall in the amounts distributed
to the related Securityholders could result, which could, in turn, increase
the average life of the Securities of such series. Except as otherwise
specified in the related Prospectus Supplement, investment earnings on funds
deposited in the applicable Trust Accounts, net of losses and investment
expenses (collectively, "Investment Earnings"), shall be deposited in the
applicable Collection Account on each Distribution Date and shall be treated
as collections of interest on the related Receivables.
Unless otherwise specified in the related Prospectus Supplement, the Trust
Accounts will be maintained as Eligible Deposit Accounts. Unless otherwise
specified in the related Prospectus Supplement, "Eligible Deposit Account"
means either (a) a segregated account with an Eligible Institution or (b) a
segregated trust account with the corporate trust department of a depository
institution organized under the laws of the United States of America or any
one of the states thereof or the District of Columbia (or any domestic branch
of a foreign bank), having corporate trust powers and acting as trustee for
funds deposited in such account, so long as any of the securities of such
depository institution has a credit rating from each Rating Agency in one of
its generic rating categories which signifies investment grade. Unless
otherwise specified in the related Prospectus Supplement, "Eligible
Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x)
a short-term unsecured debt rating or certificate of deposit rating acceptable
to the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable
to the Rating Agencies and (ii) whose deposits are insured by the FDIC.
Mandatory Repurchase of Receivables
Unless otherwise specified in the related Prospectus Supplement, in the
event of a breach of any representation or warranty with respect to the
Receivables described under "--Conveyance of Receivables," which breach or
failure materially and adversely affects a Receivable or the interests of the
related Trust, the Securityholders or a Credit Enhancer in such Receivable,
the Bank, unless such breach or failure has been cured, will be required to
reacquire such Receivable from the Trustee for the Purchase Amount. The
Purchase Amount is payable on the date on which the amounts to be distributed
on the related Distribution Date are to be determined (the "Determination
Date") in such subsequent Collection Period. The repurchase obligation will
constitute the sole remedy available to the Securityholders or the Trustee
against the Bank for any such uncured breach or failure.
The "Purchase Amount" of any Receivable means, with respect to any
Distribution Date an amount equal to the sum of (a) the outstanding principal
balance of such Receivable as of the last day of the preceding Collection
Period and (b) the amount of accrued interest on such principal balance at the
related APR from the date a payment was last made by or on behalf of the
Obligor through the Determination Date immediately preceding such Distribution
Date, and after giving effect to the receipt of monies collected on such
Receivable in such preceding Collection Period.
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Yield Maintenance Account and Yield Maintenance Agreement
If so provided in the related Prospectus Supplement, pursuant to the related
Trust Agreement and/or a Yield Maintenance Agreement (as such term is defined
in the related Prospectus Supplement, the "Yield Maintenance Agreement") a
Yield Maintenance Account may be established for the related series.
Each Yield Maintenance Account will be designed solely to hold funds to be
applied by the applicable Trustee to provide payments to Securityholders in
respect of Receivables the APR of which is less than the Required Rate.
Monies on deposit in the Yield Maintenance Account may be invested in
Eligible Investments under the circumstances and in the manner described in
the related Yield Maintenance Agreement. If so specified in the related
Prospectus Supplement, investment earnings on investment of funds in a Yield
Maintenance Account will be deposited into such Yield Maintenance Account.
If a Yield Maintenance Account is established with respect to any Securities
as to which a Pre-Funding Account has been established, the Bank and the
related Indenture Trustee or applicable Trustee, will enter into a Yield
Maintenance Agreement pursuant to which, on each subsequent transfer date, the
Bank will deposit into the Yield Maintenance Account the Additional Yield
Maintenance Amount (as such term is defined in the related Prospectus
Supplement, the "Additional Yield Maintenance Amount") in respect of the
related Receivables. Each Yield Maintenance Agreement will affect only
Receivables having an APR less than the related Required Rate.
Master Trusts
As may be described in the related Prospectus Supplement, each Trust
Agreement may provide that, pursuant to any one or more supplements thereto,
the Bank may direct the related Trustee to issue from time to time new series
subject to the conditions described below (each such issuance a "Master Trust
New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Residual Interest in the related Master Trust. Under each such
Master Trust Agreement, the Bank may designate, with respect to any newly
issued series: (i) its name or designation; (ii) its initial principal amount
(or method for calculating such amount); (iii) its Interest Rate (or formula
for the determination thereof); (iv) the Distribution Dates and the date or
dates from which interest shall accrue; (v) the method for allocating
collections to Securityholders of such series; (vi) any bank accounts to be
used by such series and the terms governing the operation of any such bank
accounts; (vii) the percentage used to calculate monthly servicing fees;
(viii) the provider and terms of any form of Credit Enhancement with respect
thereto; (ix) the terms on which the Securities of such series may be
repurchased or remarketed to other investors; (x) the number of Classes of
Securities of such series, and if such series consists of more than one Class,
the rights and priorities of each such Class; (xi) the extent to which the
Securities of such series will be issuable in book-entry form; (xii) the
priority of such series with respect to any other series; and (xiii) any other
relevant terms. None of the Bank, the Servicer, the related Trustee or any
Master Trust is required or intends to obtain the consent of any
Securityholder of any outstanding series to issue any additional series.
Each Master Trust Agreement provides that the Bank may designate terms such
that each Master Trust New Issuance has an amortization period which may have
a different length and begin on a different date than such periods for any
series previously issued by the related Master Trust and then outstanding.
Moreover, each Master Trust New Issuance may have the benefits of Credit
Enhancements issued by Credit Enhancers different from the providers of the
Credit Enhancement, if any, with respect to any series previously issued by
the related Master Trust and then outstanding. Under each Master Trust
Agreement, the related Trustee shall hold any such Credit Enhancement only on
behalf of the Securityholders to which such Credit Enhancement relates. The
Bank will have the option under each Master Trust Agreement to vary among
series the terms upon which a series may be repurchased by the Issuer or
remarketed to other investors. As more fully described in the related
Prospectus Supplement, there is no limit to the number of Master Trust New
Issuances that the Bank may cause under a Master Trust Agreement. Each Master
Trust will terminate only as provided in the related Master Trust Agreement.
There can be no assurance that the terms of any Master Trust New Issuance
might not have an
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impact on the timing and amount of payments received by Securityholders of
another series issued by the same Master Trust.
Under each Master Trust Agreement and pursuant to a related supplement, a
Master Trust New Issuance may only occur upon the satisfaction of certain
conditions provided in each such Master Trust Agreement. Unless otherwise
specified in the related Prospectus Supplement, the obligation of the related
Trustee to authenticate the Securities of any such Master Trust New Issuance
and to execute and deliver the supplement to the related Master Trust
Agreement is subject to the satisfaction of the following conditions: (a) on
or before the date upon which the Master Trust New Issuance is to occur, the
Bank shall have given the related Trustee, the Servicer, the Rating Agency and
certain related providers of Credit Enhancement, if any, written notice of
such Master Trust New Issuance and the date upon which the Master Trust New
Issuance is to occur; (b) the Bank shall have delivered to the related Trustee
a supplement to the related Master Trust Agreement, in form satisfactory to
such Trustee, executed by each party to the related Master Trust Agreement
other than such Trustee; (c) the Bank shall have delivered to the related
Trustee any related Credit Enhancement agreement; (d) the related Trustee
shall have received confirmation from the Rating Agency that such Master Trust
New Issuance will not result in any Rating Agency reducing or withdrawing its
rating with respect to any other series or Class of such Trust; (e) the Bank
shall have delivered to the related Trustee, the Rating Agency and certain
providers of Credit Enhancement, if any, an opinion of counsel acceptable to
the related Trustee that for federal income tax purposes (i) the Master Trust
New Issuance will not cause the related Master Trust to be deemed to be an
association (or publicly traded partnership) taxable as a corporation, (ii)
such Master Trust New Issuance will not affect the tax characterization as
debt of Securities of any outstanding series or Class issued by such Master
Trust that were characterized as debt at the time of their issuance and (iii)
such Master Trust New Issuance will not cause or constitute an event in which
gain or loss would be recognized by any Securityholders or the related Master
Trust; and (f) any other conditions specified in any supplement. Upon
satisfaction of the above conditions, the related Trustee shall execute the
supplement to the related Master Trust Agreement and issue the Securities of
such new series.
The Servicer
The Servicer under each Trust Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be the Bank or an
affiliate of the Bank and may have other business relationships with the Bank
or the Bank's affiliates. The Servicer with respect to each series will
service the Receivables constituting the related Trust Property for such
series. Any Servicer may delegate its servicing responsibilities to one or
more sub-servicers, but will not be relieved of its liabilities with respect
thereto.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee will appoint the Servicer as initial
custodian of the Receivables. The Servicer, in its capacity as custodian, will
hold the Receivables and all electronic entries, documents, instruments and
writings relating thereto (each, a "Receivable File"), either directly or
through sub-servicers, on behalf of the Trustee for the benefit of
Securityholders and the related Credit Enhancer, if any. The Servicer may
designate CFC to act as Custodian with respect to Receivables Files relating
to the CFC Receivables.
The Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Trust Agreement. An uncured breach of such a representation or
warranty that in any respect materially and adversely affects the interests of
the Securityholders will constitute a Servicer Default by the Servicer under
the related Trust Agreement.
Servicing Procedures
The Receivables will be serviced by a Servicer pursuant to a Trust
Agreement. Such Servicer may designate CFC or another entity to act as sub-
servicer with respect to the CFC Receivables, although such designation will
not relieve the Servicer from its servicing obligations with respect to such
CFC Receivables. Each Trust Agreement will require that servicing of the
Receivables by the Servicer shall generally be carried out in the same manner
in which it services receivables and vehicles held for its own account. In
performing its duties thereunder, the Servicer will act on behalf and for the
benefit of the related Trustee, subject at all times to the
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provisions of the related Trust Agreement, without regard to any relationship
which the Servicer or any affiliate of the Servicer may otherwise have with an
Obligor.
The Servicer, as an independent contractor on behalf of the related Trustee
and for the benefit of the Securityholders and any Credit Enhancer, will be
responsible for managing, servicing and administering the Receivables and
enforcing and making collections on the Receivables and any insurance policies
and for enforcing any security interest in any of the Vehicles, all as set
forth in the related Trust Agreement. The Servicer's responsibilities will
include collecting and posting of all payments, responding to inquiries of
Obligors, investigating delinquencies, accounting for collections, furnishing
monthly and annual statements to the Trustee and any Credit Enhancer, with
respect to distributions, providing appropriate federal income tax information
for use in providing information to Securityholders, collecting and remitting
sales and property taxes on behalf of taxing authorities and maintaining the
perfected security interest of the related Lender in the Vehicles.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will covenant in each Trust Agreement that: (A) the Vehicle securing
each Receivable will not be released from the security interest granted by the
Contract in whole or in part, except as contemplated by such Trust Agreement;
(B) the Servicer will not impair in any material respect the rights of the
Trustee or the Securityholders in the Receivables, certain rights under any
agreements pursuant to which such Lender acquired such Receivables; and (C)
the Servicer will not increase or decrease the amount of payments or the
amount financed under a Receivable, or change the APR of a Receivable;
provided, however, that the Servicer may extend any Receivable for credit-
related reasons that would be acceptable to the Servicer with respect to
retail installment sales or finance contracts and installment loans serviced
by it for its own account in accordance with its customary standards. However,
if the cumulative extensions with respect to any Receivable shall cause the
term of any such Receivable to extend beyond the last day of the Collection
Period immediately preceding the final scheduled distribution date with
respect to the related Securities, then the Servicer shall be obligated to
purchase such Receivable as of the last day of the Collection Period following
the Collection Period in which the extension was made (or, at the Servicer's
election, as of the last day of the Collection Period or earlier under certain
circumstances).
Unless otherwise specified in the related Prospectus Supplement, in the
event of a breach by the Servicer of any covenant described above that
materially and adversely affects a Receivable or the interests of the related
Issuer, the Securityholders or a Credit Enhancer in such Receivable, the
Servicer, unless such breach has been cured by the last day of the Collection
Period following the Collection Period during which the Servicer became aware
of, or received written notice of, such breach, will be required to purchase
as of such day (or, at the Servicer's election, as of the last day of the
Collection Period during which such breach was discovered) the Receivable from
the Trustee for the Purchase Amount which shall be paid on the Determination
Date in such subsequent Collection Period or earlier under certain
circumstances. The purchase obligation will constitute the sole remedy
available to the Securityholders or the Trustee against the Servicer for any
such uncured breach.
Each Trust Agreement will also require the Servicer to charge off a
Receivable as a Defaulted Receivable in accordance with its customary
standards and to follow such of its normal collection practices and procedures
as it deems necessary or advisable, and that are consistent with the standard
of care required by such Trust Agreement, to realize upon any Receivable. The
Servicer may sell the Vehicle securing such Receivable at a judicial sale or
take any other action permitted by applicable law. See "Certain Legal Aspects
of the Receivables." The net proceeds of such realization will be deposited
into the Collection Account at the time and in the manner described above.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, the Servicer will be entitled to
retain from collections on the Receivables a Servicing Fee in an amount as
described in the related Prospectus Supplement. A portion of such Servicing
Fee may be paid over by the Servicer to CFC or any other sub-servicer with
respect to its sub-servicing of the CFC Receivables.
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All costs of servicing each Receivable in the manner required by the related
Trust Agreement shall be borne by the Servicer, but the Servicer shall be
entitled to retain, out of any amounts actually recovered with respect to any
Defaulted Receivable or the Vehicles subject thereto, the Servicer's actual
out-of-pocket expenses reasonably incurred with respect to such Defaulted
Receivable or Vehicle.
Indemnification
Each Trust Agreement will provide that the Servicer will defend, indemnify
and hold harmless the Trustee, the Trust, the Securityholders, and any Credit
Enhancer against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, reasonably incurred, arising out of or resulting from the use,
repossession or operation by the Servicer or any affiliate thereof of any
Vehicles; provided, however, that the Servicer will have no obligation to
indemnify any person or entity against any credit loss on any Receivable
serviced by the Servicer in accordance with the requirements of the Trust
Agreement. The Servicer will also indemnify, defend and hold harmless the
related Issuer, the Trustee and its officers, directors, employees and agents,
and any Credit Enhancer from and against any loss, liability, expense, damage
or injury, including any judgement, award, settlement, reasonable attorneys'
fees and other costs or expenses incurred in connection with the defense of
any action, proceeding or claim, to the extent such loss, liability, expense,
damage or injury arises out of, or is imposed upon such persons through, the
willful misfeasance, bad faith or negligence of the Servicer in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties as Servicer under the related Trust Agreement. The
Bank's obligations, as Servicer, to indemnify the related Issuer and the
Securityholders for acts or omissions of the Bank as Servicer will survive the
removal of the Servicer but will not apply to any acts or omissions of a
successor Servicer.
Evidence as to Compliance
Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will require the Servicer to deliver an officers' certificate
to the Trustee stating (i) a review of the activities of the Servicer during
the period specified in the related Prospectus Supplement and of its
performance under the Trust Agreement has been made under such officers'
supervision and (ii) to the best of such officers' knowledge, based on such
review, the Servicer has fulfilled all of its obligations under the Trust
Agreement throughout such period, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof.
If so specified in the related Prospectus Supplement, the Servicer shall
cause a firm of independent certified public accountants (who may also render
other services to the Servicer) to deliver to the Trustee and each holder of
the Securities an annual written statement to the effect that such firm has
read the monthly Servicer's certificates delivered pursuant to the related
Trust Agreement with respect to such period and reviewed the servicing of the
Receivables by the Servicer and that such review (1) included evaluations of
servicing practices relating to automobile, light duty truck and van loans
serviced for others in accordance with the requirements set forth in the Trust
Agreement, and (2) except as described in the report, disclosed no exceptions
or errors in the records relating to automobile, light duty truck and van
loans serviced for others that, in the firm's opinion, industry practice
requires such firm to report.
Certain Matters Regarding the Servicer
Each Trust Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder, except upon determination that
the performance by such Servicer of such duties is no longer permissible under
applicable law. No such resignation will become effective until the related
Trustee or a successor servicer has assumed such Servicer's servicing
obligations and duties under such Trust Agreement.
Each Trust Agreement will further provide that neither the Servicer nor any
of its respective directors, officers, employees, or agents shall be under any
liability to the Trustee or the Securityholders for taking any action or for
refraining from taking any action pursuant to the Trust Agreement, or for
errors in judgment; provided, however, that neither the Servicer nor any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance
of duties or
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by reason of reckless disregard of obligations and duties thereunder. In
addition, each Trust Agreement will provide that the Servicer is under no
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under such Trust Agreement and
that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in a Trust Agreement, any entity into
which the Servicer may be merged or consolidated, or any entity resulting from
any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor to the Servicer
under such Trust Agreement.
Servicer Default
Unless otherwise specified in the related Prospectus Supplement, any of the
following events will constitute a "Servicer Default" under a Trust Agreement:
(i) any failure by the Servicer to deliver to the Trustee on or before the
Determination Date the Servicer's certificate or to deliver to the Trustee for
distribution to the Securityholders any required payment, which failure
continues unremedied for more than the number of days specified in the related
Prospectus Supplement after written notice from (x) the Trustee, or the
Holders of a specified percentage of the related Securities, in either case
with the consent of any Credit Enhancer, or (y) a Credit Enhancer, if any, is
received by the Servicer; (ii) any failure by the Servicer or the Bank duly to
observe or perform in any material respect any other covenant or agreement of
the Servicer or the Bank, as the case may be, in the Trust Agreement, which
failure materially and adversely affects the rights of the Securityholders and
which continues unremedied for more than the number of days specified in the
related Prospectus Supplement after the giving of written notice of such
failure (x) to the Servicer or the Bank, as the case may be, by the Trustee
and by the Credit Enhancer, (y) to the Servicer or the Bank, as the case may
be, and to the Trustee by a specified percentage of the related
Securityholders and by the Credit Enhancer or (z) to the Servicer or the Bank,
as the case may be, by the Credit Enhancer; and (iii) any Insolvency Event. An
"Insolvency Event" shall mean financial insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings with respect to
the Servicer and certain actions by the Servicer indicating its insolvency or
inability to pay its obligations.
Removal of the Servicer
Unless otherwise specified in the related Prospectus Supplement, the
Servicer can only be removed pursuant to a Servicer Default. Unless otherwise
specified in the related Prospectus Supplement, if a Servicer Default shall
have occurred and be continuing, (x) with the consent of the Credit Enhancer,
if any, either the Trustee or the Securityholders evidencing more than 50% of
the Security Principal Balance or (y) a Credit Enhancer may give written
notice to the Servicer of the termination of all of the rights and obligations
of the Servicer under the Trust Agreement. On and after the time the Servicer
receives a notice of termination, the related Trustee shall be the successor
in all respects to the Servicer in its capacity as servicer of the Receivables
under the Trust Agreement. The Trustee may, if it shall be unwilling to so
act, or shall, if it is unable to so act, appoint, or petition a court of
competent jurisdiction for the appointment of, a successor Servicer to act as
successor to the outgoing Servicer under the Trust Agreement.
Payments on Receivables
With respect to each series of Securities, unless otherwise specified in the
related Prospectus Supplement, the Servicer will deposit into the Collection
Account all payments on the related Receivables (from whatever source) and all
proceeds of such Receivables collected within two (2) business days of receipt
thereof in the related collection facility, such as a lock-box account or
collection account. Moneys deposited in such collection facility for Trust
Property may be commingled with funds from other sources.
Pre-Funding Accounts
A series of securities may contain a feature pursuant to which the Bank will
agree to transfer Additional Receivables to the related Trust Property,
following the date on which the related Securities are issued. Such a
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pre-funding feature may permit the acquisition of Additional Receivables that
could not be delivered by the Bank or have not formally completed the
origination process, in each case prior to the Closing Date. Any such
agreement will require that any Receivables so transferred to the related
Trust Property conform to the requirements specified therein.
If such feature is to be utilized or the related Trust Agreement so
specifies, and unless otherwise specified in the related Prospectus
Supplement, the related Trustee will be required to deposit in a segregated
account (each, a "Pre-Funding Account") up to 100% of the net proceeds
received by the Trustee in connection with the sale of one or more Classes of
Securities of the related series; the Additional Receivables will be
transferred to the related Trust Property in exchange for money released to
the Bank from the related Pre-Funding Account. Each such agreement or the
related Trust Agreement will specify the Pre-Funding Period during which any
such transfers must occur; for a Trust which elects federal income treatment
as a grantor trust, the related Pre-Funding Period will be limited to three
months from the date such Trust is established; for a Trust which is treated
as a mere security device for federal income tax purposes, the related Pre-
Funding Period will be limited to nine months from the date such Trust is
established. Unless otherwise specified in the related Prospectus Supplement,
each such agreement or the related Trust Agreement will require that, if all
moneys originally deposited to such Pre-Funding Account are not so used by the
end of the related Pre-Funding Period, then any remaining moneys will be
applied as a mandatory prepayment of the related Class or Classes of
Securities as specified in the related Prospectus Supplement.
During the Pre-Funding Period the moneys deposited to the Pre-Funding
Account will either (i) be held uninvested or (ii) will be invested in cash-
equivalent investments rated in one of the four highest rating categories by
at least one nationally recognized statistical rating organization and which
will either mature prior to the end of the Pre-Funding Period, or will be
drawable on demand and in any event, will not constitute the type of
investment which would require registration of the related Trust as an
"investment company" under the Investment Company Act of 1940, as amended.
Statements to Indenture Trustees and Trustees
Prior to each Distribution Date with respect to each series of Securities,
the Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the
periodic reports provided to Securityholders of such series described under
"Description of the Securities--Reports to Securityholders".
Amendment
Unless otherwise specified in the related Prospectus Supplement, a Trust
Agreement may be amended by agreement of the Trustee, the Bank and the
Servicer at any time, without the consent of the Securityholders but with the
consent of the related Credit Enhancer, if any, to cure any ambiguity or
defect, to correct or supplement any provisions therein, to correct any
typographical error or to add any other provisions with respect to matters or
questions arising thereunder, upon receipt of an opinion of counsel to the
Trustee that such amendment will not adversely affect in any material respect
the interests of any Securityholder.
Unless otherwise specified in the related Prospectus Supplement, a Trust
Agreement may also be amended from time to time by the Trustee, the Bank and
the Servicer with the consent of the related Credit Enhancer, if any, and
Holders of Securities evidencing more than 50% of the related Security
Principal Balance for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Trust Agreement or of
modifying in any manner the rights of the Securityholders; provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount
of, or accelerate or delay the timing of, collections of payments on the
Receivables or distributions which are required to be made on any Security
without the consent of the Holder of such Security or (b) reduce the aforesaid
percentage of Securityholders required to consent to any amendment, without
unanimous consent of the Securityholders.
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The Trustee will be required under a Trust Agreement to furnish
Securityholders, any Credit Enhancer and the Rating Agencies with written
notice of the substance of any such amendment to the Trust Agreement promptly
upon execution of such amendment.
Duties and Immunities of the Trustee
The Trustee may resign, subject to the conditions set forth below, at any
time upon written notice to the Servicer, in which event the Servicer, with
the consent of any Credit Enhancer, will be obligated to appoint a successor
Trustee. If no successor Trustee shall have been so appointed and have
accepted such appointment within a specified period after the giving of such
notice of resignation, the resigning Trustee may petition a court of competent
jurisdiction for the appointment of a successor Trustee. Any successor Trustee
shall meet the financial and other standards for qualifying as a successor
Trustee under the Trust Agreement. The Servicer may also remove the Trustee if
the Trustee ceases to be eligible to continue as such under the Trust
Agreement, or is legally unable to act, or if the Trustee is adjudicated to be
insolvent. In such circumstances, the Servicer will also be obligated to
appoint a successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective without the
written consent of any Credit Enhancer and until acceptance of the appointment
by the successor Trustee.
The Trust Agreement will provide that the Trustee shall prepare or shall
cause to be prepared any tax returns required to be filed by the related Trust
and shall promptly sign and file such returns. In addition, the Trust
Agreement provides that in no event shall the Trustee be liable for any
liabilities, costs or expenses of the Trust or the Securityholders under any
tax law, including without limitation federal, state or local income or excise
taxes or any other tax imposed on or measured by income (or any interest or
penalty with respect thereto or arising from a failure to comply therewith).
The Servicer will indemnify, defend and hold harmless the Trustee, its
officers, directors, employees and agents and any Credit Enhancer from and
against any loss, liability or expense incurred without negligence or bad
faith on the part of the Trustee or its officers, directors, employees or
agents and arising out of or in connection with the acceptance or
administration by the Trustee of its duties pursuant to the Trust Agreement,
as applicable, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any
of the Trustee's powers or duties under the Trust Agreement.
Termination
With respect to each series of Securities, unless otherwise specified in the
related Prospectus Supplement, the obligations of the Servicer, the Bank and
the applicable Trustee pursuant to the related Trust Agreement will terminate
upon the earlier to occur of (i) the maturity or other liquidation of the last
related Receivable and the disposition of any amounts received upon
liquidation of any such remaining Receivables and (ii) the payment to
Securityholders of the related series of all amounts required to be paid to
them pursuant to such Trust Agreement. As more fully described in the related
Prospectus Supplement, in order to avoid excessive administrative expense, the
Servicer will be permitted, unless otherwise specified in the related
Prospectus Supplement, at its option to purchase the related Trust Property,
as of the end of any Collection Period immediately preceding a Distribution
Date, if the Pool Balance of the related Contracts is less than a specified
percentage (set forth in the related Prospectus Supplement) of the initial
Pool Balance in respect of such Trust Property, all such remaining Receivables
(at the price specified in the related Prospectus Supplment) as of the end of
such Collection Period, together with any related Reimbursement Amounts. The
related Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to the Trust Property, the applicable Trustee will solicit bids for
the purchase of the Receivables remaining in such Trust Property, in the
manner and subject to the terms and conditions set forth in such Prospectus
Supplement. If such Trustee receives satisfactory bids as described in such
Prospectus Supplement, then the Receivables remaining in such Trust Property
will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Securities of the related series will be redeemed concurrently
with either of the events specified above and the subsequent distribution to
the related Securityholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may affect the prepayment of the
Securities of such series.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The transfer of Receivables and other property by the Bank to the Trust
pursuant to the related Trust Agreement, the perfection of the security
interests in the Receivables and the enforcement of rights to realize on the
Vehicles as collateral for the Receivables are subject to a number of federal
and state laws, including the Uniform Commercial Code (the "UCC") as in effect
in various states. As specified in each Prospectus Supplement, the Bank will
take such action as is required to perfect the rights of the Trustee in the
Receivables. If, through inadvertence or otherwise, a third party were to
purchase (including the taking of a security interest in) a Receivable for new
value in the ordinary course of its business, without actual knowledge of the
Trustee's interest, and take possession of a Receivable, the purchaser would
acquire an interest in such Receivable superior to the interest of the Trust.
As further specified in each Prospectus Supplement, no action will be taken to
perfect the rights of the Trustee in proceeds of any insurance policies
covering individual Vehicles or Obligors. Therefore, the rights of a third
party with an interest in such proceeds could prevail against the rights of
the Trustee.
Security Interest in Vehicles
Retail installment sale or finance contracts and installment loans such as
the Receivables evidence the credit sale of automobiles, light duty trucks and
vans by dealers to obligors; the contracts and the installment loan and
security agreements also constitute personal property security agreements and
include grants of security interests in the vehicles under the UCC. Perfection
of security interests in the vehicles is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In the
jurisdictions in which most of the Vehicles are expected to be located, a
security interest in a vehicle is perfected by notation of the secured party's
lien on the vehicle's certificate of title and, in certain jurisdictions, by
delivery of the certificate of title to the secured party. Each Receivable
prohibits the sale or transfer of the Vehicle without the consent of the
applicable Lender.
Pursuant to each Trust Agreement, the related Lender will assign its
security interests in the Vehicles to the Trustee. However, because of the
administrative burden and expense, neither the Lender nor the Trustee will
amend or endorse any certificate of title to identify the Trustee as the new
secured party on the certificates of title relating to the Vehicles. Also,
unless otherwise specified in the related Prospectus Supplement, the Bank, as
Servicer, will continue to hold any certificates of title relating to the
Vehicles in its possession as custodian for the Trustee pursuant to the
related Trust Agreement.
Under the laws of certain states, such an assignment of security interests
may not be sufficient to convey to the Trustee perfected security interests in
the Vehicles.
Because the Trustee will not be identified as the secured party on the
certificate of title, the security interest of the Trustee in the vehicle
could be defeated in certain circumstances. In the absence of fraud or forgery
by the vehicle owner or the related Lender, or administrative error by state
or local agencies or the related Lender, the notation of the lien of the
related Lender on the certificates should be sufficient to protect the Trustee
against the right of subsequent purchasers of a Vehicle or subsequent lenders
who take a security interest in a Vehicle. If there are any Vehicles as to
which the related Lender failed to obtain a perfected security interest, its
security interest would be subordinate to, among others, subsequent purchasers
of the Vehicles and holders of perfected security interests. Such a failure,
however, would constitute a breach of the Bank's warranties under the Trust
Agreement and would create an obligation of the Bank to repurchase the related
Receivable unless the breach is cured.
Under the laws of most states, the perfected security interest in a vehicle
continues for four months after a vehicle is moved to a state other than the
state which issued the certificate of title and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states require
surrender of a certificate of title to
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re-register a vehicle; accordingly, a secured party must surrender possession
if it holds the certificate of title to the vehicle. Thus, the secured party
would have the opportunity to re-perfect its security interest in the vehicle
in the state of relocation. In states that do not require a certificate of
title for registration of a motor vehicle, re- registration could defeat
perfection.
In the ordinary course of servicing receivables, the Bank takes steps to
effect re-perfection upon receipt of notice of re-registration or information
from the obligor as to relocation. Similarly, when an obligor sells a vehicle,
a majority of states require surrender of a certificate of title to issue a
certificate of title in the name of the purchaser. In such states the Bank
must surrender possession of the certificate of title, if it holds the
certificate of title, and accordingly will have an opportunity to require
satisfaction of the related Receivable before release of the lien. Under each
Trust Agreement, the Servicer will be obligated to take appropriate steps, at
its own expense, to maintain perfection of security interests in the Vehicles.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a Vehicle. The Code also grants priority to certain
federal tax liens over the lien of a secured party. The laws of certain states
and federal law permit the confiscation of motor vehicles under certain
circumstances if used in unlawful activities, which may result in the loss of
a secured party's perfected security interest in the confiscated motor
vehicle.
The Bank will represent that, as of the Closing Date, each security interest
in a Vehicle is or will be prior to all other present liens (other than tax
liens and liens that arise by operation of law) upon and security interests in
such Vehicle. However, liens for repairs or taxes, or the confiscation of a
Vehicle, could arise or occur at any time during the term of a Receivable. No
notice will be given to the Trustee or Securityholders in the event such a
lien arises or confiscation occurs.
Repossession
In the event of default by an Obligor, the holder of the related retail
installment sale or finance contract has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. The UCC
remedies of a secured party include the right to repossession by self-help
means, unless such means would constitute a breach of the peace. Unless a
vehicle is voluntarily surrendered, self-help repossession is accomplished
simply by taking possession of the related financed vehicle. In cases where
the Obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order is obtained from the
appropriate state court, and the vehicle must then be recovered in accordance
with that order. In some jurisdictions, the secured party is required to
notify the debtor of the default and the intent to repossess the collateral
and give the debtor a time period within which to cure the default prior to
repossession. Generally, this right of cure may only be exercised on a limited
number of occasions during the term of the related contract. Other
jurisdictions permit repossession without prior notice if it can be
accomplished without a breach of the peace (although in some states, a course
of conduct in which the creditor has accepted late payments has been held to
create a right by the Obligor to receive prior notice).
Notice of Sale; Redemption Rights
The UCC and other state laws require a secured party to provide the Obligor
with reasonable notice of the date, time and place of any public sale and/or
the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale
of repossessed vehicles in certain circumstances and/or various substantive
timing and content requirements on such notices. In most states, under certain
circumstances after a financed vehicle has been repossessed, the Obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The Obligor has the right to redeem the collateral prior to actual sale
or entry by the secured party into a contract for sale of the collateral by
paying the secured party the unpaid principal balance of the obligation,
accrued interest thereon, reasonable expenses for repossessing, holding, and
preparing the collateral for disposition and arranging for its sale, plus, in
some jurisdictions, reasonable attorneys' fees and legal expenses or in some
other states, by payment of delinquent installments on the unpaid principal
balance of the related obligation.
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Deficiency Judgments and Excess Proceeds
The proceeds of resale of the Vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. Under the UCC and laws applicable in
some states, a creditor is entitled to bring an action to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of a
motor vehicle securing such debtor's loan; however, in some states, a creditor
may not seek a deficiency judgment from a debtor whose financed vehicle had an
initial cash sales price below some requisite dollar amount. Some states
impose prohibitions or limitations or notice requirements on actions for
deficiency judgments. In addition to the notice requirement described above,
the UCC requires that every aspect of the sale or other disposition, including
the method, manner, time, place and terms, be "commercially reasonable."
Generally, courts have held that when a sale is not "commercially reasonable,"
the secured party loses its right to a deficiency judgment. In addition, the
UCC permits the debtor or other interested party to recover for any loss
caused by noncompliance with the provisions of the UCC. Also, prior to a sale,
the UCC permits the debtor or other interested person to obtain an order
mandating that the secured party refrain from disposing of the collateral if
it is established that the secured party is not proceeding in accordance with
the "default" provisions under the UCC. However, the deficiency judgment would
be a personal judgment against the Obligor for the shortfall, and a defaulting
Obligor can be expected to have very little capital or sources of income
available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount or be uncollectible.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a subordinate lien with respect
to the vehicle or if no such lienholder exists or if there are remaining
funds, the UCC requires the creditor to remit the surplus to the Obligor under
the contract.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, state adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, state motor vehicle retail installment sale acts, state
"lemon" laws and other similar laws. In addition, the laws of certain states
impose finance charge ceilings and other restrictions on consumer transactions
and require contract disclosures in addition to those required under federal
law. These requirements impose specific statutory liabilities upon creditors
who fail to comply with their provisions. In some cases, this liability could
affect the ability of an assignee such as the Trustee to enforce consumer
finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting any assignee of the seller in a
consumer credit transaction (and certain related creditors and their
assignees) to all claims and defenses which the Obligor in the transaction
could assert against the seller. Liability under the FTC Rule is limited to
the amounts paid by the Obligor under the contract, and the holder of the
contract may also be unable to collect any balance remaining due thereunder
from the Obligor. The FTC Rule is generally duplicated by the Uniform Consumer
Credit Code, other state statutes or the common law in certain states. To the
extent that the Receivables will be subject to the requirements of the FTC
Rule, the Trustee, as holder of the Receivables, will be subject to any claims
or defenses that the purchaser of the related Vehicle may assert against the
seller of such Vehicle. Such claims will be limited to a maximum liability
equal to the amounts paid by the Obligor under the related Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles,
light duty trucks and vans are required to be licensed to sell vehicles at
retail sale. In addition, with respect to used vehicles, the Federal Trade
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Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to
the purchaser of a Vehicle, the Obligor may be able to assert a defense
against the seller of the Vehicle. If an Obligor on a Receivable were
successful in asserting any such claim or defense, the Servicer would pursue
on behalf of the Trust any reasonable remedies against the seller or
manufacturer of the vehicle, subject to certain limitations as to the expense
of any such action specified in the related Trust Agreement.
Any loss relating to any such claim, to the extent not covered by a
withdrawal from a reserve account or from a payment under an insurance policy
or other Credit Enhancement could result in losses to the Securityholders. If
an Obligor were successful in asserting any such claim or defense as described
in this paragraph or the two immediately preceding paragraphs, such claim or
defense would constitute a breach of a representation and warranty under the
related Trust Agreement and would create an obligation of the Bank to
reacquire the related Receivable unless the breach were cured.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and
related laws as reasonable or have found that the creditor's repossession and
resale do not involve sufficient state action to afford constitutional
protection to consumers.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Relief Act, an Obligor who enters military service
after the origination of such Obligor's Receivable (including an Obligor who
was in reserve status and is called to active duty after origination of the
Receivable), may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such Obligor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to Obligors who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard, and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
Obligors who enter military service (including reservists who are called to
active duty) after origination of the related Receivable, no information can
be provided as to the number of loans that may be effected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of the Servicer to collect full amounts of
interest on certain of the Receivables. Any shortfall in interest collections
resulting from the application of the Relief Act or similar legislation or
regulations, which would not be recoverable from the related Receivables,
would result in a reduction of the amounts distributable to the holders of the
related Securities, and would not be covered by any form of Credit Enhancement
provided in connection with the related series of Securities. In addition, the
Relief Act imposes limitations that would impair the ability of the Servicer
to foreclose on an affected Receivable during the Obligor's period of active
duty status, and, under certain circumstances, during an additional three
month period thereafter. Thus, in the event that the Relief Act or similar
legislation or regulations applies to any Receivable which goes into default,
there may be delays in payment and losses on the related Securities in
connection therewith. Any other interest shortfalls, deferrals or forgiveness
of payments on the Receivables resulting from similar legislation or
regulations may result in delays in payments or losses to Securityholders of
the related series.
40
<PAGE>
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness. Any such shortfall, to the extent not covered
by Credit Enhancement (as specified in each Prospectus Supplement), could
result in losses to the related Securityholders.
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement for each series of Securities (or Class thereof)
offered hereby and by the related Prospectus Supplement will summarize,
subject to the limitations stated therein, federal income tax considerations
relevant to the purchase, ownership and disposition of such Securities.
ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities (or Class thereof)
offered hereby and by the related Prospectus Supplement will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement will
be offered in series through one or more of the methods described below. The
Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Bank from such sale.
The Bank intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters, including sales to trusts with respect to
which the underwriters may act as depositor and may from time to time
repurchase Securities for resale to the public;
2. By placements by the Bank with institutional investors through
dealers;
3. By direct placements by the Bank with institutional investors; and
4. By competitive bid.
In addition, if specified in the related Prospectus Supplement, a series of
Securities may be offered in whole or in part in exchange for the Receivables
(and other assets, if applicable) that would comprise the Trust Property in
respect of such Securities.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions,
at fixed public offering prices or at varying prices to be determined at the
time of sale or at the time of commitment therefor. The managing
41
<PAGE>
underwriters will be set forth on the cover of the Prospectus Supplement
relating to such series and the members of the underwriting syndicate, if any,
will be named in such Prospectus Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Bank or from purchasers of the Securities in the form of
discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Bank and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the
Bank.
It is anticipated that the underwriting agreement pertaining to the sale of
any series of Securities will provide that the obligations of the underwriters
will be subject to certain conditions precedent, that the underwriters will be
obligated to purchase all such Securities if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Bank will indemnify the several underwriters and the
underwriters will indemnify the Bank against certain civil liabilities,
including liabilities under the Securities Act or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Bank and purchasers of
Securities of such series.
Purchasers of Securities, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with
respect thereto, will be passed upon by counsel specified in the related
Prospectus Supplement.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
Accrual Securities.......................................................... 6
Actuarial Contracts......................................................... 18
Additional Receivables...................................................... 9
Additional Yield Maintenance Amount......................................... 30
Affiliate................................................................... 1
APR......................................................................... 10
Bank........................................................................ 1
Cede........................................................................ 10
Cedel....................................................................... 10
CEDEL Participants.......................................................... 24
Certificateholders.......................................................... 25
Certificates................................................................ 1
CFC......................................................................... 1
Class....................................................................... 1
Closing Date................................................................ 17
Code........................................................................ 11
Collection Account.......................................................... 28
Collection Period........................................................... 7
Commission.................................................................. 2
Commodity Indexed Securities................................................ 27
Contracts................................................................... 1
Cooperative................................................................. 24
Credit Enhancement.......................................................... 8
Credit Enhancer............................................................. 15
Currency Indexed Securities................................................. 27
Cut-Off Date................................................................ 16
Definitive Securities....................................................... 25
Depositaries................................................................ 22
Determination Date.......................................................... 29
Distribution Account........................................................ 28
Distribution Date........................................................... 6
DTC......................................................................... 3
Eligible Deposit Account.................................................... 29
Eligible Institution........................................................ 29
Eligible Investments........................................................ 29
ERISA....................................................................... 11
Euroclear................................................................... 10
Euroclear Operator.......................................................... 24
Euroclear Participants...................................................... 24
Exchange Act................................................................ 2
Face Amount................................................................. 27
FASIT....................................................................... 2
FDIA........................................................................ 13
FDIC........................................................................ 13
Fixed Income Securities..................................................... 5
FTC Rule.................................................................... 39
High Yield Interests........................................................ 11
Indenture................................................................... 4
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
Index....................................................................... 27
Indexed Commodity........................................................... 27
Indexed Currency............................................................ 27
Indexed Principal Amount.................................................... 27
Indexed Securities.......................................................... 27
Indirect Participants....................................................... 23
Insolvency Event............................................................ 34
Interest Rate............................................................... 2
Investment Company Act...................................................... 4
Investment Earnings......................................................... 29
Issuer...................................................................... 1
Lender...................................................................... 16
Master Trust................................................................ 8
Master Trust Agreement...................................................... 8
Master Trust New Issuance................................................... 30
Noteholders................................................................. 25
Notes....................................................................... 1
Original Security Principal Balance......................................... 26
OTS......................................................................... 20
Participants................................................................ 22
Pass-Through Rate........................................................... 2
Pool Balance................................................................ 8
Pool Factor................................................................. 19
Pooling Agreement........................................................... 4
Pre-Funding Account......................................................... 9
Pre-Funding Period.......................................................... 9
Prepayment.................................................................. 15
Prospectus Supplement....................................................... 1
Purchase Amount............................................................. 29
Rating Agencies............................................................. 11
Ratings Effect.............................................................. 14
Receivable File............................................................. 31
Receivables................................................................. 1
Regular Interests........................................................... 11
Record Date................................................................. 6
Registration Statement...................................................... 2
Reimbursement Amounts....................................................... 26
Relief Act.................................................................. 15
Required Rate............................................................... 10
Residual Interest........................................................... 8
Rule of 78s................................................................. 17
Rule of 78s Contracts....................................................... 17
Rules....................................................................... 23
SAIF........................................................................ 20
Securities.................................................................. 1
Securities Act.............................................................. 2
Security Principal Balance.................................................. 26
Securityholders............................................................. 6
Senior Securities........................................................... 6
Servicer.................................................................... 1
Servicer Default............................................................ 34
Servicing Agreement......................................................... 4
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
Simple Interest Contracts................................................... 18
Stock Index................................................................. 27
Stock Indexed Securities.................................................... 27
Strip Securities............................................................ 6
Subordinate Securities...................................................... 6
Terms and Conditions........................................................ 24
Trust....................................................................... 1
Trust Accounts.............................................................. 29
Trust Agreement............................................................. 5
Trust Property.............................................................. 1
Trustee..................................................................... 4
UCC......................................................................... 37
Vehicles.................................................................... 1
Yield Maintenance Agreement................................................. 30
Yield Maintenance Amount.................................................... 10
</TABLE>
45
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENT PROCEDURES
Except in certain limited circumstances, the globally offered Certificates
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear will
be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of CEDEL and Euroclear (in
such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their Relevant
Depository which in turn will hold such positions in their accounts as DTC
Participants. Investors electing to hold their Global Securities through DTC
will follow DTC settlement practices. Investor securities custody accounts
will be credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior asset-
backed certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
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<PAGE>
Trading between a DTC Seller and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a CEDEL Participant or a Euroclear Participant, the
purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear will instruct the Relevant Depository, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following
month. Payment will then be made by the Relevant Depository to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual prodecures, to the CEDEL Participant's or Euroclear Participant's
account. The securities credit will appear the next day (European time) and
the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., trade fails), the CEDEL or Euroclear cash debt will
be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although the result will
depend on each CEDEL Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for crediting Global Securities
to the respective European Depository for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depository, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
CEDEL or Euroclear will instruct the respective Depository, as appropriate, to
credit the Global Securities to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment to and excluding the settlement date on the
basis of the actual number of days in such accrual period and a year assumed
to consist of 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the
CEDEL Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). In the event that the CEDEL
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect
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<PAGE>
to be in debt in anticipation of receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem;
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest (including original issue discount) on debt issued in registered
form by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with Effectively Connected Income (Form
4224). A Non-U.S. Person (as defined below), including a corporation or bank
that is a Non-U.S. Person, for which the interest income is effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption
from Withholding of Tax on the Income Effectively Connected with the Conduct
of a Trade or Business in the United States). Form 4224 may also be filed by
the Certificate Owner's Agent.
Exemption or Reduced Rate for Non-U.S. Persons Resident in Treaty Countries
(Form 1001). Non-U.S. Persons residing in a country that has a tax treaty with
the United States can obtain an exemption or reduced tax rate (depending on
the treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8.
Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (W-9). Generally, U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. Owners of Global Securities or,
in the case of a Form 1001 or a Form 4224 filer, their agent, file by
submitting the appropriate form to the person through whom they
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<PAGE>
hold (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one taxable year of the Owner.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof, (iii) an estate
that is subject to U.S. federal income tax regardless of the source of its
income, or (iv) a trust if a court within the United States can exercise
primary supervision over its administration and one or more United States
persons have the authority to control all substantial decisions of the trust.
The term "Non-U.S. Person" means any person who is not a U.S. Person. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors
are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
A-4
<PAGE>
$349,390,000
Chevy Chase Auto Receivables Trust 2000-1
[CHEVY CHASE BANK, F.S.B LOGO]
Seller and Servicer
Auto Receivables Backed Notes, Series 2000-1
----------------
PROSPECTUS SUPPLEMENT
----------------
Salomon Smith Barney
Deutsche Banc Alex. Brown
J.P. Morgan & Co.
You should rely on the information contained or incorporated by
reference in this prospectus supplement and the accompanying
prospectus. We have not authorized anyone to provide you with
different information.
We are not offering the securities offered hereby in any state
where the offer is not permitted.
June 13, 2000
