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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 19, 1995)
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$206,597,000
ACCESS FINANCIAL'tm' MORTGAGE LOAN TRUST 1996-3
MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES 1996-3
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$44,843,000 Class A-1 Group I Certificates, Variable Pass-Through Rate
$28,572,000 Class A-2 Group I Certificates, 6.90% Pass-Through Rate
$13,552,000 Class A-3 Group I Certificates, 7.25% Pass-Through Rate
$10,000,000 Class A-4 Group I Certificates, 7.50% Pass-Through Rate
$10,744,000 Class A-5 Group I Certificates, 7.60% Pass-Through Rate
$98,886,000 Class A-6 Group II Certificates, Variable Pass-Through Rate
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[Logo]
ACCESS FINANCIAL LENDING CORP.
SELLER AND MASTER SERVICER
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The Access Financial Mortgage Loan Pass-Through Certificates, Series 1996-3 (the
'Certificates') will consist of six classes of offered certificates, the Class
A-1 Group I Certificates, the Class A-2 Group I Certificates, the Class A-3
Group I Certificates, the Class A-4 Group I Certificates, the Class A-5 Group I
Certificates (collectively, the 'Class A Group I Certificates') and the Class
A-6 Group II Certificates, (together with the Class A Group I Certificates, the
'Class A Certificates') which represent beneficial ownership interests in Access
Financial Mortgage Loan Trust 1996-3 (the 'Trust'). The assets of the Trust
consist primarily of a pool (the 'Pool') of fixed and adjustable rate,
amortizing mortgage loans which are secured by first or second liens on
residential properties (the 'Mortgage Loans') and the Certificate Insurance
Policy (as defined below) covering the Class A Certificates.
The Seller has obtained a financial guaranty insurance policy (the 'Certificate
Insurance Policy') from Financial Guaranty Insurance Company (the 'Certificate
Insurer') which will unconditionally and irrevocably guarantee payment of
certain amounts due to the Owners of the Class A Certificates to the extent
described herein.
[Logo]
FINANCIAL GUARANTY INSURANCE COMPANY
FGIC is a registered service mark used by Financial Guaranty Insurance Company,
a private company not affiliated with any U.S. Government agency.
(Cover continued on next page)
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FOR A DISCUSSION OF CERTAIN RISK FACTORS REGARDING AN INVESTMENT IN THE CLASS A
CERTIFICATES, SEE 'RISK FACTORS' ON PAGE S-16 HEREIN AND ON PAGE 15 OF THE
ACCOMPANYING PROSPECTUS.
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Prudential Securities Incorporated and J.P. Morgan Securities Inc. (the
'Underwriters') have agreed to purchase from the Trust the Class A-1 Group I
Certificates at an aggregate price of 99.75% of the principal amount thereof,
the Class A-2 Group I Certificates at an aggregate price of 99.73% of the
principal amount thereof, the Class A-3 Group I Certificates at an aggregate
price of 99.75% of the principal amount thereof, the Class A-4 Group I
Certificates at an aggregate price of 99.69% of the principal amount thereof,
the Class A-5 Group I Certificates at an aggregate price of 99.69% of the
principal amount thereof, and the Class A-6 Group II Certificates at an
aggregate price of 99.75% of the principal amount thereof, (representing
$206,063,078 aggregate proceeds to the Seller before deducting expenses payable
by the Seller, estimated at $500,000) plus accrued interest, if any, from August
2, 1996 for the Class A-2, A-3, A-4 and A-5 Group I Certificates subject to the
terms and conditions set forth in the Underwriting Agreement dated August 22,
1996 among the Underwriters, the Seller and Cargill Financial Services
Corporation (the 'Sponsor'). See 'Underwriting' in this Prospectus Supplement.
The Underwriters propose to offer the Class A Certificates from time to time for
sale in negotiated transactions or otherwise, at market prices prevailing at the
time of sale or at negotiated prices. For further information with respect to
the plan of distribution and any discounts, commissions or profits on resale
that may be deemed underwriting discounts or commissions, see 'Underwriting' in
this Prospectus Supplement.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The Class A Certificates are offered hereby by the Underwriters when, as and if
issued by the Trust, delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Class A Certificates will be made in book-entry form only
through the facilities of The Depository Trust Company, CEDEL S.A. and
Euroclear on or about August 27, 1996 against payment in immediately available
funds.
PRUDENTIAL SECURITIES INCORPORATED J.P. MORGAN & CO.
August 23, 1996
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The Class A Group I Certificates will represent undivided ownership
interests in a group ('Group I') of Mortgage Loans in the Trust which bear fixed
rates of interest and the Class A-6 Group II Certificates will represent
undivided ownership interests in a group ('Group II') of Mortgage Loans in the
Trust which bear adjustable rates of interest. Group I and Group II are
collectively referred to herein as the 'Mortgage Loan Groups' and each
singularly, a 'Mortgage Loan Group'.
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement dated as of August 1, 1996 (the 'Pooling and Servicing Agreement')
among Cargill Financial Services Corporation (the 'Sponsor'), Access Financial
Lending Corp., as Seller (the 'Seller') and Master Servicer (the 'Master
Servicer'). Pursuant to a Securitization Sponsorship Agreement dated as of
August 1, 1996 (the 'Sponsorship Agreement') between the Seller and the Sponsor,
the Sponsor will cause the Trust to acquire the Mortgage Loans from the Seller.
In addition to the Class A Certificates the Trust will also issue a subordinate
Class of Certificates with respect to Group I (the 'Class B Group I
Certificates'), a subordinate Class of Certificates with respect to Group II
(the 'Class B Group II Certificates', together with the Class B Group I
Certificates, the 'Class B Certificates') and one or more Classes of Residual
Certificates. Only the Class A Certificates are offered hereby. Distributions of
interest on the Class A Certificates are of an equal priority to the extent
described herein, and distributions on the Class B Certificates and on the
Residual Certificates are subordinate to distributions on the Class A
Certificates to the extent described herein. See 'Description of the
Certificates' herein.
All of the Mortgage Loans were originated under the Seller's Mortgage Loan
Program by unaffiliated originators (the 'Originators'). Except for certain
representations and warranties relating to the Mortgage Loans and certain other
matters, Access Financial Lending Corp., Cargill Financial Services Corporation,
Norwest Bank Minnesota, National Association, any Sub-Servicers and the
Originators will have no obligations with respect to the Certificates.
Distributions of principal and interest on the Class A Certificates will be
made to the extent funds are available therefor on the 18th day of each month
or, if such day is not a business day, on the next succeeding business day
commencing September 18, 1996 (each a 'Payment Date') to holders of record as of
the close of business on the first business day of the current calendar month
(with respect to the Class A Fixed Rate Certificates) or as of the close of
business on the business day immediately preceding such Payment Date (with
respect to the Class A-1 Group I Certificates and the Class A-6 Group II
Certificates), except in the case of the first Payment Date, on which
distributions will be made to holders of record as of the Closing Date (each
such date being the applicable 'Record Date').
An ERISA Plan purchasing the Class A Certificates should consult with its
legal advisors concerning the impact of ERISA and the Code with respect to such
purchase. See 'Risk Factors' and 'ERISA Considerations' herein.
There is currently no secondary market for any Class of the Class A
Certificates. There can be no assurance that a secondary market for any of the
Class A Certificates will develop or, if one does develop, that it will
continue.
One or more elections will be made to treat certain assets and/or Accounts
of the Trust as 'real estate mortgage investment conduits' ('REMICs') pursuant
to the Internal Revenue Code of 1986, as amended (the 'Code'). Each Class of
Class A Certificates will be a 'regular interest' in a REMIC. See 'Federal
Income Tax Consequences' herein.
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THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF CARGILL FINANCIAL SERVICES
CORPORATION, ACCESS FINANCIAL LENDING CORP., THE TRUSTEE, THE CERTIFICATE
INSURER, ANY SUB-SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. THE CLASS A
CERTIFICATES AND THE MORTGAGE LOANS ARE NOT INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY, NOR HAS ANY GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OF
THE INFORMATION CONTAINED IN THIS PROSPECTUS.
AVAILABLE INFORMATION
The Sponsor has filed a Registration Statement under the Securities Act
of 1933, as amended, (the "1933 Act") with the Securities and Exchange
Commission (the "Commission") on behalf of the Trust with respect to the Class A
Certificates offered pursuant to this Prospectus Supplement and the related
Prospectus. For further information, reference is made to the Registration
Statement and amendments thereof and to the exhibits thereto, which are
available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison
Street, Chicago, Illinois 60661. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
In addition, the Commission maintains a site on the World Wide Web at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
REPORTS TO THE HOLDERS
So long as the Class A Certificates are in book-entry form, monthly and
annual reports concerning such Certificates and the Trust will be sent by the
Trustee to Cede & Co. ("Cede"), as the nominee of The Depository Trust Company
("DTC") and as registered holder of the Class A Certificates pursuant to the
Pooling and Servicing Agreement. DTC will forward such reports to the
Participants and indirect participants by mail for forwarding to the Owner of
any Class A Certificates (the "Owner" or "Certificateholder"). See "Risk
Factors" and "Description of the Certificates -- Reports to Owners". The Trust
will not provide any financial information to the Owners which has been examined
and reported upon, with an opinion expressed by, an independent public
accountant. The Seller, the Sponsor and the Master Servicer have determined that
their respective financial statements are not material to the offering made
hereby. The Trust will have no assets or obligations prior to issuance of the
Certificates and will engage in no activities other than those described herein.
Accordingly, no financial statements with respect to the Trust are included in
this Prospectus Supplement and the related Prospectus. The audited financial
statements of the Certificate Insurer are set forth in Appendix A hereto.
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SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Indices of Principal
Definitions for the location in either the Prospectus or this Prospectus
Supplement of the definitions of certain capitalized terms.
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Issuer Access Financial Mortgage Loan Trust 1996-3 (the "Trust").
Securities Offered $44,843,000 aggregate principal amount of Class A-1 Group I Certificates,
Variable Pass-Through Rate; $28,572,000 aggregate principal amount
of Class A-2 Group I Certificates, 6.900% Pass-Through Rate; $13,552,000
aggregate principal amount of Class A-3 Group I Certificates, 7.250%
Pass-Through Rate; $10,000,000 aggregate principal amount of Class A-4 Group I
Certificates, 7.500% Pass-Through Rate; $10,744,000 aggregate principal amount
of Class A-5 Group I Certificates, 7.600% Pass-Through Rate; and $98,886,000
aggregate principal amount of Class A-6 Group II Certificates, Variable
Pass-Through Rate.
Sponsor Cargill Financial Services Corporation, a Delaware corporation (the
"Sponsor").
Seller Access Financial Lending Corp., a Delaware corporation ("AFL") and a
wholly-owned subsidiary of Access Financial Holdings Corp., a Delaware
corporation (the "Seller").
Master Servicer Access Financial Lending Corp. (the "Master Servicer").
Trustee Norwest Bank Minnesota, National Association (the "Trustee").
Originators of the Mortgage Loans The Mortgage Loans to be acquired by the Trust have been acquired by the
Seller from the Originators, in accordance with the Seller's underwriting
criteria.
Original Pool Principal
Balance $207,596,998.90 as of the close of business on the Cut-Off Date.
Original Group I
Pool Principal Balance $107,711,655.82 as of the close of business on the Cut-Off Date.
Original Group II
Pool Principal Balance $99,885,343.08 as of the close of business on the Cut-Off Date.
Closing Date On or about August 27, 1996.
Cut-Off Date August 1, 1996.
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Description of the
Certificates The Certificates will be issued by the Trust pursuant to a Pooling and
Servicing Agreement to be dated as of August 1, 1996 (the "Pooling and
Servicing Agreement") among the Sponsor, the Master Servicer and the Trustee.
The $107,711,000 aggregate principal amount of Class A Group I Certificates,
comprised of five "sequential pay" Classes (the "Class A Group I Certificates")
and the $98,886,000 aggregate principal amount of Class A-6 Group II
Certificates (the "Class A-6 Group II Certificates") are senior certificates as
described herein.
The Trust will issue a subordinate Class of Certificates with respect to Group
I (the "Class B Group I Certificates") and a subordinate Class of Certificates
with respect to Group II (the "Class B Group II Certificates", and together
with the Class B Group I Certificates, the "Class B Certificates"), which are
subordinated to the Class A Group I Certificates and the Class A-6 Group II
Certificates, respectively. The Class B Certificates are not being offered
hereby. The Trust will also issue one residual class of Certificates with
respect to each REMIC election made by the Trust (the "Residual Certificates")
which are not being offered hereby and will initially be retained by the Seller
or its affiliates. The Class A Group I Certificates, the Class A-6 Group II
Certificates, the Class B Group I Certificates, the Class B Group II
Certificates and the Residual Certificates are collectively referred to as the
"Certificates". The Class A Group I Certificates and the Class A-6 Group II
Certificates are collectively referred to as the "Class A Certificates".
A. Class A Group I
Certificates The Class A Group I Certificates represent senior beneficial ownership
interests in Group I. One hundred percent (100%) of the Group I Insured
Distribution Amount (as described herein under "Description of the
Certificates") due to the Owners of the Class A Group I Certificates on each
Payment Date is guaranteed by the Certificate Insurer. The final scheduled
Payment Date for the Class A-1 Group I Certificates is May 18, 2011, for the
Class A-2 Group I Certificates is May 18, 2011, for the Class A-3 Group I
Certificates is November 18, 2015, for the Class A-4 Group I Certificates is
June 18, 2022 and for the Class A-5 Group I Certificates is September 18, 2027.
Each Class of Class A Group I Certificates is issuable in original principal
amounts of $1,000 and integral multiples thereof except that one certificate
for each Class of Class A Group I Certificates may be issued in a different
amount.
B. Class A-6 Group
II Certificates The Class A-6 Group II Certificates represent senior beneficial ownership
interests in Group II. One hundred percent (100%) of the Group II Insured
Distribution Amount (as described herein under "Description of the
Certificates") due to the Owners of the Class A-6 Group II Certificates on each
Payment Date is guaranteed by the Certificate Insurer. The final scheduled
Payment Date for the Class A-6 Group II Certificates is January 18, 2027. The
Class A-6 Group II Certificates are issuable in original principal amounts of
$1,000 and integral multiples thereof except that one certificate may be issued
in a different amount.
The Mortgage Loan Pool The statistical information concerning the Pool of Mortgage Loans is based upon
Pool information as of the close of business on August 1, 1996 (the "Cut-Off
Date").
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The Pool of Mortgage Loans consists of Notes secured by mortgages, deeds of
trust or other instruments creating liens or estates in fee simple interests
("Mortgages") on one- to four-family residential properties, including
investment properties. The Mortgage Loans will not be insured by primary
mortgage insurance policies, nor will any pool insurance insure the Mortgage
Loans. The Mortgage Loans are not guaranteed by the Sponsor, the Seller, the
Master Servicer, the Sub-Servicers, the Trustee or any of their respective
affiliates. The Mortgage Loans will be serviced by the Master Servicer on a
"scheduled/actual" basis (i.e., "scheduled" interest and "actual" principal
receipts are required to be remitted by the Master Servicer to the Trustee each
month).
Each Mortgage Loan in the Trust will be assigned to one of two mortgage loan
groups ("Group I" or the "Group II", each, a "Mortgage Loan Group") comprised
of Mortgage Loans which bear fixed-interest rates only in the case of Group I,
and Mortgage Loans which bear adjustable interest rates only in the case of
Group II. As of the Cut-Off Date, the Mortgage Loans in Group I had an
aggregate principal balance of approximately $107,711,655.82 (the "Original
Group I Pool Principal Balance"), and the Mortgage Loans in the Group II had an
aggregate principal balance of approximately $99,885,343.08 (the "Original
Group II Pool Principal Balance"). The sum of the Original Group I Pool
Principal Balance and the Original Group II Pool Principal Balance is equal to
the "Original Pool Principal Balance".
The Pool of Mortgage Loans in Group I consists of approximately 1,670 Mortgages
secured by Mortgaged Properties located in 45 states and the District of
Columbia. The Pool of Mortgage Loans in Group I consists as of the Cut-Off Date
and as a percentage of the Original Group I Pool Principal Balance, of
approximately 94.93% of loans secured by first liens on the related Mortgaged
Properties and approximately 5.07% of loans secured by second liens on the
related Mortgaged Properties. The Pool of Mortgage Loans in Group I consists of
approximately 93.71% of loans secured by primary residences. 45.27% of the
Mortgage Loans in Group I will be fully amortizing and 54.73% of the Mortgage
Loans in Group I are "balloon loans" ("Balloon Loans"). The weighted average
Combined Loan-to-Value Ratio (with property values calculated as of the time of
origination of the related Mortgage Loan) of the Pool of Mortgage Loans in
Group I is approximately 75.09% with a range from approximately 9% to
approximately 90% the weighted average remaining term to maturity is
approximately 228 months, with a range from 21 months to 360 months; the
weighted average number of months since origination is approximately 1.5; the
average principal balance of the Mortgage Loans in Group I is approximately
$64,498 the highest principal balance is approximately $342,000 and the lowest
principal balance is approximately $9,909.11; the Coupon Rates (the "Coupon
Rates") of the Mortgage Loans in Group I range from 7.00% per annum to 17.50%
per annum, with a weighted average Coupon Rate of approximately 11.57% per
annum.
The Pool of Mortgage Loans in Group II consists of 1,031 Mortgages secured by
Mortgaged Properties located in 39 states and the District of Columbia. The
Pool of Mortgage Loans in Group II consists as of the Cut-Off Date and as a
percentage of the Original Group II Pool Principal Balance, of 99.86% of loans
secured by first liens on the related Mortgaged Properties and
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approximately 0.14% of loans secured by second liens on the related Mortgaged
Properties. The Pool of Mortgage Loans in Group II consists of approximately
96.71% of loans secured by primary residences. 99.10% of the Mortgage Loans in
Group II will be fully amortizing and 0.90% of the Mortgage Loans in Group II
are Balloon Loans. The weighted average Combined Loan-to-Value Ratio (with
property values calculated as of the time of origination of the related
Mortgage Loan) of the Pool of Mortgage Loans in Group II is approximately
76.08% with a range from approximately 16.00% to approximately 90.00%; the
weighted average remaining term to maturity is approximately 356 months, with a
range from 118 months to 360 months; the weighted average number of months
since origination is approximately 1; the average principal balance of the
Mortgage Loans in Group II is approximately $96,882.00, the highest principal
balance is approximately $400,000.00 and the lowest principal balance is
approximately $9,947.40; the Coupon Rates of the Mortgage Loans in Group II
range from 7.225% per annum to 13.95% per annum, with a weighted average Coupon
Rate of approximately 9.789% per annum; the margins of the Mortgage Loans in
Group II range from 3.00% to 10.50% with a weighted average margin of
approximately 6.50% per annum. The Coupon Rates of Mortgage Loans in Group II
bear interest rates that adjust semi-annually based on six-month LIBOR. In
general the interest rates on the Mortgage Loans in Group II are subject to
periodic interest rate caps and interest rate ceilings.
Class A-1 Pass-
Through Rate On each Payment Date, the "Class A-1 Pass-Through Rate" will be equal to the
lesser of (i) the London interbank offered rate for one-month United States
dollar deposits ("LIBOR") (calculated as described under "Description of the
Certificates -- Calculation of LIBOR") as of the second to last business day
prior to the immediately preceding Payment Date (or as of the second to the
last business day prior to the Closing Date in the case of the first Payment
Date) plus 0.120% per annum and (ii) the weighted average net coupon rate
(i.e., the weighted average coupon rate less 0.5975% for Servicing Fees,
Trustee fees and Certificate Insurer premiums) for Group I for such Payment
Date (the rate described in this clause (ii) being the "Group I Available Funds
Pass-Through Rate").
Class A-2 Pass-
Through Rate 6.900% per annum.
Class A-3 Pass-
Through Rate 7.250% per annum.
Class A-4 Pass-
Through Rate 7.500% per annum.
Class A-5 Pass-
Through Rate 7.600% per annum, provided however that if the Auction Sale has not occurred by
the 90th day following the Seller Optional Termination Date, the Class A-5
Pass-Through Rate will be 8.350% per annum for each Payment Date occurring
after such 90th day. Notwithstanding the foregoing, on no Payment Date will the
Class A-5 Pass-Through Rate be greater than the Group I Available Funds
Pass-Through Rate.
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Class A-6 Pass-
Through Rate On each Payment Date, the "Class A-6 Pass-Through Rate" will be equal to the
lesser of (i) LIBOR as of the second to last business day prior to the
immediately preceding Payment Date (or as of the second to the last business
day prior to the Closing Date in the case of the first Payment Date) plus
0.310% per annum, and (ii) the weighted average net coupon rate (i.e., the
weighted average coupon rate less Servicing Fees, Trustee fees and Certificate
Insurer premiums) for Group II for such Payment Date (the "Class A-6 Available
Funds Pass-Through Rate").
The "Class A-6 Formula Pass-Through Rate" for a Payment Date is the rate
described in clause (i) of the definition of "Class A-6 Group II Pass-Through
Rate" on such Payment Date. The excess, if any, of (x) the interest due on the
Class A-6 Certificates on any Payment Date calculated at the Class A-6 Formula
Pass-Through Rate over (y) the interest due on the Class A-6 Certificates
calculated at the Class A-6 Available Funds Pass-Through Rate is the
"Supplemental Interest Amount" for such Payment Date.
If, on any Payment Date, there is a Supplemental Interest Amount calculated for
any Payment Date, the Owners of certain of the Class R Certificates have agreed
to pay such amount. If the full amount of the Supplemental Interest Amount is
not paid on a Payment Date, then the amount not paid will accrue interest at
the Class A-6 Formula Pass-Through Rate until actual payment.
The Certificate Insurer does not guarantee the payment of, nor do the ratings
assigned to the Class A-6 Certificates address the likelihood of the payment
of, any Supplemental Interest Amount.
Payment Dates, Record
Dates and Accrual Periods On the 18th day of each month, or, if such day is not a business day, then the
next succeeding business day, commencing September 18, 1996 (each such day
being a "Payment Date"), the Trustee will be required to distribute to the
Owners of record of the Certificates as of the close of business on the first
business day of the current calendar month (with respect to the Class A Fixed
Rate Certificates) or as of the close of business on the business day
immediately preceding such Payment Date (with respect to the Class A-1 Group I
Certificates and the Class A-6 Group II Certificates), except in the case of
the first Payment Date, on which distributions will be made to holders of
record as of the Closing Date (each such date being the applicable "Record
Date") such Owners' Percentage Interests in the amounts required to be
distributed to the Owners of each Class of Certificates on such Payment Date.
Interest will accrue on each Class A-2, A-3, A-4 and A-5 Group I Certificate
during the period from and including the second day of the month preceding the
month in which a Payment Date occurs through and including the first day of the
month in which such Payment Date occurs and on each Class A-1 Group I
Certificate and Class A-6 Group II Certificate from and including each Payment
Date (or the Closing Date, with respect to the initial Payment Date) to and
including the day preceding the current Payment Date. Each period referred to
in the immediately preceding sentence relating to the accrual of interest is
the "Accrual Period" for the related Class of
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Certificates. Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months for the Class A-2, A-3, A-4 and A-5 Group I
Certificates. Interest for the Class A-1 Group I Certificates and the Class A-6
Group II Certificates will be calculated based upon the actual number of days
in the related Accrual Period, divided by 360.
Distributions on the
Certificates
A. Priority of Distributions As more fully described herein, each Class of Certificates has a specified
priority to the collections on the Pool of Mortgage Loans which comprise the
related Mortgage Loan Group, subject to the credit enhancement and cross-
collateralization provisions hereinafter described. In addition, Financial
Guaranty Insurance Company, as Certificate Insurer, is required pursuant to the
Certificate Insurance Policy to make available to the Trustee on each Payment
Date 100% of the related Class A Insured Distribution Amount for the related
Mortgage Loan Group to the extent that available funds remaining after payment
of the Certificate Insurer's premium and the Trustee's fee are insufficient to
cover such amount.
The Owners of the Class A Group I Certificates and the Class A-6 Group II
Certificates will receive certain monthly distributions of principal on each
Payment Date which generally reflect collections of principal during the prior
Remittance Period with respect to the related Mortgage Loan Group. The
Certificate Insurance Policy only guarantees the amount by which the sum of the
related Interest Distribution Amount and the related Subordination Deficit, if
any, exceeds Total Available Funds.
B. Distributions on
the Class A Certificates
1. Interest
Distributions Interest will accrue on each Class of Class A Certificates at the related Class
A Pass-Through Rate during each Accrual Period for such Class of Certificates,
and will be distributed, to the extent of the Total Available Funds for the
related Mortgage Loan Group plus the proceeds of any Insured Payments, on each
Payment Date. Interest accruing during the related Accrual Period at the
related Class A Pass-Through Rate on the related Class A Principal Balance
immediately preceding such Payment Date is referred to herein as the "Class A
Interest Distribution Amount" for the related Class of Class A Certificates.
The "Class A Interest Distribution Amount" does not include the amounts, if
any, of the Supplemental Interest Amount applicable to the Class A-6 Group II
Certificates. See "Description of the Certificates -- Flow of Funds and
Distributions on the Class A Certificates" herein.
2. Principal
Distributions The Holders of the Class A Certificates issued with respect to each Mortgage
Loan Group will be entitled to receive on each Payment Date a distribution
allocable to principal (the "Class A Principal Distribution Amount" for such
Mortgage Loan Group and Payment Date) which will be equal to the lesser of:
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(a) the Total Available Funds for the related Mortgage Loan Group plus any
related Insured Payment minus the interest then due on account of the
related Class A Certificates; and
(b) (i) the sum, without duplication, of:
(x) for the Mortgage Loans in the related Mortgage Loan Group, the sum
of (i) the principal portion of all scheduled and unscheduled
payments received on the Mortgage Loans during the related
Remittance Period, including (a) any full or partial principal
prepayments of any Mortgage Loans ("Prepayments") received during
the related Remittance Period, (b) the proceeds received on any
insurance policy relating to a Mortgage Loan, a Mortgaged Property
or a REO Property, net of proceeds to be applied to the repair of
the Mortgaged Property or released to the Mortgagor (as defined
herein) and net of expenses reimbursable therefrom ("Insurance
Proceeds"), (c) proceeds received in connection with the
liquidation of any defaulted Mortgage Loans, whether by trustee's
sale, foreclosure sale or otherwise ("Liquidation Proceeds"), net
of fees and advances reimbursable therefrom ("Net Liquidation
Proceeds") and (d) proceeds received in connection with a taking of
a Mortgaged Property by condemnation or the exercise of eminent
domain or in connection with a release of part of the Mortgaged
Property from the related lien ("Released Mortgaged Property
Proceeds"), (ii) the principal portion of all amounts deposited
into the Principal and Interest Account on the related Remittance
Date in connection with the repurchase of, or the substitution of a
substantially similar mortgage loan for, a Mortgage as to which
there is defective documentation or a breach of a representation or
warranty contained in the Pooling and Servicing Agreement, and
(iii) the proceeds received by the Trustee in connection with any
termination of the Trust, to the extent that such proceeds relate
to principal; and
(y) the amount of any Subordination Deficit with respect to the related
Mortgage Loan Group for such Payment Date; and
(z) the amount of any Subordination Increase Amount with respect to the
related Mortgage Loan Group for such Payment Date, to the extent of
the Class B Interest available to be applied for such purpose for
such Payment Date;
minus
(ii) the amount of any Subordination Reduction Amount with respect to the
related Mortgage Loan Group for such Payment Date.
The amount of any Subordination Deficit or Subordination Increase Amount to be
paid to the Holders of the Class A Certificates will be paid to the Holders of
the Class A Certificates then entitled to receive distributions of
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principal. Similarly, the amount of any Subordination Reduction Amount to be
deducted from the Class A Principal Distribution Amount for the Class A
Certificates will be deducted from such amounts otherwise due to the Holders of
the Class A Certificates then entitled to receive distributions of principal.
The amount of any loss on a Liquidated Mortgage Loan in the related Mortgage
Loan Group (i.e., a Realized Loss) may or may not be allocated to the Owners of
the Class A Certificates issued with respect to such Mortgage Loan Group on the
Payment Date which immediately follows the event of loss. However, the Owners
of each Class of the Class A Certificates are entitled to receive ultimate
recovery of 100% of the original principal balance for such Class.
The Class A Group I Certificates have been tranched into five "sequential pay"
Classes, such that the Class A-5 Group I Certificates are entitled to receive
no principal distributions until the Class A-4 Certificate Principal Balance
has been reduced to zero, the Class A-4 Group I Certificates are entitled to
receive no principal distributions until the Class A-3 Certificate Principal
Balance has been reduced to zero, the Class A-3 Group I Certificates are
entitled to receive no principal distributions until the Class A-2 Certificate
Principal Balance has been reduced to zero, and the Class A-2 Group I
Certificates are entitled to receive no principal distributions until the Class
A-1 Certificate Principal Balance has been reduced to zero.
As of any Payment Date, the "Class A Certificate Principal Balance" for a Class
of Class A Certificates, prior to any distribution on such Payment Date, will
equal the original Class A Certificate Principal Balance of such Class less the
sum of all amounts previously distributed to the Owners of the related Class of
Class A Certificates on account of principal. "Class A Group I Certificate
Principal Balance" refers to the Class A Group I Certificates, and the "Class A
Group II Certificate Principal Balance" refers to the Class A-6 Group II
Certificates.
C. Class A
Distribution Amounts
and Class A Insured
Distribution Amounts The "Class A Distribution Amount" with respect to each Class of Class A
Certificates and Payment Date is the sum, without duplication, of (x) the Class
A Interest Distribution Amount with respect to such Class and Payment Date, (y)
the Class A Principal Distribution Amount, if any, with respect to such Class
and Payment Date and (z) the Class A Carry-Forward Amount, if any, with respect
to such Class and Payment Date.
The "Class A Carry-Forward Amount" means, with respect to each Class of Class A
Certificates and Payment Date, the sum, without duplication, of (a) the amount,
if any, by which (x) the Class A Distribution Amount for the related Class of
Class A Certificates as of the immediately preceding Payment Date exceeded (y)
the amount of the actual distribution, exclusive of any portion thereof
representing the proceeds of an Insured Payment, to the Owners of the related
Class of Class A Certificates on such immediately preceding Payment Date and
(b) interest on the amount, if any, described in clause (a) at the related
Class A Pass-Through Rate from such immediately preceding Payment Date.
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The "Class A Insured Distribution Amount" with respect to each Class of Class A
Certificates and Payment Date is the sum, without duplication, of (x) the Class
A Interest Distribution Amount with respect to such Class and Payment Date, (y)
the amount of any Subordination Deficit with respect to such Class and Payment
Date and (z) the Class A Carry-Forward Amount, if any, with respect to such
class and Payment Date.
To the extent that the Certificate Insurer pays Insured Payments the
Certificate Insurer, as subrogee, will be entitled to receive the Class A
Carry-Forward Amount.
The Pooling and Servicing Agreement provides that to the extent any portion of
a Class A Carry-Forward Amount relates to principal such portion shall be
treated as a distribution of principal, with any portion which relates to
interest being treated as a distribution of interest.
Registration of the
Class A Certificates The Class A Certificates will initially be issued in book-entry form. Persons
acquiring beneficial ownership interests in such Class A Certificates
("Beneficial Certificate Owners") may elect to hold their interests through The
Depository Trust Company ("DTC"), in the United States, or Centrale de
Livraison de Valeurs Mobiliers, S.A. ("CEDEL") or the 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. So long as the Class A Certificates are book-entry
certificates, such Class A Certificates will be evidenced by one or more Class
A Certificates registered in the name of Cede & Co. ("Cede"), as the nominee of
DTC or one of the relevant depositories (collectively, the "European
Depositories"). Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and counterparties holding directly or
indirectly through CEDEL or Euroclear, on the other, will be effected in DTC
through Citibank N.A. ("Citibank") or Morgan Guaranty Trust Company of New York
("Morgan"), the relevant depositories of CEDEL or Euroclear, respectively, and
each a participating member of DTC. The Class A Certificates will initially be
registered in the name of Cede. The interests of the Owners of such Class A
Certificates will be represented by book-entries on the records of DTC and
participating members thereof. No Beneficial Certificate Owner will be entitled
to receive a definitive certificate representing such person's interest, except
in the event that Definitive Certificates (as defined herein) are issued under
the limited circumstances described herein. All references herein to any Class
A Certificates reflect the rights of Beneficial Certificate Owners only as such
rights may be exercised through DTC and its participating organizations for so
long as such Class A Certificates are held by DTC. See "Risk Factors" and
"Description of the Certificates -- Book-Entry Registration of the Class A
Certificates" herein.
Servicing of the
Mortgage Loans The Master Servicer has agreed to service the Mortgage Loans in accordance with
the Pooling and Servicing Agreement. In certain limited circumstances, the
Master Servicer may be removed as Master Servicer under the Pooling and
Servicing Agreement. In the event that AFL is removed as Master Servicer under
the Pooling and Servicing Agreement, a successor Master Servicer will be
appointed thereunder.
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The Master Servicer has entered into certain Sub-Servicing Agreements with
respect to the Mortgage Loans. See "The Seller and the Master Servicer."
Monthly Servicing Fee The Master Servicer will retain fees not in excess of 0.50% per annum (the
"Servicing Fee"), payable monthly at one-twelfth the annual rate, of the then
outstanding principal amount of each Mortgage Loan serviced by it as of the
close of business on the first day of the preceding calendar month.
Subordination of Class B
Certificates The Class B Certificates are subordinated to the Class A Certificates. Such
subordination is intended to enhance the likelihood that the Owners of the
Class A Certificates will receive full and timely receipt of all amounts due to
them. See "Description of the Certificates -- Subordination of Class B
Certificates" herein.
Certificate
Insurer Financial Guaranty Insurance Company, a New York stock insurance company.
Certificate
Insurance Policy The Seller will obtain the Certificate Insurance Policy, which is
non-cancelable, in favor of the Trustee on behalf of the Owners of the Class A
Certificates. On each Payment Date, the Certificate Insurer is required to make
available to the Trustee the amount of any insufficiency in Total Available
Funds for the related Mortgage Loan Group as of such Payment Date necessary to
distribute the Class A Insured Distribution Amount with respect to the related
Mortgage Loan Group. The Certificate Insurance Policy does not guarantee any
specified rate of Prepayments. See "The Certificate Insurance Policy and the
Certificate Insurer" and "Description of the Certificates -- Subordination of
Class B Certificates" herein.
The Trustee or paying agent will (i) receive as attorney-in-fact of each Owner
of the Class A Certificates, any Insured Payment from the Certificate Insurer
and (ii) disburse the same to each Owner of the related Class A Certificates in
accordance with the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement will provide that to the extent the Certificate Insurer makes Insured
Payments, either directly or indirectly (as by paying through the Trustee or a
paying agent), to the Owners of any Class A Certificates, the Certificate
Insurer will be subrogated to the rights of such Owners of such Class A
Certificates with respect to such Insured Payments. The Certificate Insurer
will receive reimbursement for such Insured Payments, but only from the sources
and in the manner provided in the Pooling and Servicing Agreement. Such
subrogation and reimbursement will have no effect on the Certificate Insurer's
obligations under the Certificate Insurance Policy.
Optional
Termination The Seller will have the right to purchase all the Mortgage Loans on any
Payment Date when the aggregate principal balances of the Mortgage Loans has
declined to ten percent or less of the Original Pool Principal Balance (the
"Seller Optional Termination Date"). See "Description of the Certificates --
Optional Termination by the Seller" herein.
Auction Sale; Step Up on
Class A-5 Pass-Through Rate The Pooling and Servicing Agreement requires that, within 90 days following the
Seller Optional Termination Date, if the Seller has not exercised its optional
termination right by such date, the Trustee shall solicit bids for the purchase
(the "Auction Sale") of all Mortgage Loans remaining in the Trust.
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In the event that satisfactory bids are received as described in the Pooling
and Servicing Agreement, the net sale proceeds will be distributed to
Certificateholders, in the same order of priority as collections received in
respect of the Mortgage Loans. If satisfactory bids are not received, the
Trustee shall decline to sell the Mortgage Loans and shall not be under any
obligation to solicit any further bids or otherwise negotiate any further sale
of the Mortgage Loans. Such sale and consequent termination of the Trust must
constitute a "qualified liquidation" of each REMIC established by the Trust
under Section 860F of the Internal Revenue Code of 1986, as amended, including,
without limitation, the requirement that the qualified liquidation takes place
over a period not to exceed 90 days.
If the Auction Sale has not occurred by the 90th day following the Seller
Optional Termination Date, the Class A-5 Pass Through Rate will be 8.350% for
each Payment Date occurring after such 90th day. Notwithstanding the foregoing,
on no Payment Date will the Class A-5 Pass-Through Rate be greater than the
Group I Available Funds Pass-Through Rate.
Ratings It is a condition of the original issuance of the Class A Certificates that the
Class A Certificates receive ratings of AAA or Aaa by S&P and Moody's,
respectively. A security rating is not a recommendation to buy, sell or hold
securities, and may be subject to revision or withdrawal at any time by the
assigning entity.
Such ratings address credit risk, but do not purport to address any prepayment
risk associated with the Class A Certificates, nor do such ratings cover the
payment of the Supplemental Interest Amounts.
Federal Income Tax
Consequences One or more elections will be made to treat certain assets of the Trust as one
or more REMICs for federal income tax purposes. Each Class of the Class A
certificates will be designated as a "regular interest" in a REMIC and a
separate class of certificates will be designated as the "residual interest"
with respect to each REMIC. Certificateholders that would otherwise report
income under a cash method of accounting will be required to include in income
interest on the Class A Certificates (including original issue discount, if
any) in accordance with an accrual method of accounting. See "Federal Income
Tax Consequences" herein and "Certain Federal Income Tax Considerations" in the
Prospectus.
ERISA
Considerations As described under "ERISA Considerations" herein, the Class A Certificates may
be purchased by a pension or other employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or by
individual retirement accounts or Keogh plans covering only a sole proprietor
or partner which are not subject to ERISA but are subject to Section 4975 of
the Code ("Plans"), pursuant to Prohibited Transaction Exemption 90-32 (the
"Exemption") which provides an exemption for certain transactions involving the
creation, maintenance and termination of certain residential mortgage pools and
holding of certain residential mortgage pool pass-through certificates by
Plans. Any Plan fiduciary considering whether to purchase any Class A
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the Exemption and the provisions
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of ERISA and the Code. See "ERISA Considerations" herein and in the Prospectus.
Legal Investment
Considerations The Class A Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Accordingly, many institutions may not be legally authorized to invest in the
Class A Certificates.
Risk Factors For a discussion of certain factors that should be considered by prospective
investors in the Class A Certificates, see "Risk Factors" herein and in the
accompanying Prospectus.
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RISK FACTORS
Prospective investors should consider, among other things, the following
factors (as well as the factors set forth under "Risk Factors" in the
accompanying Prospectus) in connection with the purchase of the Class A
Certificates.
MATURITY AND PREPAYMENT CONSIDERATIONS. All of the Mortgage Loans are
prepayable in full or in part at any time. The rate of Prepayments on the
Mortgage Loans may be influenced by a variety of economic, social and other
factors, including interest rates, the availability of alternative financing and
homeowner mobility. Although there is little significant data available on the
effects of interest rates on prepayment rates for non-purchase money,
non-conforming credit mortgage loans, a number of factors suggest that the
prepayment behavior of a pool of such mortgage loans may be significantly
different from that of a pool of purchase money, conforming-credit mortgage
loans. One such factor is the typically smaller principal balance of the average
non-purchase money mortgage loan than that of the average purchase money
mortgage conventional loan in the typical pool. A smaller principal balance is
easier for a borrower to prepay than a larger balance and therefore a higher
prepayment rate may result for a non-purchase money mortgage loan pool than for
a pool of purchase money mortgage loans, irrespective of the relative average
interest rates in the two pools and the general interest rate environment. A
small principal balance, however, also may make refinancing a non-purchase money
mortgage loan at a lower loan rate less attractive to the borrower relative to
refinancing a larger principal balance non-purchase money mortgage loan, as the
perceived impact to the borrower of lower interest rates on the size of the
monthly payment on a mortgage loan is much less than for a larger principal
balance non-purchase money mortgage loan. Other factors that might be expected
to affect the prepayment rate of a pool of mortgage loans include the amounts
of, and interest rates on, the related senior mortgage loans, if one exists, and
the use of the first mortgage loans as long-term financing for home purchase and
junior mortgage loans as shorter-term financing for a variety of purposes,
including debt consolidation, home improvement, education expenses and purchases
of consumer durables such as automobiles. See "Risk Factors" in the accompanying
Prospectus.
The weighted average life of a pool of loans is the average amount of
time for which each dollar of principal on such loans is outstanding. Because it
is expected that there will be payments of principal of Mortgage Loans in
advance of the scheduled due date for the payments of such principal (the
"Prepayments") and defaults on the Mortgage Loans, the actual weighted average
life of the Mortgage Loans is expected to vary substantially from the weighted
average life of the Mortgage Loans based upon their amortization schedules.
Prepayments may result from voluntary early payments by borrowers (including
payments in connection with refinancings of the related first mortgage loans or
the Mortgage Loan itself), the sale of Properties subject to due-on-sale
clauses, and liquidations due to default, as well as the receipt of proceeds
from physical damage insurance policies. In addition, repurchases of Mortgage
Loans from the Trust will have the same effect as Prepayments of the related
Mortgage Loans. Substantially all of the Mortgage Loans contain "due-on-sale"
provisions, and the Pooling and Servicing Agreement generally requires the
Master Servicer to enforce such provisions unless such enforcement is not
permitted by applicable law. See "Description of the Certificates -- Flow of
Funds and Distributions on the Class A Certificates", " -- General Servicing
Procedures", " -- Termination of the Trust", "Legal Investment Considerations",
and "Maturity, Prepayment and Yield Considerations" herein.
RISK OF HIGHER DEFAULT RATES FOR MORTGAGE LOANS WITH BALLOON PAYMENTS.
54.73% of the Original Group I Pool Principal Balance of the Mortgage Loans in
the Group I and 0.90% of the Original Group II Pool Principal Balance of the
Mortgage Loans in the Group II are Balloon Loans. See "Risk Factors -- Risk of
Losses Associated with Balloon Loans" in the accompanying Prospectus.
GEOGRAPHIC CONCENTRATION OF MORTGAGE LOANS. Approximately 51.68% of the
Original Group I Pool Principal Balance represents Mortgage Loans relating to
Mortgaged Properties located in five states: Michigan 15.24%, Florida 12.28%,
Georgia 11.22%, Ohio 7.86%, and Illinois 5.08%. Approximately 45.92% of the
Original Group II Pool Principal Balance represents Mortgage Loans relating to
Mortgaged Properties located
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in five states: Michigan 15.15%, California 13.10%, Texas 8.00%, Maryland 4.85%
and Minnesota 4.82%. See "Risk Factors--Geographic Concentration of Mortgaged
Properties."
RISK OF HIGHER DEFAULT RATES FOR JUNIOR LIEN LOANS. 5.07% of the
Original Group I Pool Principal Balance of the Mortgage Loans relates to
Mortgage Loans secured by liens which are in a second position. See "Risk
Factors -- Risk of the Losses Associated with Junior Liens" in the Prospectus.
RISK OF POTENTIAL TERMINATION OF TRUST. The Trust may be terminated when
the aggregate principal balances of the Mortgage Loans has declined to ten
percent or less of the Original Pool Principal Balance, either by the Seller,
exercising its optional termination right, or pursuant to the Auction Sale. See
"Description of Certificates -- Optional Termination by the Seller" and
"Description of the Certificates -- Auction Sale". Such a termination would be
the equivalent of a prepayment of all the Mortgage Loans. The Owners of the
Class A Certificates would receive from the proceeds resulting from any such
termination, any interest accrued and unpaid, together with any distribution of
principal owed and unpaid, in the order of priority set forth under "Description
of Certificates -- Distributions on the Class A Certificates". Any such
termination of the Trust will reduce the yield to maturity on Class A
Certificates purchased at a premium. See "Description of the Certificates --
Termination of the Trust" herein.
EFFECT OF MORTGAGE LOAN YIELD ON CLASS A-1 AND CLASS A-6 PASS-THROUGH
RATE. The Class A-1 Pass-Through Rate is based upon the value of an adjustable
index (one-month LIBOR), while the Coupon Rates on the Group I Mortgage Loans
are fixed. Consequently, the interest which becomes due on such Mortgage Loans
in Group I (net of the Servicing Fees, the Trustee fees and the Certificate
Insurer premiums) during any Remittance Period may be less than the amount of
interest that would accrue at one-month LIBOR plus the margin on the Class A-1
Group I Certificates, during the related Accrual Period, and will be limited to
such lower amount. The Class A-1 Group I Certificates do not contain any
"carry-forward" or "catch-up" feature if the amount of interest paid is so
limited.
The Class A-6 Group II Pass-Through Rate is based upon the value of an
index (one-month LIBOR) which is different from the value of the indices
applicable to the Mortgage Loans in Group II, as described under "The Mortgage
Pool -- Group II" (either as a result of the use of a different index, rate
determination date, rate adjustment date or rate cap or floor). The Mortgage
Loans in Group II primarily adjust semi-annually or yearly based upon a
six-month LIBOR index whereas the Class A-6 Group II Pass-Through Rate adjusts
monthly based on a one-month LIBOR index and is limited by the Class A-6
Available Funds Pass-Through Rate, unless Supplemental Interest Amounts (the
payment of which is not insured by the Certificate Insurer and which is not
rated) are funded in full. Consequently the actual Class A-6 Pass-Through Rate
for such Payment Date may not equal the Class A-6 Formula Pass-Through Rate for
such Payment Date. In particular, the interest rates on the Mortgage Loans in
Group II adjust less frequently, with the result that the actual Class A-6 Pass-
Through Rate may be lower than the Class A-6 Formula Pass-Through Rate for
extended periods in a rising interest rate environment. In addition, one-month
LIBOR and six-month LIBOR may respond to different economic and market factors,
and there is not necessarily any correlation between them. Thus, it is possible,
for example, that one-month LIBOR may rise during periods in which one or more
Indices are falling or that, even if both one-month LIBOR and Indices rise
during the same period, one-month LIBOR may rise much more rapidly than
six-month LIBOR. See "Class A-6 Pass-Through Rate" in the Summary for this
Prospectus Supplement.
USE OF PROCEEDS
The Sponsor will cause the Trust to acquire the Mortgage Loans from the
Seller concurrently with the sale of the Certificates and the net proceeds from
the sale of the Certificates will be paid to the Seller. Such net proceeds
(together with the Residual Certificates retained by the Seller or its
affiliates) will, in effect, represent the purchase price paid by the Trust to
the Seller for the Mortgage Loans. Substantially all of the net proceeds, after
funding transaction costs, to be received from the sale of the Mortgage Loans
will be
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applied by the Seller to finance the purchase of, or to repay short-term loans
incurred to finance the purchase of, the Mortgage Loans underlying the
Certificates or will be deposited by the Seller in its general funds and used by
the Seller for general corporate purposes.
THE SPONSOR
Cargill Financial Services Corporation ("CFSC"), a Delaware corporation,
is a wholly-owned financial services subsidiary of Cargill, Incorporated
("Cargill"), a privately-held Delaware corporation. CFSC's operations consist of
global proprietary trading activities, as well as other specialized financial
services. CFSC was formed in 1984 and currently manages over $6 billion in
assets. CFSC is headquartered in Minneapolis and has over 650 employees
worldwide. CFSC is the financial services arm of Cargill. Established in 1865,
Cargill began as a grain trading company. Since then, Cargill has grown to
become a major international merchant and processor of agricultural, industrial
and financial commodities. Cargill operates in 66 countries, with 76,500
employees and approximately $56 billion in annual sales.
As described herein, the only obligations of CFSC will be pursuant to
certain representations and warranties made with respect to itself.
THE SELLER AND MASTER SERVICER
Access Financial Lending Corp. ("AFL" or the "Seller"), a Delaware
corporation, provides housing finance programs to consumers throughout the
United States through its Mortgage Lending and Manufactured Housing Programs.
The Seller is the successor by merger of Access Financial Lending Corp., a
Delaware corporation (formerly Equicon Corporation), whose principal business
was the purchase of non-conforming mortgages, and Access Financial Corp., whose
principal business was the retail financing of manufactured housing. The merger
occurred on July 1, 1996.
The Seller is a wholly-owned subsidiary of Access Financial Holdings
Corp. ("AFH"), which is a Delaware corporation and wholly-owned subsidiary of
Cargill Financial Services Corporation. AFH was formed in January 1996 to
facilitate the continued growth of the housing finance business.
The Seller maintains its principal offices at 400 Highway 169 South,
Suite 400, St. Louis Park, Minnesota 55426-0365.
As described herein, AFL will be obligated to repurchase certain
Mortgage Loans pursuant to certain representations and warranties made
with respect to the Mortgage Loans. See "The Mortgage Loan Pool - Mortgage Loan
Program - Underwriting Standards; Representations" herein.
As Master Servicer, AFL will be obligated to service the Mortgage Loans
pursuant to the Pooling and Servicing Agreement. AFL has entered into a
sub-servicing agreement with LSI Financial Group ("LSI") which provides for
servicing and administration of the Mortgage Loans. Notwithstanding such
sub-servicing agreement, AFL shall be obligated to the same extent and under the
same terms and conditions under the Pooling and Servicing Agreement as if it
alone were servicing and administering the Mortgage Loans. See "Description of
the Certificates -- General Servicing Procedures" herein.
THE SUB-SERVICER
LSI is an approved HUD Title I and Title II servicer. LSI services
several securitized and whole loan portfolios comprised of single family
mortgage products. LSI's corporate offices are located at 415 North McKinley
Street, Suite 1250, Little Rock, Arkansas 72205. LSI commenced mortgage
servicing operations in 1990 and since then has managed and serviced sub-prime
conduit programs, distressed RTC portfolios, and third-party mortgage loan
portfolios.
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THE MORTGAGE LOAN POOL
GENERAL
The statistical information concerning the Pool of Mortgage Loans is
based upon Pool information as of the close of business on August 1, 1996 (the
"Cut-Off Date").
The Mortgage Loans consist of 2,701 mortgage loans evidenced by
promissory notes (the "Notes") secured by deeds of trust, security deeds or
mortgages on the properties (the "Properties" or "Mortgaged Properties"), which
are located in 46 states and the District of Columbia. The Properties securing
the Mortgage Loans consist of one- to four-family residences (which may be
detached, part of a one- to four-family dwelling, a condominium unit, a
townhouse or a unit in a planned unit development). The Properties may be
owner-occupied (which includes second and vacation homes) and non-owner occupied
investment properties.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups: "Group I" or "Group II", (each a "Mortgage Loan Group") comprised
of Mortgage Loans which bear fixed interest rates only, in the case of Group I,
and Mortgage Loans which bear adjustable interest rates only, in the case of
Group II. The Class A Group I Certificates will be issued in respect of Group I
and the Class A-6 Group II Certificates will be issued in respect of Group II.
The Mortgage Loans in Group I consist of 45.27% of fully amortizing
mortgage loans and 54.73% of Balloon Loans; consist of approximately 94.93% of
loans secured by first liens on the related Properties, with the remainder
representing second liens; consist of approximately 93.71% of loans secured by
primary residences. No Group I Mortgage Loan is more than 59 days contractually
delinquent as of the Cut-Off Date.
The Mortgage Loans in Group II consist of 99.10% of fully amortizing
mortgage loans and 0.90% of Balloon Loans; consist of 99.86% of loans secured by
first liens on the related Properties; and consist of approximately 96.71 % of
Loans secured by primary residences. No Group II Mortgage Loan is more than 59
days contractually delinquent as of the Cut-Off Date.
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DELINQUENCY EXPERIENCE ON THE SELLER'S
PORTFOLIO OF MORTGAGE LOANS(1)
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AS OF
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JUNE 30, DECEMBER JUNE 30, DECEMBER JUNE 30, DECEMBER JUNE 30,
1996 31, 1995 1995 31, 1994 1994 31, 1993 1993
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<S> <C> <C> <C> <C> <C> <C> <C>
Number of Mortgage Loans ........... 11,242 7,115 4,524 2,756 1,829 983 363
Dollar amount of Mortgage Loans .... $811,283,083 $506,475,487 $320,202,611 $220,664,420 $147,335,800 $71,604,504 $22,307,501
DELINQUENCY PERIOD
30-59 Days
% of number of loans (2) ........ 4.10% 3.32% 2.52% 0.87% 1.86% 0.30% 1.65%
% of dollar amount of loans (3).. 3.67% 2.88% 2.08% 0.79% 2.03% 0.31% 1.94%
60-89 days
% of number of loans (2) ........ 1.07% 0.97% 1.33% 0.07% 0.16% 0.41% 0.55%
% of dollar amount of loans (3).. 0.95% 0.89% 1.12% 0.05% 0.11% 0.42% 0.34%
90 days and over
% of number of loans (2) ........ 2.51% 1.04% 0.42% 0.22% 0.38% 0.51% 0.28%
% of dollar amount of loans (3).. 2.48% 1.02% 0.46% 0.20% 0.07% 0.26% 0.30%
Foreclosed Properties
% of number of loans (2) ........ 0.15% 0.82% 0.69% 0.65% 0.27% 0.00% 0.00%
% of dollar amount of loans (3).. 0.14% 0.79% 0.64% 0.74% 0.38% 0.00% 0.00%
</TABLE>
(1) The Mortgage Loans comprising the Seller's portfolio were originated
beginning in April 1992. The variable rate program commenced in April
1994.
(2) The number of delinquent Mortgage Loans or the number of foreclosed
properties as a percentage of the total "Number of Mortgage Loans" as of
the date indicated.
(3) The dollar amount of delinquent Mortgage Loans or the dollar amount of
foreclosed properties as a percentage of the total "Dollar amount of
Mortgage Loans" as of the date indicated.
S-20
<PAGE>
<PAGE>
LOAN LOSS EXPERIENCE ON THE SELLER'S
PORTFOLIO OF MORTGAGE LOANS
Prior to June 14, 1995, the Seller experienced no losses since the
Seller's program began.
<TABLE>
<CAPTION>
For the Twelve Months Ended For the Six Months Ended
December 31, 1995 June 30, 1996
--------------------------------------------------------
<S> <C> <C>
Average amount outstanding(1)......... $336,701,220 $679,456,604
Gross losses(2)....................... 920,001 285,716
Recoveries(3)......................... 753,109 184,613
Net losses(4)......................... 166,892 101,103
Net losses as a percentage of average
amount outstanding.................. 0.05% 0.01%
</TABLE>
(1) "Average Amount Outstanding" during the period is the arithmetic average
of the principal balances of the mortgage loans outstanding on the last
business day of each month during the period.
(2) "Gross Losses" are the principal amounts of the mortgage loans for each
respective period which have been determined to be uncollectible.
(3) "Recoveries" represent the excess of (x) the sum of recoveries from
liquidation proceeds and deficiency judgments over (y) the sum of
expenses and accrued interest.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries".
While the above delinquency and loan loss experience represents the
recent experience of the Seller's portfolio of Mortgage Loans, there can be no
assurance that the future delinquency and loan loss experience on the Mortgage
Loans included in the Pool will be similar. The Seller can neither quantify the
impact of any recent property value declines on the Mortgage Loans nor predict
whether, to what extent or how long such declines may continue. In a period of
such decline, the rates of delinquencies, foreclosures and losses on the
Mortgage Loans could be higher than those heretofore experienced in the mortgage
lending industry in general. In addition, adverse economic conditions (which may
or may not affect real property values) may affect the timely payment by
borrowers of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies, foreclosures and losses.
GROUP I
The Mortgage Loans in Group I consist of approximately 1,670 loans under
which the related Mortgaged Properties are located in 45 states and the District
of Columbia as set forth herein. As of the CutOff Date, the Mortgage Loans in
Group I had an aggregate principal balance of $107,711,655.82, the maximum
principal balance of any of the Mortgage Loans in Group I was $342,000.00, the
minimum principal balance thereof was $9,909.11, and the principal balance of
the Mortgage Loans in Group I averaged $64,498. As of the Cut-Off Date, Coupon
Rates on the Mortgage Loans in Group I ranged from 7.00% to 17.50% per annum,
and the weighted average Coupon Rate of the Mortgage Loans in Group I was 11.57%
per annum. As of the Cut-Off Date, the original term to stated maturity of the
Mortgage Loans in Group I ranged from 60 months to 360 months, the remaining
term to stated maturity ranged from 21 months to 360 months, the weighted
average original term to stated maturity was 230 months and the weighted average
remaining term to stated maturity was 228 months. No Mortgage Loan in Group I
had a stated maturity later than August 1, 2026. 45.27% of the aggregate
principal balance of the Mortgage Loans in Group I require monthly payments of
principal that will fully amortize the Mortgage Loans by their respective
maturity dates, and 54.73% of the aggregate principal balance of the Mortgage
Loans in Group I are Balloon Loans.
The sum of the percentage columns set forth in the following tables may
not equal 100% due to rounding.
S-21
<PAGE>
<PAGE>
GEOGRAPHIC DISTRIBUTION
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MORTGAGE AS OF THE AGGREGATE
STATE LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ----- ------------- ------------------- ------------------
<S> <C> <C> <C>
Alabama 81 $ 3,968,287.29 3.68%
Arizona 20 1,307,440.14 1.21
California 53 4,636,456.84 4.30
Colorado 18 1,048,901.68 0.97
Connecticut 5 858,458.77 0.80
Delaware 2 199,870.29 0.19
District of Columbia 7 442,860.16 0.41
Florida 189 13,225,805.82 12.28
Georgia 178 12,086,444.58 11.22
Hawaii 4 503,689.50 0.47
Idaho 7 406,470.75 0.38
Illinois 65 5,476,187.12 5.08
Indiana 65 3,372,369.99 3.13
Iowa 3 213,291.92 0.20
Kansas 5 232,512.39 0.22
Kentucky 13 552,492.56 0.51
Louisiana 3 138,628.58 0.13
Maryland 35 3,303,409.50 3.07
Massachusetts 27 2,442,341.75 2.27
Michigan 291 16,419,057.50 15.24
Minnesota 44 2,562,458.38 2.38
Mississippi 10 573,444.35 0.53
Missouri 24 1,201,204.61 1.12
Montana 2 169,589.08 0.16
Nevada 8 651,203.81 0.60
New Hampshire 3 212,320.93 0.20
New Jersey 49 3,958,770.65 3.68
New Mexico 1 103,851.95 0.10
New York 7 592,272.80 0.55
North Carolina 48 2,706,985.80 2.51
Ohio 141 8,469,292.37 7.86
Oklahoma 1 27,098.13 0.03
Oregon 24 1,750,550.69 1.63
Pennsylvania 21 1,331,757.31 1.24
Rhode Island 17 955,239.38 0.89
South Carolina 54 2,806,641.22 2.61
South Dakota 1 35,940.71 0.03
Tennessee 39 2,313,526.11 2.15
Texas 26 2,373,203.99 2.20
Utah 34 1,576,698.91 1.46
Vermont 2 60,100.00 0.06
Virginia 3 269,027.80 0.25
Washington 6 357,199.27 0.33
West Virginia 5 272,350.00 0.25
Wisconsin 28 1,455,950.44 1.35
Wyoming 1 90,000.00 0.08
- --------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
======================================================================================
</TABLE>
The combined loan-to-value ratio of a Mortgage Loan is equal to the
ratio (expressed as a percentage) of (x) the sum of the (i) original principal
balance of such Mortgage Loan and (ii) the outstanding principal balances of any
senior mortgage loans (computed at the date of origination of such Mortgage
Loan) and (y) the appraised value of the related Mortgaged Property at the time
of origination or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Combined Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are
distributed as follows:
S-22
<PAGE>
<PAGE>
COMBINED LOAN-TO-VALUE RATIO DISTRIBUTION
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
RANGE OF COMBINED MORTGAGE AS OF THE AGGREGATE
LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE PRINCIPAL BALANCE
- -------------------- ---------------- ------------------- ------------------
<S> <C> <C> <C>
5.001 to 10.000 1 $ 9,909.11 0.01%
15.001 to 20.000 3 49,882.37 0.05
20.001 to 25.000 15 451,122.54 0.42
25.001 to 30.000 12 351,796.27 0.33
30.001 to 35.000 17 601,900.02 0.56
35.001 to 40.000 21 609,827.82 0.57
40.001 to 45.000 23 1,066,312.76 0.99
45.001 to 50.000 41 1,460,077.34 1.36
50.001 to 55.000 48 2,083,272.51 1.93
55.001 to 60.000 71 3,723,279.70 3.46
60.001 to 65.000 128 6,962,102.63 6.46
65.001 to 70.000 218 11,984,838.34 11.13
70.001 to 75.000 284 19,138,828.96 17.77
75.001 to 80.000 530 36,648,655.58 34.02
80.001 to 85.000 145 11,773,539.87 10.93
85.001 to 90.000 113 10,796,310.00 10.02
- -------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
=====================================================================================
</TABLE>
The Combined Loan-to-Value Ratios shown above were calculated based upon
the appraised values of the Properties at the time of origination of the
Mortgage Loans or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the unpaid principal balances of
the Mortgage Loans, together with the unpaid principal balances of any senior
mortgage loans, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
S-23
<PAGE>
<PAGE>
COUPON RATE DISTRIBUTION
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
RANGE OF MORTGAGE AS OF THE AGGREGATE
COUPON RATES (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ---------------- ------------- ------------------- ------------------
<S> <C> <C> <C>
6.51% to 7.00% 1 $ 136,661.91 0.13%
7.01% to 7.50% 1 143,384.44 0.13
7.51% to 8.00% 1 334,525.58 0.31
8.01% to 8.50% 1 43,245.99 0.04
8.51% to 9.00% 12 1,164,531.13 1.08
9.01% to 9.50% 44 3,600,969.90 3.34
9.51% to 10.00% 115 9,028,307.70 8.38
10.01% to 10.50% 147 9,937,413.56 9.23
10.51% to 11.00% 255 18,026,777.39 16.74
11.01% to 11.50% 184 13,297,802.44 12.35
11.51% to 12.00% 253 15,875,262.55 14.74
12.01% to 12.50% 190 11,253,114.42 10.45
12.51% to 13.00% 191 11,183,445.31 10.38
13.01% to 13.50% 94 4,984,702.80 4.63
13.51% to 14.00% 73 4,058,102.92 3.77
14.01% to 14.50% 56 2,588,844.66 2.40
14.51% to 15.00% 19 763,316.29 0.71
15.01% to 15.50% 11 533,256.06 0.50
15.51% to 16.00% 12 503,286.12 0.47
16.01% to 16.50% 7 190,346.22 0.18
17.01% to 17.50% 3 64,358.43 0.06
- --------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
======================================================================================
</TABLE>
S-24
<PAGE>
<PAGE>
DISTRIBUTION OF UNPAID PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
RANGE OF UNPAID MORTGAGE AS OF THE AGGREGATE
PRINCIPAL BALANCES ($) LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ---------------------- ----- ------------- -----------------
<S> <C> <C> <C>
$ 0 to $ 50,000 767 $26,175,276.39 24.30%
50,001 to 100,000 651 45,796,057.28 42.52
100,001 to 150,000 189 22,888,484.71 21.25
150,001 to 200,000 37 6,294,108.71 5.84
200,001 to 250,000 14 3,061,446.45 2.84
250,001 to 300,000 6 1,567,800.14 1.46
300,001 to 350,000 6 1,928,482.14 1.79
- -------------------------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
=======================================================================================================
</TABLE>
LIEN STATUS AND OCCUPANCY STATUS
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
LIEN STATUS AND MORTGAGE AS OF THE AGGREGATE
OCCUPANCY STATUS LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ---------------- -------- ---------------- -----------------
<S> <C> <C> <C>
First Lien Owner Occupied 1,412 $95,849,164.26 88.99%
Non-Owner Occupied 119 6,401,911.45 5.94
Second Lien Owner Occupied 130 5,089,766.51 4.73
Non-Owner Occupied 9 370,813.60 0.34
- -------------------------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
=======================================================================================================
</TABLE>
DISTRIBUTION OF AGE (IN MONTHS) FROM ORIGINATION TO THE CUT-OFF DATE
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MONTHS ELAPSED MORTGAGE AS OF THE AGGREGATE
SINCE ORIGINATION LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ---------------------- ---------------------------- -------------------------- ------------------
<S> <C> <C> <C>
Age = 0 407 $ 27,825,318.00 25.83%
0 < Age <=12 1,261 79,813,725.36 74.10
24 < Age <=36 1 58,180.60 0.05
36 < Age <=48 1 14,431.86 0.01
- -------------------------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
=======================================================================================================
</TABLE>
S-25
<PAGE>
<PAGE>
PROPERTY TYPE
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MORTGAGE AS OF THE AGGREGATE
PROPERTY TYPE LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ------------- ------------- ------------------- ------------------
<S> <C> <C> <C>
Three or Four Family Residence 13 $ 928,255.91 0.86%
Condominium 35 2,020,910.66 1.88
Duplex 60 3,470,957.39 3.22
Manufactured House (Double
Wide) 44 1,778,138.43 1.65
Manufactured House (Modular) 4 248,046.55 0.23
PUD 2 243,758.07 0.23
Row House 17 773,773.21 0.72
Single Family Residence 1,476 97,087,690.39 90.14
Townhouse 19 1,160,125.21 1.08
- --------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
======================================================================================
</TABLE>
DISTRIBUTION OF REMAINING TERM TO MATURITY
(IN MONTHS) AS OF THE CUT-OFF DATE
GROUP I
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MONTHS REMAINING MORTGAGE AS OF THE AGGREGATE
TO MATURITY LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ------------------------------ ------------- -------------------- ------------------
<S> <C> <C> <C>
12 < Rem Term <= 24 1 $ 14,431.86 0.01%
48 < Rem Term <= 60 2 98,866.83 0.09
60 < Rem Term <= 72 1 12,500.00 0.01
72 < Rem Term <= 84 2 184,784.44 0.17
108 < Rem Term <= 120 25 599,340.95 0.56
168 < Rem Term <= 180 1,140 72,611,942.36 67.41
204 < Rem Term <= 216 1 58,180.60 0.05
228 < Rem Term <= 240 114 5,991,514.38 5.56
348 < Rem Term <= 360 384 28,140,094.40 26.13
- ------------------------------------------------------------------------------------------
TOTAL 1,670 $107,711,655.82 100.00%
==========================================================================================
</TABLE>
GROUP II
The Mortgage Loans in Group II consist of approximately 1,031 loans
under which the related Mortgaged Properties are located in 39 states and the
District of Columbia as set forth herein. As of the Cut-Off Date, the Mortgage
Loans in Group II had an aggregate principal balance of $99,885,343.08, the
maximum principal balance of any of the Mortgage Loans in Group II was
$400,000.00, the minimum principal balance thereof was $9,947.40 and the
principal balance of the Mortgage Loans in Group II averaged $96,882.00. As of
the Cut-Off Date, Coupon Rates of the Mortgage Loans in Group II ranged from
7.225% per annum to 13.95% per annum. As of the Cut-Off Date, the weighted
average Coupon Rate of the Mortgage Loans in Group II was 9.789%. As of the
Cut-Off Date, margins of the Mortgage Loans in Group II ranged from 3.00% per
annum to 10.50% per annum, and the weighted average margin was 6.50%. As of the
Cut-Off Date, the maximum coupons of the Mortgage Loans in Group II ranged from
13.881% per annum to 20.50% per annum, and the weighted average maximum coupon
was 16.427%. 92.46% of the aggregate principal balance of the Mortgage Loans in
Group II had a periodic interest rate cap of 1.00%, and 0.17% of the aggregate
principal balance of the Mortgage Loans in Group II had a periodic interest rate
cap of 2.00%, 9.96% of the aggregate principal balance of the Mortgage Loans in
Group II were fixed rate loans that, in 2 years from origination, will be
converted into variable rate loans with a periodic interest rate cap of 1.00%
thereafter, and 0.64% of
S-26
<PAGE>
<PAGE>
the aggregate principal balance of the Mortgage Loans in Group II were fixed
rate loans that, in 3 years from origination, will be converted into variable
rate loans with a periodic interest rate cap of 1.00% thereafter.
As of the Cut-Off Date, the original term to stated maturity of the
Mortgage Loans in Group II ranged from 120 months to 360 months, the remaining
term to stated maturity ranged from 118 months to 360 months, the weighted
average original term to stated maturity was 357 months and the weighted average
remaining term to stated maturity was 356 months. No Mortgage Loan in Group II
had a stated maturity later than September 1, 2026. 99.10% of the aggregate
principal balance of the Mortgage Loans in Group II require monthly payments of
principal that will fully amortize the Mortgage Loans by their respective dates
and 0.90% of the aggregate principal balance of the Mortgage Loans in Group II
are Balloon Loans.
The Coupon Rates of Mortgage Loans in Group II adjust semi-annually
based on six month LIBOR.
S-27
<PAGE>
<PAGE>
The sum of the percentage columns set forth on the following tables may
not equal 100% due to rounding.
GEOGRAPHIC DISTRIBUTION
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MORTGAGE AS OF THE AGGREGATE
STATE LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ----- ------------- ----------------- ------------------
<S> <C> <C> <C>
Alabama 14 $ 1,014,198.42 1.02%
Arizona 16 1,710,435.30 1.71
California 90 13,087,934.05 13.10
Colorado 23 2,007,013.60 2.01
Connecticut 35 4,786,208.18 4.79
Delaware 3 279,250.00 0.28
District of Columbia 1 74,961.15 0.08
Florida 41 3,569,846.83 3.57
Georgia 11 1,288,421.36 1.29
Idaho 8 516,600.00 0.52
Illinois 10 1,172,094.35 1.17
Indiana 6 376,768.83 0.38
Iowa 13 662,261.91 0.66
Kansas 3 293,164.71 0.29
Maryland 40 4,844,476.56 4.85
Massachusetts 23 2,440,308.69 2.44
Michigan 215 15,136,234.08 15.15
Minnesota 58 4,816,928.13 4.82
Missouri 9 703,528.32 0.70
Montana 3 207,568.67 0.21
Nebraska 1 46,500.00 0.05
Nevada 12 1,133,192.26 1.13
New Hampshire 5 446,734.44 0.45
New Jersey 37 4,432,805.25 4.44
New Mexico 1 92,705.42 0.09
New York 4 766,173.31 0.77
North Carolina 2 124,000.00 0.12
Ohio 21 1,543,694.37 1.55
Oregon 38 4,310,359.77 4.32
Pennsylvania 35 3,689,662.41 3.69
Rhode Island 27 2,471,205.59 2.47
South Carolina 7 457,724.32 0.46
South Dakota 2 82,791.00 0.08
Tennessee 2 377,564.05 0.38
Texas 67 7,987,930.13 8.00
Utah 37 3,689,271.79 3.69
Virginia 5 779,319.48 0.78
Washington 31 3,472,345.26 3.48
West Virginia 7 350,970.10 0.35
Wisconsin 68 4,642,190.99 4.65
- -------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
=====================================================================================
</TABLE>
S-28
<PAGE>
<PAGE>
The combined loan-to-value ratio of a Mortgage Loan is equal to the
ratio (expressed as a percentage) of (x) the sum of the (i) original principal
balance of such Mortgage Loan and (ii) the outstanding principal balances of any
senior mortgage loans (computed at the date of origination of such Mortgage
Loan) and (y) the appraised value of the related Mortgaged Property at the time
of origination or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Combined Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are
distributed as follows:
COMBINED LOAN-TO-VALUE RATIO DISTRIBUTION
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
RANGE OF COMBINED MORTGAGE AS OF THE AGGREGATE
LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE PRINCIPAL BALANCE
-------------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
15.001 to 20.000 4 $ 144,900.55 0.15%
20.001 to 25.000 1 24,853.89 0.02
25.001 to 30.000 4 143,972.86 0.14
30.001 to 35.000 1 35,984.84 0.04
35.001 to 40.000 13 818,545.89 0.82
40.001 to 45.000 13 958,290.23 0.96
45.001 to 50.000 19 1,153,006.98 1.15
50.001 to 55.000 25 1,942,287.80 1.94
55.001 to 60.000 36 2,458,421.61 2.46
60.001 to 65.000 66 5,080,486.97 5.09
65.001 to 70.000 117 10,409,424.68 10.42
70.001 to 75.000 158 15,538,777.95 15.56
75.001 to 80.000 411 41,284,114.59 41.33
80.001 to 85.000 102 11,425,502.86 11.44
85.001 to 90.000 61 8,466,771.38 8.48
- ---------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
=================================================================================
</TABLE>
The Combined Loan-to-Value Ratios shown above were calculated based upon
the appraised values of the Properties at the time of origination of the
Mortgage Loans or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the unpaid principal balances of
the Mortgage Loans, together with the unpaid principal balances of any senior
mortgage loans, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
S-29
<PAGE>
<PAGE>
DISTRIBUTION OF UNPAID PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID % OF
OF PRINCIPAL BALANCE AGGREGATE
RANGE OF UNPAID MORTGAGE AS OF THE PRINCIPAL
PRINCIPAL BALANCES ($) LOANS CUT-OFF DATE BALANCE
---------------------- ----- ------------ -------
<S> <C> <C> <C>
0 to $ 50,000 212 $ 7,963,346.85 7.97%
$ 50,001 to 100,000 454 34,502,519.58 34.54
100,001 to 150,000 215 26,117,395.87 26.15
150,001 to 200,000 86 14,963,078.09 14.98
200,001 to 250,000 37 8,496,017.14 8.51
250,001 to 300,000 19 5,143,866.03 5.15
300,001 to 350,000 6 1,918,106.87 1.92
350,001 to 400,000 2 781,012.65 0.78
- -------------------------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
=======================================================================================================
</TABLE>
LIEN STATUS AND OCCUPANCY STATUS
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
LIEN STATUS AND MORTGAGE AS OF THE AGGREGATE
OCCUPANCY STATUS LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ---------------- -------- ------------------- -----------------
<S> <C> <C> <C>
First Lien Owner Occupied 982 $96,499,317.69 96.61%
Non-Owner Occupied 45 3,241,237.57 3.24
Second Lien Owner Occupied 3 103,159.59 0.10
Non-Owner Occupied 1 41,628.23 0.04
- -------------------------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
=======================================================================================================
</TABLE>
DISTRIBUTION OF AGE (IN MONTHS) FROM ORIGINATION TO THE CUT-OFF DATE
GROUP II
<TABLE>
<CAPTION>
Number Aggregate Unpaid
of Principal Balance % of
MONTHS ELAPSED Mortgage as of the Aggregate
SINCE ORIGINATION Loans Cut-Off Date Principal Balance
- ----------------- -------- ----------------- -----------------
<S> <C> <C> <C>
0 < Age < = 6 1,028 $99,815,295.13 99.93%
6 < Age < = 12 3 70,047.95 0.07
- -----------------------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
=====================================================================================================
</TABLE>
S-30
<PAGE>
<PAGE>
PROPERTY TYPE
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MORTGAGE AS OF THE AGGREGATE
PROPERTY TYPE LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ---------------------------- ----- ------------ -----------------
<S> <C> <C> <C>
Three or Four Family Residence 7 $ 935,607.10 0.94%
Condominium 16 1,242,045.17 1.24
Duplex 27 1,999,623.69 2.00
Manufactured House (Double Wide) 8 581,748.55 0.58
Manufactured House (Modular) 4 203,300.00 0.20
PUD 3 359,350.00 0.36
Row House 9 709,492.06 0.71
Single Family Residence 946 92,906,226.23 93.01
Townhouse 11 947,950.28 0.95
- ----------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
========================================================================================
</TABLE>
DISTRIBUTION OF REMAINING TERM TO MATURITY
(IN MONTHS) AS OF THE CUT-OFF DATE
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MONTHS REMAINING MORTGAGE AS OF THE AGGREGATE
TO MATURITY LOANS CUT-OFF DATE PRINCIPAL BALANCE
----------- ----- ------------ -----------------
<C> <C> <C> <C>
108 < Rem Term <= 120 2 $ 21,826.94 0.02%
168 < Rem Term <= 180 18 1,350,528.35 1.35
228 < Rem Term <= 240 2 78,378.83 0.08
348 < Rem Term <= 360 1,009 98,434,608.96 98.55
- --------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
======================================================================================
</TABLE>
S-31
<PAGE>
<PAGE>
DISTRIBUTION OF CURRENT COUPON RATES
AS OF THE CUT OFF DATE
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE
MORTGAGE AS OF THE % OF AGGREGATE
CURRENT COUPON RATES (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ----------------------- ----- ------------ -----------------
<S> <C> <C> <C>
7.01% to 7.50% 4 $ 510,162.54 0.51%
7.51 to 8.00 33 3,309,357.10 3.31
8.01 to 8.50 55 5,370,541.03 5.38
8.51 to 9.00 150 17,497,168.07 17.52
9.01 to 9.50 162 16,438,497.46 16.46
9.51 to 10.00 203 20,965,186.51 20.99
10.01 to 10.50 141 12,567,287.19 12.58
10.51 to 11.00 121 11,505,505.56 11.52
11.01 to 11.50 67 5,281,321.15 5.29
11.51 to 12.00 58 4,281,056.14 4.29
12.01 to 12.50 16 983,839.71 0.98
12.51 to 13.00 12 820,387.82 0.82
13.01 to 13.50 8 325,032.80 0.33
13.51 to 14.00 1 30,000.00 0.03
- ----------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
==================================================================================
</TABLE>
DISTRIBUTION OF MAXIMUM COUPON RATES
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE
MORTGAGE AS OF THE % OF AGGREGATE
MAXIMUM COUPON RATES (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ------------------------ ------------- ------------------- ------------------
<S> <C> <C> <C>
13.51 to 14.00 3 $ 250,377.88 0.25%
14.01 to 14.50 13 1,419,068.10 1.42
14.51 to 15.00 56 6,350,341.97 6.36
15.01 to 15.50 104 9,767,620.46 9.78
15.51 to 16.00 208 22,906,206.57 22.93
16.01 to 16.50 166 16,136,790.67 16.16
16.51 to 17.00 188 18,168,102.30 18.19
17.01 to 17.50 114 9,756,400.32 9.77
17.51 to 18.00 90 8,300,731.78 8.31
18.01 to 18.50 47 3,982,978.71 3.99
18.51 to 19.00 31 2,363,364.79 2.37
19.01 to 19.50 8 303,349.89 0.30
19.51 to 20.00 2 100,000.00 0.10
20.01 to 20.50 1 80,009.64 0.08
- --------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
======================================================================================
</TABLE>
S-32
<PAGE>
<PAGE>
DISTRIBUTION OF MARGINS
AS OF THE CUT OFF DATE
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE
MORTGAGE AS OF THE % OF ORIGINAL POOL
MARGINS (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
- --------------------------------- ------------- ------------------- ------------------
<S> <C> <C> <C>
10.00% < Margin <=10.25% 2 $ 41,036.79 0.04%
10.25% < Margin <=10.50% 1 26,000.00 0.03
2.75% < Margin <= 3.00% 1 83,744.63 0.08
3.25% < Margin <= 3.50% 1 100,500.00 0.10
4.00% < Margin <= 4.25% 4 494,477.08 0.50
4.25% < Margin <= 4.50% 2 233,690.91 0.23
4.50% < Margin <= 4.75% 13 1,720,151.64 1.72
4.75% < Margin <= 5.00% 20 2,757,492.93 2.76
5.00% < Margin <= 5.25% 29 3,683,846.71 3.69
5.25% < Margin <= 5.50% 61 5,985,548.63 5.99
5.50% < Margin <= 5.75% 48 5,604,540.78 5.61
5.75% < Margin <= 6.00% 99 10,481,902.15 10.49
6.00% < Margin <= 6.25% 135 14,246,596.96 14.26
6.25% < Margin <= 6.50% 121 12,767,307.71 12.78
6.50% < Margin <= 6.75% 69 5,595,285.80 5.60
6.75% < Margin <= 7.00% 106 9,509,995.65 9.52
7.00% < Margin <= 7.25% 74 6,684,732.48 6.69
7.25% < Margin <= 7.50% 73 6,560,661.64 6.57
7.50% < Margin <= 7.75% 51 3,906,475.79 3.91
7.75% < Margin <= 8.00% 41 4,203,533.47 4.21
8.00% < Margin <= 8.25% 18 1,166,936.44 1.17
8.25% < Margin <= 8.50% 15 1,162,483.51 1.16
8.50% < Margin <= 8.75% 11 719,981.16 0.72
8.75% < Margin <= 9.00% 20 1,224,662.14 1.23
9.00% < Margin <= 9.25% 5 340,624.63 0.34
9.25% < Margin <= 9.50% 6 365,701.17 0.37
9.50% < Margin <= 9.75% 3 135,552.07 0.14
9.75% < Margin <=10.00% 2 81,880.21 0.08
- ---------------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
</TABLE>
S-33
<PAGE>
<PAGE>
NEXT INTEREST ADJUSTMENT DATE
GROUP II
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL BALANCE
NEXT INTEREST MORTGAGE AS OF THE % OF AGGREGATE
ADJUSTMENT DATE LOANS CUT-OFF DATE PRINCIPAL BALANCE
--------------- -------- ----------------- -----------------
<S> <C> <C> <C>
09/01/96 10 $ 913,389.24 0.91%
10/01/96 29 3,163,711.46 3.17
11/01/96 175 17,231,204.78 17.25
12/01/96 331 29,391,019.29 29.42
01/01/97 279 27,788,444.05 27.82
02/01/97 121 10,712,082.36 10.72
03/01/97 1 95,200.00 0.10
05/01/98 20 2,867,454.78 2.87
06/01/98 39 4,814,160.11 4.82
07/01/98 15 1,722,129.30 1.72
08/01/98 3 543,500.00 0.54
05/01/99 4 272,000.00 0.27
06/01/99 1 117,499.18 0.12
07/01/99 3 253,548.53 0.25
- --------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
======================================================================================
</TABLE>
DISTRIBUTION OF MINIMUM
COUPON RATES
GROUP II
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE
MINIMUM MORTGAGE AS OF THE % OF AGGREGATE
COUPON RATES (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
- -------------------- ------------- ------------------- ------------------
<S> <C> <C> <C>
5.01% to 5.50% 1 $ 198,000.00 0.20%
6.01 to 6.50 4 591,823.38 0.59
6.51 to 7.00 8 1,055,624.68 1.06
7.01 to 7.50 12 1,362,512.54 1.36
7.51 to 8.00 45 4,946,015.91 4.95
8.01 to 8.50 74 7,321,171.46 7.33
8.51 to 9.00 160 17,890,020.11 17.91
9.01 to 9.50 163 16,019,948.67 16.04
9.51 to 10.00 193 19,727,036.04 19.75
10.01 to 10.50 121 10,670,327.53 10.68
10.51 to 11.00 116 10,505,136.45 10.52
11.01 to 11.50 60 4,528,710.34 4.53
11.51 to 12.00 43 3,248,378.24 3.25
12.01 to 12.50 14 788,470.17 0.79
12.51 to 13.00 11 783,189.64 0.78
13.01 to 13.50 5 218,977.92 0.22
13.51 to 14.00 1 30,000.00 0.03
- --------------------------------------------------------------------------------------
TOTAL 1,031 $99,885,343.08 100.00%
======================================================================================
</TABLE>
THE MORTGAGE LOAN PROGRAM -- UNDERWRITING STANDARDS; REPRESENTATIONS
The Mortgage Loans were acquired by the Seller from 96 Unaffiliated
Originators. Not more than 6.83% of the Original Pool Principal Balance
represents Mortgage Loans purchased from any single Unaffiliated Originator. All
of the Mortgage Loans were originated or acquired by the Originators generally
in accordance with underwriting criteria satisfactory to the Seller.
S-34
<PAGE>
<PAGE>
The Seller will make representations and warranties with respect to the
Mortgage Loans sold to the Trust as of the Closing Date pursuant to the
Securitization Sponsorship Agreement and the Pooling and Servicing Agreement.
The Seller may be obligated to repurchase the Mortgage Loans in respect of which
a breach of representation or warranty has occurred. See "Mortgage Loan Program"
in the accompanying Prospectus.
AFL's Guidelines, as identified in the Prospectus as the Equicon
Mortgage Loan Program, provide that each borrower is required to provide, and
the Originator is generally required to verify, personal financial information.
The borrower's total monthly obligations (including principal and interest on
each mortgage, tax assessments, other loans, charge accounts and all other
scheduled indebtedness) should not exceed 60% of the borrower's monthly income.
Borrowers who are salaried employees must provide current employment
information, in addition to recent employment history. The Originator verifies
this information for salaried borrowers based on a current pay stub and either
(i) a written verification of income signed by their employer or (ii) two years'
W-2 forms. A self-employed applicant is generally required to be successfully
self-employed in the same field for a minimum of two years. A self-employed
borrower is generally required to provide financial statements and signed copies
of federal income tax returns (including schedules) filed for the most recent
two years. The borrower's debt-to-income ratio is calculated based on income as
generally verified by the Originator and must be reasonable.
The Mortgage Loans were underwritten pursuant to the Seller's "Full
Documentation Program," "Alternative Income Documentation Program" and "Stated
Income Program," as set forth in AFL's Guidelines. Under each of the programs,
the Originator reviews the loan applicant's source of income, calculates the
amount of income from sources indicated on the loan application or similar
documentation, reviews the credit history of the applicant, calculates the debt
service-to-income ratio to determine the applicant's ability to repay the loan,
reviews the type and use of the property being financed and reviews the property
for compliance with its standards. In determining the ability of the applicant
to repay an adjustable rate Mortgage Loan, the Originators use a rate (the
"Qualifying Rate") that generally is a rate equal to the fully-indexed Mortgage
interest rate for such adjustable rate Mortgage Loan. AFL's Guidelines are
applied in a standardized procedure that complies with applicable federal and
state laws and regulations.
Under the Full Documentation Program, the income of each applicant and
the source of funds (if any) required to be deposited by an applicant into a
bank account will be verified by the Originators. Applicants are generally
required to submit a current pay stub and either (i) a written verification of
income signed by their employer or (ii) two years' W-2 forms. Under the
Alternative Income Documentation Program, a self-employed applicant is required
to provide the applicant's business' profit and loss statement, and bank account
statements supporting such statement for the prior calendar year and any
completed calendar quarter of the current year and a current copy of a business
license. Both the Alternative Income Program and the Stated Income Program
generally require (i) that the applicant's income be reasonable for its
business/profession, (ii) that the business has been in existence for three
years or more and (iii) that the loan-to-value ratio be reduced. In addition,
the Mortgage Loan will generally improve the applicant's cash flow. Verification
of the source of funds (if any) required to be deposited by the applicant into a
bank account is generally required under all documentation programs in the form
of a standard verification of deposit or two months' consecutive bank statements
or other acceptable documentation. Twelve months' mortgage payment or rental
history is generally required to be verified by the applicant's current lender
or landlord. If appropriate compensating factors exist, the Originators and the
Seller may waive certain documentation requirements for individual applicants.
S-35
<PAGE>
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
CLASS A CERTIFICATES
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A Certificate will be directly related to the rate
of payment of principal of the Mortgage Loans in the related Mortgage Loan
Group, including for this purpose Prepayments, liquidations due to defaults,
casualties and condemnations, and repurchases of Mortgage Loans by the Seller,
or purchases of Mortgage Loans by the Master Servicer or a Sub-Servicer. The
Mortgage Loans in the related Mortgage Loan Group may be prepaid by the related
obligors on the Notes ("Mortgagors") at any time. The actual rate of principal
prepayments on pools of mortgage loans is influenced by a variety of economic,
tax, geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the mortgage loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment.
Generally, however, because the Mortgage Loans in the Group I bear
interest at fixed rates, and the rate of prepayment on fixed rate mortgage loans
is sensitive to prevailing interest rates, if prevailing interest rates were to
fall, the Mortgage Loans in Group I may be subject to higher prepayment rates.
Conversely, if prevailing interest rates were to rise, the rate of prepayments
on Mortgage Loans in the Group I would be likely to decrease.
If purchased at other than par, the yield to maturity on a Class A
Certificate will be affected by the rate of the payment of principal of the
Mortgage Loans in the related Mortgage Loan Group. If the actual rate of
payments on the Mortgage Loans in the related Mortgage Loan Group is slower than
the rate anticipated by an investor who purchases a Class A Certificate at a
discount, the actual yield to such investor will be lower than such investor's
anticipated yield. If the actual rate of payments on the Mortgage Loans in the
related Mortgage Loan Group is faster than the rate anticipated by an investor
who purchases a Class A Certificate at a premium, the actual yield to such
investor will be lower than such investor's anticipated yield.
All of the Mortgage Loans in Group II are adjustable rate mortgage
loans. As is the case with conventional fixed rate mortgage loans, adjustable
rate mortgage loans may be subject to a greater rate of principal prepayments in
a declining interest rate environment. For example, if prevailing interest rates
fall significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed rate mortgage loans at competitive interest rates may
encourage Mortgagors to refinance their adjustable rate mortgage loans to "lock
in" a lower fixed interest rate. However, no assurance can be given by the
Sponsor or the Seller as to the level of prepayments that the Group II Mortgage
Loans will experience.
The final scheduled Payment Date for the A-1 Group I Certificates is May
18, 2011, for the Class A-2 Group I Certificates is May 18, 2011, for the Class
A-3 Group I Certificates is November 18, 2015, for the A-4 Group I Certificates
is June 18, 2022, for the Class A-5 Group I Certificates is September 18, 2022,
and for the Class A-6 Group II Certificates is January 18, 2027. Such dates are
the dates on which the related Class A Certificate Principal Balance would be
reduced to zero, assuming, among other things that with respect to the Class A-1
Group I Certificates, the Class A-2 Group I Certificates, the Class A-3 Group I
Certificates and the Class A-4 Group I Certificates (i) no Prepayments are
received on any of the Mortgage Loans, (ii) distributions of principal and
interest on each of the Mortgage Loans is timely received, (iii) Class B
Interest will be used to make accelerated payments of principal (i.e.,
Subordination Increase Amounts) to the Holders of the Class A Certificates and
(iv) the Mortgage Loans in each Mortgage Loan Group have the applicable
characteristics set forth in the "Weighted Average Lives of Class A
Certificates" section herein. The final scheduled Payment Date for the Class A-5
Group I Certificates and the Class A-6 Group II Certificates is the Payment Date
in the calendar month in which the stated maturity of the Mortgage Loan in the
related Mortgage
S-36
<PAGE>
<PAGE>
Loan Group having the latest stated maturity occurs. The weighted average life
of the Class A Certificates of each Class is likely to be shorter than would be
the case if payments actually made on the Mortgage Loans in the related Mortgage
Loan Group conformed to the foregoing assumptions, and the final Payment Dates
with respect to the Class A Certificates of each Class could occur significantly
earlier than such final scheduled Payment Dates because (i) Prepayments are
likely to occur, (ii) the Seller may repurchase Mortgage Loans in the related
Mortgage Loan Group in the event of breaches of representations and warranties
and (iii) the Seller may cause, and the Trustee may, pursuant to the Auction
Sale, cause a termination of the Trust when the Pool Principal Balance has
declined to ten percent or less of the Original Pool Principal Balance.
"Weighted average life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Classes of
Class A Certificates will be influenced by the rate at which principal payments
(including scheduled payments and prepayments) on the Mortgage Loans in the
related Mortgage Loan Group are made. Principal payments on Mortgage Loans may
be in the form of scheduled amortization or prepayments (for this purpose, the
term "prepayment" includes prepayments and liquidations due to a default or
other dispositions of the Mortgage Loans). The weighted average lives of the
Class A Certificates will also be influenced by delays associated with realizing
on defaulted Mortgage Loans in the related Mortgage Loan Group. The model used
in this Prospectus Supplement (the "Home Equity Prepayment" Model or "HEP")
assumes that, (i) with respect to Group I, the pool of loans prepays in the
first month at a constant prepayment rate of 2.3% and increases by an additional
2.3% each month thereafter until the tenth month, where it remains at a constant
prepayment rate equal to 23% and (ii) with respect to Group II, the pool of
loans prepays in the first month at a constant prepayment rate of 2.4% and
increases by an additional 2.4%, each month thereafter until the tenth month,
where it remains at a constant prepayment rate equal to 24%, (the "Prepayment
Assumption"). HEP represents an assumed annualized rate of prepayment relative
to the then outstanding principal balance on a pool of new mortgage loans.
WEIGHTED AVERAGE LIVES OF CLASS A CERTIFICATES
For the purpose of the tables below, it is assumed that: (i) the
Mortgage Loans of each Mortgage Loan Group consist of pools of loans with
level-pay and balloon amortization methodologies, Cut-Off Date principal
balances, gross coupon rates, net coupon rates, original and remaining terms to
maturity, and original amortization terms as applicable, as set forth below,
(ii) the Closing Date for the Certificates occurs on August 27, 1996, (iii)
distributions on the Certificates are made on the 18th day of each month
regardless of the day on which the Payment Date actually occurs, commencing in
September 1996 in accordance with the priorities described herein, (iv) the
difference between the gross coupon rate and the net coupon rate is sufficient
to pay Servicer Fees, Trustee fees and Certificate Insurer premiums, (v) the
Mortgage Loans' prepayment rates are a multiple of the Prepayment Assumption,
(vi) prepayments include 30 days' interest thereon, (vii) optional termination
is exercised, (viii) the Specified Subordinated Amount for each Mortgage Loan
Group is set initially as specified in the Insurance Agreement and thereafter
changes in accordance with the provisions of the Insurance Agreement, (ix) no
delinquencies in the payment by Mortgagors of principal and interest on the
Mortgage Loans are experienced, (x) no Mortgage Loan is repurchased for breach
of a representation and warranty or otherwise, (xi) the Coupon Rate for each
Mortgage Loan in Group II is adjusted on its next rate adjustment date (and on
subsequent rate adjustment dates, if necessary) to equal the sum of (a) an
assumed level of the applicable index (5.6875%) and (b) the respective gross
margin (such sum being subject to the applicable periodic adjustment cap and
maximum interest rate), (xii) the Class A-1 Group I Pass-Through Rate remains
constant at 5.52625% and (xiii) the Class A-6 Group II Pass-Through Rate remains
constant at 5.71625%.
S-37
<PAGE>
<PAGE>
GROUP I CHARACTERISTICS
<TABLE>
<CAPTION>
Original Remaining Original
Term to Term to Amortization
Pool Principal Gross Coupon Net Coupon Maturity Maturity Term Amortization
Number Balance Rate (%) Rate (%) (in months) (in months) (in months) Method
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $58,952,566.82 11.775 11.2875 179 177 360 BALLOON
2 624,107.78 11.945 11.4575 118 116 118 LEVEL
3 13,945,191.84 11.468 10.9805 180 178 180 LEVEL
4 6,049,694.98 11.504 11.0165 240 238 240 LEVEL
5 28,140,094.40 11.205 10.7175 360 359 360 LEVEL
</TABLE>
GROUP II CHARACTERISTICS
<TABLE>
<CAPTION>
Original Remaining Original
Gross Net Months Maximum Term to Term to Amortization
Pool Principal Coupon Coupon to Rate Interest Maturity Maturity Term Periodic Amortization
Number Balance Rate (%) Rate (%) Change Margin (%) Rate (%) (in months) (in months) (in months) Cap (%) Method
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $572,527.58 9.550 9.0625 1 6.338 15.498 360 356 360 1.000 LEVEL
2 3,163,711.46 9.855 9.3675 2 6.527 16.041 360 357 360 1.074 LEVEL
3 17,067,124.86 9.749 9.2615 3 6.507 15.920 358 356 358 1.088 LEVEL
4 29,160,919.29 9.741 9.2535 4 6.558 15.871 359 358 359 1.042 LEVEL
5 27,626,944.05 9.791 9.3035 5 6.665 16.054 359 359 359 1.025 LEVEL
6 10,807,282.36 9.530 9.0425 6 6.344 15.686 359 359 359 1.015 LEVEL
7 2,867,454.78 9.821 9.3335 21 6.093 15.609 360 358 360 1.000 LEVEL
8 4,814,160.11 10.100 9.6125 22 6.062 15.884 360 359 360 1.000 LEVEL
9 2,908,677.01 10.838 10.3505 26 6.241 17.025 360 360 360 1.000 LEVEL
10 896,541.58 9.882 9.3945 3 5.769 15.776 180 178 360 1.034 BALLOON
</TABLE>
(1) The aggregate principal balance of the Mortgage Loans are fixed rate
loans that, in 2 years from origination, will be converted into variable
rate loans with an interest rate cap of 3% on the date of such
conversion and with a periodic interest rate cap of 1% thereafter.
(2) The aggregate principal balance of the Mortgage Loans are fixed rate
loans that, in 3 years from origination, will be converted into variable
rate loans with an interest rate cap of 3% on the date of such
conversion and with a periodic interest rate cap of 1% thereafter.
Since the tables were prepared on the basis of the assumptions in the
above paragraphs, there are discrepancies between the characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the related Class A Certificate Principal Balances outstanding
and weighted average lives of the Class A Certificates set forth in the tables.
In addition, since the actual Mortgage Loans in the Trust have characteristics
which differ from those assumed in preparing the tables set forth below, the
Class A Principal Distribution Amount may be made earlier or later than as
indicated in the tables.
S-38
<PAGE>
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
CLASS A-1 GROUP I CERTIFICATES CLASS A-2 GROUP I CERTIFICATES CLASS A-3 GROUP I CERTIFICATES
PAYMENT DATE 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28%
-- --- --- --- --- --- -- --- --- --- --- --- -- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
August 18, 1997 90.9 67.5 58.5 53.0 49.3 40.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
August 18, 1998 88.8 37.9 19.9 9.5 2.7 0.0 100.0 100.0 100.0 100.0 100.0 78.7 100.0 100.0 100.0 100.0 100.0 100.0
August 18, 1999 86.4 12.2 0.0 0.0 0.0 0.0 100.0 100.0 81.8 61.2 48.8 20.7 100.0 100.0 100.0 100.0 100.0 100.0
August 18, 2000 83.7 0.0 0.0 0.0 0.0 0.0 100.0 84.1 42.4 21.3 8.5 0.0 100.0 100.0 100.0 100.0 100.0 58.1
August 18, 2001 80.7 0.0 0.0 0.0 0.0 0.0 100.0 53.9 11.4 0.0 0.0 0.0 100.0 100.0 100.0 79.3 52.8 0.0
August 18, 2002 77.3 0.0 0.0 0.0 0.0 0.0 100.0 29.0 0.0 0.0 0.0 0.0 100.0 100.0 70.8 27.8 3.1 0.0
August 18, 2003 73.5 0.0 0.0 0.0 0.0 0.0 100.0 7.5 0.0 0.0 0.0 0.0 100.0 100.0 27.4 0.0 0.0 0.0
August 18, 2004 69.3 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 100.0 76.3 0.0 0.0 0.0 0.0
August 18, 2005 64.5 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 100.0 42.1 0.0 0.0 0.0 0.0
August 18, 2006 59.2 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 100.0 12.5 0.0 0.0 0.0 0.0
August 18, 2007 53.5 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0
August 18, 2008 47.1 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0
August 18, 2009 39.9 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0
August 18, 2010 31.8 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0
August 18, 2011 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30.9 0.0 0.0 0.0 0.0 0.0
August 18, 2012 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 23.1 0.0 0.0 0.0 0.0 0.0
August 18, 2013 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 14.4 0.0 0.0 0.0 0.0 0.0
August 18, 2014 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.6 0.0 0.0 0.0 0.0 0.0
August 18, 2015 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2016 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2017 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2018 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2019 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2020 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2021 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2022 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2023 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2024 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2025 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2026 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2027 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Weighted
Average
Life (Years)(1) 10.0 1.7 1.3 1.1 1.1 0.9 14.7 5.3 3.9 3.3 3.1 2.5 15.4 8.8 6.5 5.6 5.1 4.2
</TABLE>
(1) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the Closing Date to the related Payment Date, (ii) adding the results, and
(iii) dividing the sum by the initial respective Certificate Principal
Balance for such Class of Class A Certificate.
S-39
<PAGE>
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
CLASS A-4 GROUP I CERTIFICATES CLASS A-5 GROUP I CERTIFICATES CLASS A-6 GROUP II CERTIFICATES
PAYMENT DATE 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28% 0% 15% 20% 23% 24% 30%
-- --- --- --- --- --- -- --- --- --- --- --- -- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
August 18, 1997 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 97.0 86.5 82.9 80.8 80.1 75.8
August 18, 1998 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 96.5 72.7 65.4 61.1 59.7 51.7
August 18, 1999 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 96.1 60.9 51.3 46.1 44.5 35.8
August 18, 2000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 95.6 51.0 40.6 35.3 33.7 24.9
August 18, 2001 100.0 100.0 100.0 100.0 100.0 95.9 100.0 100.0 100.0 100.0 100.0 100.0 95.0 42.8 32.3 27.0 25.4 17.4
August 18, 2002 100.0 100.0 100.0 100.0 100.0 36.8 100.0 100.0 100.0 100.0 100.0 100.0 94.3 36.2 25.7 20.7 19.2 12.1
August 18, 2003 100.0 100.0 100.0 83.0 52.8 0.0 100.0 100.0 100.0 100.0 100.0 93.2 93.6 30.5 20.4 15.8 14.5 0.0
August 18, 2004 100.0 100.0 89.3 40.1 12.8 0.0 100.0 100.0 100.0 100.0 100.0 0.0 92.7 25.7 16.2 12.1 10.9 0.0
August 18, 2005 100.0 100.0 50.3 5.3 0.0 0.0 100.0 100.0 100.0 100.0 0.0 0.0 91.8 21.6 12.8 0.0 0.0 0.0
August 18, 2006 100.0 100.0 18.3 0.0 0.0 0.0 100.0 100.0 100.0 0.0 0.0 0.0 90.7 18.2 10.1 0.0 0.0 0.0
August 18, 2007 100.0 82.4 0.0 0.0 0.0 0.0 100.0 100.0 91.7 0.0 0.0 0.0 89.5 15.3 0.0 0.0 0.0 0.0
August 18, 2008 100.0 52.4 0.0 0.0 0.0 0.0 100.0 100.0 0.0 0.0 0.0 0.0 88.2 12.8 0.0 0.0 0.0 0.0
August 18, 2009 100.0 26.5 0.0 0.0 0.0 0.0 100.0 100.0 0.0 0.0 0.0 0.0 86.6 10.7 0.0 0.0 0.0 0.0
August 18, 2010 100.0 2.7 0.0 0.0 0.0 0.0 100.0 100.0 0.0 0.0 0.0 0.0 84.9 0.0 0.0 0.0 0.0 0.0
August 18, 2011 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 82.2 0.0 0.0 0.0 0.0 0.0
August 18, 2012 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 80.0 0.0 0.0 0.0 0.0 0.0
August 18, 2013 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 77.5 0.0 0.0 0.0 0.0 0.0
August 18, 2014 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 74.7 0.0 0.0 0.0 0.0 0.0
August 18, 2015 91.4 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 71.6 0.0 0.0 0.0 0.0 0.0
August 18, 2016 76.1 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 68.0 0.0 0.0 0.0 0.0 0.0
August 18, 2017 65.4 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 64.0 0.0 0.0 0.0 0.0 0.0
August 18, 2018 53.4 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 59.5 0.0 0.0 0.0 0.0 0.0
August 18, 2019 40.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 54.4 0.0 0.0 0.0 0.0 0.0
August 18, 2020 25.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 48.6 0.0 0.0 0.0 0.0 0.0
August 18, 2021 7.2 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 42.4 0.0 0.0 0.0 0.0 0.0
August 18, 2022 0.0 0.0 0.0 0.0 0.0 0.0 88.2 0.0 0.0 0.0 0.0 0.0 35.6 0.0 0.0 0.0 0.0 0.0
August 18, 2023 0.0 0.0 0.0 0.0 0.0 0.0 67.5 0.0 0.0 0.0 0.0 0.0 27.8 0.0 0.0 0.0 0.0 0.0
August 18, 2024 0.0 0.0 0.0 0.0 0.0 0.0 44.3 0.0 0.0 0.0 0.0 0.0 19.1 0.0 0.0 0.0 0.0 0.0
August 18, 2025 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2026 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
August 18, 2027 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Weighted
Average
Life (Years)(1) 22.1 12.2 9.1 7.8 7.1 5.8 27.5 14.7 11.2 9.6 8.8 7.1 21.5 5.3 4.0 3.5 3.4 2.7
</TABLE>
(1) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the Closing Date to the related Payment Date, (ii) adding the results, and
(iii) dividing the sum by the initial respective Certificate Principal
Balance for such Class of Class A Certificate.
S-40
<PAGE>
<PAGE>
The Mortgage Loans will not have the characteristics assumed above, and
there can be no assurance that (i) the Mortgage Loans will prepay at any of the
rates shown in the table or at any other particular rate or will prepay
proportionately or (ii) the weighted average lives of the Class A Group I
Certificates of each Class or the weighted average life of the Class A-6 Group
II Certificates will be as calculated above. Because the rate of distributions
of principal of the Class A Certificates will be a result of the actual
amortization (including prepayments) of the Mortgage Loans in the related
Mortgage Loan Group, which will include Mortgage Loans that have remaining terms
to stated maturity shorter or longer than those assumed and Coupon Rates higher
or lower than those assumed, the weighted average lives of the Class A Group I
Certificates and the Class A-6 Group II Certificates will differ from those set
forth above, even if all of the Mortgage Loans in the related Mortgage Loan
Group prepay at the indicated constant prepayment rates.
PAYMENT DELAY FEATURE OF CLASS A-2, A-3, A-4 AND A-5 GROUP I CERTIFICATES
The effective yield to the Owners of the Class A-2, A-3, A-4 and A-5
Group I Certificates will be lower than the yield which would otherwise apply
because distributions will not be payable to such Owners until at least the 18th
day of the month in which the related Accrual Period ends, without any
additional distribution of interest or earnings thereon in respect of such
delay.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in classes (each, a "Class") pursuant to
a Pooling and Servicing Agreement to be dated as of August 1, 1996 (the "Pooling
and Servicing Agreement") among the Sponsor, the Master Servicer, the Seller and
the Trustee. The Trustee will make available for inspection a copy of the
Pooling and Servicing Agreement (without exhibits or schedules) to the Owners of
the Certificates on written request. The following summary describes certain
terms of the Pooling and Servicing Agreement, but does not purport to be
complete and is qualified in its entirety by reference to the Pooling and
Servicing Agreement.
The $44,843,000 aggregate principal amount of Class A-1 Group I
Certificates, Variable Pass-Through Rate (the "Class A-1 Group I Certificates"),
the $28,572,000 aggregate principal amount of Class A-2 Group I Certificates,
6.900% Pass-Through Rate (the "Class A-2 Group I Certificates"), the $13,552,000
aggregate principal amount of Class A-3 Group I Certificates, 7.250%
Pass-Through Rate (the "Class A-3 Group I Certificates"), the $10,000,000
aggregate principal amount of Class A-4 Group I Certificates, 7.500%
Pass-Through Rate (the "Class A-4 Group I Certificates") and the $10,744,000
aggregate principal amount of Class A-5 Group I Certificates, 7.600%
Pass-Through Rate (the "Class A-5 Group I Certificates", and, collectively with
the Class A-1 Group I Certificates, the Class A-2 Group I Certificates, the
Class A-3 Group I Certificates, Class A-4 Group I Certificates, the "Class A
Group I Certificates"), and the $98,886,000 aggregate principal amount of Class
A-6 Group II Certificates (the "Class A-6 Group II Certificates") are senior
certificates as described herein (together, the "Class A Certificates"). The
Class B Certificates are not being offered hereby. Each Class of Class A
Certificates will be issued in original principal amounts of $1,000 and integral
multiples thereof, except that one certificate for each class of Class A
Certificates may be issued in a different amount. The Trust will also issue a
residual class in each REMIC created by the Trust (the "Residual Certificates")
which are not being offered hereby and will initially be retained by the Seller
or its affiliates. The Class A Certificates, the Class B Certificates and the
Residual Certificates are collectively referred to as the "Certificates".
PAYMENT DATES AND DISTRIBUTIONS
On the 18th day of each month, or, if such day is not a business day
then the next succeeding business day, commencing September 18, 1996 (each such
day being a "Payment Date"), the Trustee will be required to distribute to the
Owners of record of the Certificates as of the related Record Date, such Owners'
Percentage Interest in the amounts required to be distributed to the Owners of
each Class of Certificates on
S-41
<PAGE>
<PAGE>
such Payment Date. For so long as any Class A Certificate is in book-entry form
with DTC, the only "Owner" of such Class A Certificates will be Cede. See " --
Book-Entry Registration of the Class A Certificates" herein.
Each Owner of record of a Certificate as of each Record Date will be
entitled to receive such Owner's Percentage Interest in the amounts due on the
related Payment Date to the Owners of the related Class of Certificates. The
"Percentage Interest" of each Class A Certificate as of any date of
determination will be equal to the percentage obtained by dividing the principal
balance of such Class A Certificate as of the Cut-Off Date by the related Class
A Certificate Principal Balance as of the Cut-Off Date.
FLOW OF FUNDS AND DISTRIBUTIONS ON THE CLASS A CERTIFICATES
THE PRINCIPAL AND INTEREST ACCOUNT. The Pooling and Servicing Agreement
requires the Master Servicer to establish a custodial account (the "Principal
and Interest Account") on behalf of the Trustee at a depository institution
meeting the requirements set forth in the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement requires the Master Servicer to deposit all
collections (other than amounts escrowed for taxes and insurance) related to the
Mortgage Loans to the Principal and Interest Account on a daily basis (but no
later than the first business day after receipt). All funds in the Principal and
Interest Account can only be invested in Eligible Investments. Investment
earnings on funds held in the Principal and Interest Account are for the account
of the Master Servicer, and the Master Servicer will be responsible for any
losses.
The Master Servicer is required pursuant to the Pooling and Servicing
Agreement on the thirteenth day or, if such day is not a business day, on the
next following business day (the "Remittance Date") of each month to remit to
the Trustee the following amounts with respect to the Mortgage Loans in each
Mortgage Loan Group: (i) an amount equal to the sum, without duplication, of (x)
the aggregate portions of the interest payments (whether or not collected)
becoming due on the Mortgage Loans during the immediately preceding Remittance
Period, and (y) any Compensating Interest calculated at the Coupon Rate on the
related Mortgage Loan, less the Servicing Fee with respect to the Mortgage Loans
serviced by the Master Servicer due with respect to such Mortgage Loans with
respect to the immediately preceding Remittance Period (the amount described in
this clause (i) for the Mortgage Loans in Group I being the "Group I Interest
Remittance Amount" and the amount in this clause (i) for the Mortgage Loans in
Group II being the "Group II Interest Remittance Amount"), (ii) an amount equal
to the sum, without duplication, of (x) the aggregate portions of the scheduled
principal payments, but only to the extent collected, on the Mortgage Loans
during the immediately preceding Remittance Period, (y) any Prepayments,
Insurance Proceeds and Net Liquidation Proceeds (but only to the extent that
such Net Liquidation Proceeds do not exceed the principal balance of the related
Mortgage Loan) and Released Mortgaged Property Proceeds, in each case only to
the extent collected on the Mortgage Loans during the preceding Remittance
Period and (z) all Loan Purchase Prices and Substitution Amounts with respect to
the related Mortgage Loans at such Remittance Date paid or received by the
Master Servicer for deposit to the Principal and Interest Account (the amount
described in this clause (ii) for the Mortgage Loans in Group I being the "Group
I Principal Remittance Amount" and the amount described in this clause (ii) for
the Mortgage Loans in Group II being the "Group II Principal Remittance
Amount"). For any Remittance Date the Group I Interest Remittance Amount and the
Group I Principal Remittance Amount are together referred to as the "Group I
Monthly Remittance" for such Remittance Date, and the Group II Interest
Remittance Amount and the Group II Principal Remittance Amount are together
referred to as the "Group II Monthly Remittance" for such Remittance Date. The
sum of the Group I Interest Remittance Amount and the Group II Interest
Remittance Amount is equal to the "Interest Remittance Amount". The sum of Group
I Principal Remittance Amount and the Group II Principal Remittance Amount is
equal to the "Principal Remittance Amount". For any Remittance Date the Interest
Remittance Amount and the Principal Remittance Amount are together referred to
as the "Monthly Remittance" for such Remittance Date.
A "Remittance Period" is the period commencing at the opening of
business on the second day of each month and ending at the close of business on
the first day of the following month.
DELINQUENCY ADVANCES. The Pooling and Servicing Agreement requires that
if, on any Remittance Date, the amount then on deposit in the Principal and
Interest Account from Mortgage Loan collections and
S-42
<PAGE>
<PAGE>
relating to interest is less than the Interest Remittance Amount applicable to
such Remittance Period, then the Master Servicer is required to deposit into the
Principal and Interest Account a sufficient amount of its own funds
("Delinquency Advances") to make such amount equal to such Interest Remittance
Amount. The Master Servicer is not required to make a Delinquency Advance if it
believes that such Delinquency Advance will not be recoverable from the related
Mortgage Loan. The Trustee, as successor Master Servicer, will not be required
to make a Delinquency Advance if it believes that such Delinquency Advance will
not be recoverable from the related Mortgage Loan.
THE CERTIFICATE ACCOUNT. The Pooling and Servicing Agreement provides
that the Trustee shall create and maintain one or more accounts for the purpose
of funding distributions to the Owners (collectively, the "Certificate
Account"). The Pooling and Servicing Agreement provides that the Trustee shall
deposit to the Certificate Account (i) monthly, the Monthly Remittance received
from the Master Servicer on the related Remittance Date and (ii) all Insured
Payments received from the Certificate Insurer.
On the second business day prior to each Payment Date, in preparation of
making distributions on such Payment Date, if the Trustee determines with
respect to either Mortgage Loan Group that the Total Available Funds to be on
deposit in the Certificate Account with respect to such Mortgage Loan Group will
be insufficient to pay the full amount of the related Insured Distribution
Amount and the fees of the Trustee and Certificate Insurer for such Payment
Date, the Trustee will then be required to make a draw on the related
Certificate Insurance Policy for the deficiency (the amount of any such
deficiency being the amount of the "Insured Payment" required to be made) and to
deposit the amount received with respect to such draw into the Certificate
Account.
The Pooling and Servicing Agreement also establishes an account, the
"Supplemental Interest Account," which is held in trust by the Trustee, but does
not constitute a part of the Trust. The Supplemental Interest Account will hold
certain amounts and other property relating to the funding of Supplemental
Interest Amounts, if any, to the Owners of the Class A-6 Group II Certificates.
"Supplemental Interest Amounts" are payments due on any Payment Date which
result from any shortfall between Class A-6 Group II Certificate interest
calculated at the Class A-6 Formula Pass-Through Rate, and such interest
calculated at the Class A-6 Available Funds Pass-Through Rate.
DISTRIBUTIONS ON THE CLASS A CERTIFICATES. On each Payment Date, the
Trustee shall be required to make the following disbursements and transfers from
the Certificate Account in the following order of priority, and each such
transfer and disbursement shall be treated as having occurred only after all
preceding transfers and disbursements have occurred:
(i) first, the Trustee shall pay first, to itself the Trustee's
fees then due;
(ii) second, the Trustee shall pay to the Certificate Insurer the
premium amount then due;
(iii) third, the Trustee shall pay, pari passu, to the Owners of
each of the Class A Certificates, the related Class A Distribution
Amount for such Class and such Payment Date;
(iv) fourth, the Trustee shall distribute any remaining amount in
the Certificate Account to the Owners of the related Class B
Certificates and as otherwise required by the Pooling and Servicing
Agreement.
The Class A Group I Certificates have been tranched into five
"sequential pay" Classes, such that the Class A-5 Group I Certificates are
entitled to receive no principal distributions until the Class A-4 Certificate
Principal Balance has been reduced to zero, the Class A-4 Group I Certificates
are entitled to receive no principal distributions until the Class A-3
Certificate Principal Balance has been reduced to zero, the Class A-3 Group I
Certificates are entitled to receive no principal distributions until the Class
A-2 Certificate Principal Balance has been reduced to zero, and the Class A-2
Group I Certificates are entitled to receive no principal distributions until
the Class A-1 Certificate Principal Balance has been reduced to zero.
S-43
<PAGE>
<PAGE>
The Pooling and Servicing Agreement provides that to the extent the
Certificate Insurer makes Insured Payments, the Certificate Insurer will be
subrogated to the rights of the Owners of the related Class A Certificates with
respect to such Insured Payments and shall be deemed, to the extent of the
payments so made, to be a registered Owner of Class A Certificates and shall be
entitled to reimbursement for such Insured Payments, as provided in the Pooling
and Servicing Agreement.
CALCULATION OF LIBOR
On the second business day preceding each Payment Date or, in the case
of the first Payment Date, on the second business day preceding the Closing Date
(each such date, an "Interest Determination Date"), the Trustee will determine
the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR")
for the next Accrual Period for the Class A-1 Group I Certificates and Class A-6
Group II Certificates on the basis of the offered rates of the Reference Banks
for one-month U.S. dollar deposits, as such rates appear on the Reuters Screen
LIBO Page, as of 11:00 a.m. (London time) on such Interest Determination Date.
As used in this section, "business day" means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; "Reuters
Screen LIBO Page" means the display designated as page "LIBO" on the Reuter
Monitor Money Rates Service (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks); and "Reference Banks" means leading banks selected by the Trustee
and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on the Reuters Screen LIBO Page on the Interest
Determination Date in question, (iii) which have been designated as such by the
Trustee and (iv) not controlling, controlled by, or be under common control
with, the Sponsor, the Seller or the Trustee.
On each Interest Determination Date, LIBOR for the related Accrual
Period for the Class A-6 Group II Certificates will be established by the
Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period for the
Class A-1 Group I and the Class A-6 Group II Certificates shall be the
arithmetic mean of such offered quotations (rounded upwards if necessary to the
nearest whole multiple of 1/16%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related Accrual Period for
the Class A-1 Group I and the Class A-6 Group II Certificates shall be the
higher of (x) LIBOR as determined on the previous Interest Determination Date
and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate
per annum that the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Trustee are quoting on the relevant Interest Determination Date to the principal
London offices of leading banks in the London interbank market or, in the event
that the Trustee can determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York City banks selected by the
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-1 Group I and the Class A-6 Group II Certificates for the related
Accrual Period shall (in the absence of manifest error) be final and binding.
Each such rate of interest may be obtained by telephoning the Trustee at (612)
667-8085.
SUBORDINATION OF CLASS B CERTIFICATES
The Class B Certificates are subordinated to the Class A Certificates.
Such subordination is intended to enhance the likelihood that the Owners of the
Class A Certificates will receive full and timely receipt of all amounts due to
them.
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The Pooling and Servicing Agreement requires that the excess of the
aggregate principal balance of the Mortgage Loans in Group I over the Class A
Certificate Principal Balance for all Classes of the Class A Group I
Certificates be maintained at a certain amount (which amount may vary over time)
over the life of the transaction, which amount is specified by the Certificate
Insurer. The actual amount of this excess is the "Subordinated Amount" for Group
I, and the specified target amount of the excess at a point in time is the
"Specified Subordinated Amount" for Group I.
Similarly, the Pooling and Servicing Agreement requires that the excess
of Group II's Pool Principal Balance over the Class A Certificate Principal
Balance for the Class A-6 Group II Certificates be maintained at a certain
amount (which amount may vary over time) over the life of the transaction, which
amount is specified by the Certificate Insurer. The actual amount of this excess
is the "Subordinated Amount" for Group II, and the specified target amount of
the excess at a point in time is the "Specified Subordinated Amount" for Group
II.
The Certificate Insurer may permit the reduction of the Specified
Subordinated Amount without the consent of, or the giving of notice to, the
Owners of the related Class A Certificates; provided, that the Certificate
Insurer is not then in default; and provided, further, that such reduction would
not change materially the weighted average life of the related Class A
Certificates or the current rating thereof.
The Pooling and Servicing Agreement generally provides that the Owners
of the Class B Certificates will only receive distributions of principal to the
extent that the actual related Subordinated Amount exceeds the then related
Specified Subordinated Amount; i.e., to the extent that there is a level of
subordination greater than that required by the Certificate Insurer, as will be
the case when the Specified Subordinated Amount decreases or "steps down" in
accordance with its terms. Consequently, unless there exists on any particular
Payment Date such related excess subordination, the Owners of the related Class
A Certificates will be entitled to receive 100% of the principal to be
distributed on such Payment Date with respect to the related Mortgage Loan
Group.
The Class B Certificates are also entitled to receive all excess
interest available on any Payment Date for the related Mortgage Loan Group,
i.e., the interest remitted by the Master Servicer to the Trustee relating to
the prior Remittance Period (which interest remittance is itself net of the
aggregate monthly Servicing Fees) less the interest due and payable to the
Owners of the related Class A Certificates, together with the fees and premium
due and payable to the Trustee and the Certificate Insurer (such interest to
which the related Class B Certificates are entitled, the "Class B Interest" for
the related Mortgage Loan Group).
On each Payment Date the Class B Interest will be used, to the extent
available, to fund any shortfalls in amounts due to the Owners of the Class A
Certificates on such Payment Date. In addition, to the extent that the related
Specified Subordinated Amount increases or "steps up" due to the effect of the
triggers set forth in the definition thereof, or if, due to Realized Losses, the
related Subordinated Amount has been reduced below the related Specified
Subordinated Amount, the Pooling and Servicing Agreement requires that Class B
Interest be used to make payments of principal to the Owners of the Class A
Group I Certificates and the Class A-6 Group II Certificates for the purposes of
accelerating the amortization thereof relative to the amortization of the
Mortgage Loans in the related Mortgage Loan Group. Such accelerated payments of
principal will be made to the extent necessary to increase the related
Subordinated Amount to its then-applicable Specified Subordinated Amount. To the
extent that, on any Payment Date, the actual related Subordinated Amount is less
than the related Specified Subordinated Amount, a "Subordination Deficiency"
will exist. The Insurance Agreement defines a "Group I Subordination Deficit"
with respect to a Payment Date to be the amount, if any, by which (x) the
aggregate Certificate Principal Balance of the Class A Group I Certificates as
of such Payment Date, and following the making of all distributions to be made
on such Payment Date (except for any payment to be made as to principal from
proceeds of the related Certificate Insurance Policy), exceeds (y) an amount
equal to the aggregate principal balances of the Mortgage Loans in the Group I
as of the close of business on the last day of the preceding Remittance Period;
a "Group II Subordination Deficit" with respect to a Payment Date is the amount,
if any, by which (x) the aggregate Certificate Principal Balance of the Class
A-6 Group II Certificates as of such Payment Date, and following the making of
all distributions to be made on such
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Payment Date (except for any payment to be made as to principal from proceeds of
the related Certificate Insurance Policy) exceeds (y) the aggregate principal
balances of the Mortgage Loans in the Group II as of the close of business on
the last day of the preceding Remittance Period.
"Subordination Increase Amount" means, as of any Payment Date and with
respect to the related Mortgage Loan Group, the lesser of (i) the Subordination
Deficiency applicable to such Mortgage Loan Group as of such Payment Date and
(ii) the actual amount available to pay the Class B Interest on such Payment
Date.
"Subordination Reduction Amount" means, with respect to any Payment Date
and with respect to the related Mortgage Loan Group, an amount equal to the
lesser of (x) the excess of the actual Subordinated Amount applicable to such
Mortgage Loan Group over the Specified Subordinated Amount for such Payment Date
and (y) the amount described in clause (b)(i)(x) of the definition of Class A
Principal Distribution Amount for such Payment Date.
Overcollateralization and the Certificate Insurance Policy. The Pooling
and Servicing Agreement requires the Trustee to make a claim for an Insured
Payment under the related Certificate Insurance Policy not later than the second
business day prior to any Payment Date as to which the Trustee has determined
that a Subordination Deficit will occur for the purpose of applying the proceeds
of such Insured Payment as a payment of principal to the Owners of the Class A
Group I Certificates or Class A-6 Group II Certificates, as the case may be, on
such Payment Date. The Certificate Insurance Policy is thus similar to the
subordination provisions described above insofar as the Certificate Insurance
Policy guarantees ultimate, rather than current, payment of the amounts of any
Realized Losses to the Holders of the related Class A Group I Certificates and
Class A-6 Group II Certificates. Investors in the Class A Group I Certificates
of each Class and the Class A-6 Group II Certificates should realize that, under
extreme loss or delinquency scenarios applicable to the related Mortgage Loan
Pool, they may temporarily receive no distributions of principal.
CROSSCOLLATERALIZATION PROVISIONS
The Pooling and Servicing Agreement further provides that the Class B
Interest generated by the Group I may be used to fund certain shortfalls with
respect to the Group II and vice versa, provided that such Class B Interest must
first be applied to fund certain required payments with respect to the related
Mortgage Loan Group. Specifically, the Class B Interest generated by one
Mortgage Loan Group is to be applied in the following order of priority: (i)
first, to fund a Subordination Increase Amount payment in response to a
Subordination Deficit in the related Mortgage Loan Group; (ii) second, to fund a
Subordination Increase Amount payment in response to a Subordination Deficit or
interest shortfall in the other Mortgage Loan Group; (iii) third, to fund a
Subordination Increase Amount payment in response to a Subordination Deficiency
in the related Mortgage Loan Group; and (iv) fourth, to fund a Subordination
Increase Amount payment in response to a Subordination Deficiency with respect
to the other Mortgage Loan Group.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the subordination provisions and
by the Certificate Insurance Policy is protection for credit risk and not for
prepayment risk. The subordination provisions may not be adjusted, nor may a
claim be made under the Certificate Insurance Policy to guarantee or insure that
any particular rate of prepayment is experienced by either of the two Mortgage
Loan Groups.
CLASS A CERTIFICATE DISTRIBUTIONS AND INSURED PAYMENTS
No later than the second business day prior to each Payment Date the
Trustee will be required to determine the amounts to be on deposit in the
Certificate Account on such Payment Date and following the application of the
cross-collateralization provisions described above with respect to each of the
two Mortgage Loan Groups, such amounts being the "Group I Total Available
Funds", and the "Group II Total Available Funds", respectively, or,
collectively, the "Total Available Funds". If the aggregate Class A Insured
Distribution Amount related to the Class A Group I Certificates for any Payment
Date exceeds the Group I Total Available
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Funds for such Payment Date, the Trustee will be required to draw the amount of
such insufficiency from the Certificate Insurer under the Certificate Insurance
Policy. Similarly, if on any Payment Date the Class A Insured Distribution
Amount related to the Class A-6 Group II Certificates exceeds the Group II Total
Available Funds for such Payment Date, the Trustee will be required to draw the
amount of such insufficiency from the Certificate Insurer under the Certificate
Insurance Policy. The Trustee will be required to deposit to the Certificate
Account the amount of any Insured Payment made by the Certificate Insurer. The
Pooling and Servicing Agreement provides that amounts which cannot be
distributed to the Owners of the Certificates as a result of final,
non-appealable proceedings under the United States Bankruptcy Code or similar
insolvency laws will not be considered in determining the amount of Total
Available Funds with respect to any Payment Date.
BOOK-ENTRY REGISTRATION OF THE CLASS A CERTIFICATES
The Class A Certificates will be book-entry certificates (the
"Book-Entry Certificates"). The Beneficial Certificate Owners may elect to hold
their Class A Certificates through DTC in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems ("Participants"),
or indirectly through organizations which are Participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates per class of
Class A Certificates which in the aggregate equal the principal balance of such
Class A Certificates and will initially be registered in the name of Cede, the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositories which in turn
will hold such positions in customers' securities accounts in the depositories'
names on the books of DTC. Citibank will act as depository for CEDEL and Morgan
will act as depository for Euroclear (in such capacities, individually the
"Relevant Depository" and collectively the "European Depositories"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000. Except as described
below, no Beneficial Certificate Owner will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Owner" of such Class A Certificates will be Cede, as nominee of DTC. Beneficial
Certificate Owners will not be Owners as that term is used in the Pooling and
Servicing Agreement. Beneficial Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The Beneficial Certificate Owner's ownership of a Book-Entry Certificate
will be recorded on the records of the brokerage firm, bank, thrift institution
or other financial intermediary (each, a "Financial Intermediary") that
maintains the Beneficial Certificate Owner's account for such purpose. In turn,
the Financial Intermediary's Ownership of such Book-Entry Certificate will be
recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, or, if the Beneficial Certificate Owner's Financial Intermediary
is not a DTC Participant, then on the records of CEDEL or Euroclear, as
appropriate).
Beneficial Certificate Owners will receive all distributions of
principal of, and interest on, the Class A Certificates from the Trustee through
DTC and DTC Participants. While such Class A Certificates are outstanding
(except under the circumstances described below), under the rules, regulations
and procedures creating and affecting DTC and its operations (the "Rules"), DTC
is required to make book-entry transfers among Participants on whose behalf it
acts with respect to such Class A Certificates and is required to receive and
transmit distributions of principal of, and interest on, such Class A
Certificates. Participants and indirect participants with whom Beneficial
Certificate Owners have accounts with respect to Class A Certificates are
similarly required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Certificate Owners.
Accordingly, although Beneficial Certificate Owners will not possess
certificates, the Rules provide a mechanism by which Beneficial Certificate
Owners will receive distributions and will be able to transfer their interest.
Beneficial Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Class A
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Certificate Owners who are
not Participants may transfer
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ownership of Class A Certificates only through Participants and indirect
participants by instructing such Participants and indirect participants to
transfer such Class A Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Class A Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of such Class A
Certificates will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Beneficial Certificate
Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) 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 settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Certain Federal
Income Tax Consequences -- Taxation of Certain Foreign Investors" and " --
Backup Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures -- Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective 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 the Relevant 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 the
Relevant 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 European Depositories.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant 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,
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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
Euroclear ("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 31 currencies, including United
States dollars. Euroclear 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 the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear 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 Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Certificate Owners of
the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Beneficial Certificate Owners of the
Book-Entry Certificates that it represents.
Under a book-entry format, Beneficial Certificate Owners of the
Book-Entry Certificates may experience some delay in their receipt of payments,
since such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Class A Certificates held through CEDEL or Euroclear will be credited
to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depository. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of a
Beneficial Certificate Owner to pledge Book-Entry Certificates, to persons or
entities that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Certificates, may be limited due to the
lack of physical certificates for such Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain potential
investors may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
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Monthly and annual reports on the Trust provided by the Master Servicer
to Cede, as nominee of DTC, may be made available to Beneficial Certificate
Owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such Beneficial Certificate
Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing Agreement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depository to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Class A Certificates which conflict with actions taken with
respect to other Class A Certificates.
Definitive Certificates will be issued to Beneficial Certificate Owners
of the Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or the Sponsor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as a
nominee and depository with respect to the Book-Entry Certificates and the
Sponsor or the Trustee is unable to locate a qualified successor, (b) the
Sponsor, at its sole option, elects to terminate a book-entry system through DTC
or (c) DTC, at the direction of the Beneficial Certificate Owners representing a
majority of the outstanding Percentage Interests of the Class A Certificates,
advises the Trustee in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
Beneficial Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Certificate Owners of the occurrence of such event and the availability through
DTC of Definitive Certificates. Upon surrender by DTC of the global certificate
or certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
CERTAIN ACTIVITIES
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities (except the Certificates)
in exchange for property; or (viii) repurchase or otherwise reacquire its
securities. See "Reports to the Holders" for information regarding reports to
the Certificateholders.
GENERAL SERVICING PROCEDURES
Acting directly or through one or more sub-servicers, AFL (the "Master
Servicer") is required to service and administer the Mortgage Loans in
accordance with the Pooling and Servicing Agreement.
The Master Servicer in its own name or in the name of a sub-servicer is
authorized and empowered pursuant to the Pooling and Servicing Agreement (i) to
execute and deliver any and all instruments of satisfaction or cancellation or
of partial or full release or discharge and all other comparable instruments
with respect to the Mortgage Loans and with respect to the Properties, (ii) to
institute foreclosure proceedings or
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obtain a deed in lieu of foreclosure so as to effect ownership of any Property
in its own name on behalf of the Trustee, and (iii) to hold title in the name of
the Trust to any Property upon such foreclosure or deed in lieu of foreclosure
on behalf of the Trustee; provided, however, that to the extent any instrument
described in clause (i) would be delivered by the Master Servicer outside of its
ordinary procedures for mortgage loans held for its own account, the Master
Servicer is required, prior to executing and delivering such instrument, to
obtain the prior written consent of the Certificate Insurer.
The Master Servicer, in its own name or in the name of a Sub-Servicer,
has the right to approve requests of Mortgagors for consent to (i) partial
releases of Mortgages, (ii) alterations, and (iii) removal, demolition or
division of Properties subject to Mortgages. The Pooling and Servicing Agreement
provides that no such request shall be approved by the Master Servicer unless:
(i) (x) the provisions of the related Note and Mortgage have been complied with,
(y) the Combined Loan-to-Value Ratio (which may, for this purpose, be determined
at the time of any such action in a manner reasonably acceptable to the
Certificate Insurer) after any release does not exceed the Combined
Loan-to-Value Ratio set forth for such Mortgage Loan in the Schedule of Mortgage
Loans, and (z) the lien priority of the related Mortgage is not affected; or
(ii) the Certificate Insurer shall have approved the granting of such request.
On the tenth day of each month (or the immediately following business
day if the tenth day does not fall on a business day), the Master Servicer or
Sub-Servicer shall send to the Trustee a report detailing the payments on the
Mortgage Loans serviced by it in each of the two Mortgage Loan Groups during the
prior Remittance Period.
COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS
The Master Servicer is required generally to service the Mortgage Loan
Pool in a prudent manner consistent with its general servicing standards for
similar mortgage loans and to make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with the provisions of the
Pooling and Servicing Agreement, follow collection procedures for all Mortgage
Loans at least as rigorous as those the Master Servicer would take in servicing
loans and in collecting payments thereunder for its own account.
Consistent with the foregoing, the Master Servicer, in its own name or
in the name of a Sub-Servicer, may (i) in its discretion waive or permit to be
waived any late payment charge or assumption fee or any other fee or charge
which the Master Servicer would be entitled to retain as servicing compensation,
(ii) extend the due date for payments due on a Note for a period (with respect
to each payment as to which the due date is extended) not greater than 125 days
after the initially scheduled due date for such payment, and (iii) amend any
Note to extend the maturity thereof, provided that no maturity shall be extended
beyond the maturity date of the Mortgage Loan with the latest maturity date and
that no more than 1.0% of the Original Pool Balance of the Mortgage Loans shall
have a maturity date which has been extended beyond the maturity date thereof at
the Cut-Off Date; provided that such action does not violate applicable REMIC
provisions. In the event the Master Servicer, in its own name or in the name of
a Sub-Servicer, consents to the deferment of the due dates for payments due on a
Note, the Master Servicer or Sub-Servicer is nonetheless required to make
payment of any required Delinquency Advance with respect to the payments so
extended to the same extent as if such installment were due, owing and
delinquent and had not been deferred.
Generally the Class A Certificate Owners would prefer that "due-on-sale"
clauses be waived in the event of a sale of the underlying Mortgaged Property,
that extensions and accommodations be made with delinquent Mortgagors, and that
liquidations of Mortgage Loans be deferred, since upon prepayment due to sale or
upon liquidation such Owners will receive a payment of principal in connection
with such prepayment or liquidation. If attractive re-investment opportunities
are available at the time, Class A Certificate Owners may prefer that
"due-on-sale" clauses not be waived and that no such extensions, accommodations
or deferments be made, thus hastening the return of principal to such Owners.
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Owners do not have the right under the Pooling and Servicing Agreement
to make decisions with respect to Mortgagor accounts. Such decisions are in the
nature of mortgage servicing and the Master Servicer generally has the right to
make such decisions without the requirement of consent of the Owners, the
Trustee or the Certificate Insurer. The Master Servicer will generally be
required under the Pooling and Servicing Agreement to enforce "due-on-sale"
clauses, and will make decisions with respect to liquidations in accordance with
the Pooling and Servicing Agreement.
Under certain limited circumstances the Pooling and Servicing Agreement
may require the Master Servicer to obtain the consent of the Certificate Insurer
before taking certain actions with respect to defaulted Mortgage Loans and in
connection with the waiver of "due-on-sale" clauses. Since the Certificate
Insurer's exposure increases, to the extent of interest accrued, the longer the
liquidation process, it is likely to be the case that the Certificate Insurer
will favor quick liquidations in those situations in which its consent is
required. Similarly, the Certificate Insurer would favor the enforcement of a
"due-on-sale" clause, since a prepayment in the event of a sale also reduces its
exposure by limiting the accrual of interest.
SUB-SERVICING AGREEMENT BETWEEN THE MASTER SERVICER AND SUB-SERVICER
The Master Servicer has entered into a sub-servicing agreement with LSI
for the servicing and administration of Mortgage Loans. The Master Servicer will
not be relieved of its obligations under the Pooling and Servicing Agreement
notwithstanding any sub-servicing agreement, and the Master Servicer shall be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Mortgage Loans.
PRINCIPAL AND INTEREST ACCOUNT
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to deposit to the Principal and Interest Account all collections on
the Mortgage Loans, certain proceeds received by the Master Servicer in
connection with the termination of the Trust, Loan Purchase Prices and
Substitution Amounts received or paid by the Master Servicer, insurance and
condemnation proceeds received by the Master Servicer, other amounts related to
the Mortgage Loans received by the Master Servicer, including any income from
REO Properties (net of Servicing Advances made with respect to such REO
Properties), and Delinquency Advances together with any amounts which are
reimbursable from the Principal and Interest Account, but net of the Servicing
Fee with respect to each Mortgage Loan serviced by the Master Servicer and other
servicing compensation to the Master Servicer as permitted by the Pooling and
Servicing Agreement.
The Master Servicer or Sub-Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes: (a) to effect
the timely remittance to the Trustee of the Monthly Remittance due on the
Remittance Date; (b) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account; (c) to withdraw amounts that have been
deposited to the Principal and Interest Account in error; (d) to pay certain
miscellaneous amounts over to the Seller and (e) to clear and terminate the
Principal and Interest Account.
On each Remittance Date the Master Servicer and any Sub-Servicer is
required to remit the Monthly Remittance amount inclusive of all Delinquency
Advances and Compensating Interest to the Trustee by wire transfer, or otherwise
make funds available in immediately available funds.
SERVICING ADVANCES
The Pooling and Servicing Agreement obligates the Master Servicer to pay
all reasonable and customary "out-of-pocket" costs and expenses (including
reasonable legal fees) incurred in the performance of its servicing obligations
including, but not limited to, the cost of (i) preservation expenses, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of REO Property (including, without limitation,
realtors' commissions) and (iv) advances made for taxes, insurance and other
charges against a Property. Each such expenditure will constitute a "Servicing
Advance". The Master
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Servicer may recover Servicing Advances from the Mortgagors to the extent
permitted by the Mortgage Loans or, if not theretofore recovered from the
Mortgagor on whose behalf such Servicing Advance was made, from Liquidation
Proceeds realized upon the liquidation of the related Mortgage Loan. In no case
may the Master Servicer recover Servicing Advances from the principal and
interest payments on any Mortgage Loan or from any amounts relating to any other
Mortgage Loan. The Master Servicer is not required to make a Servicing Advance
if it believes that such Servicing Advance will not be recoverable from the
related Mortgage Loan.
COMPENSATING INTEREST
A full month's interest on each Mortgage Loan, calculated at a rate
equal to such Mortgage Loan's Coupon Rate less the Servicing Fee is due to the
Trustee on the outstanding principal balance of each Mortgage Loan as of the
beginning of each Remittance Period. If a Prepayment of a Mortgage Loan occurs
during any calendar month, any difference between the interest collected from
the Mortgagor during such calendar month and the full month's interest at such
rate ("Compensating Interest") that is due is required to be deposited by the
Master Servicer to the Principal and Interest Account (without any right of
reimbursement therefor) and shall be included in the Monthly Remittance and made
available to the Trustee on the next succeeding Remittance Date.
MAINTENANCE OF INSURANCE
The Master Servicer is required to cause to be maintained with respect
to each Mortgage Loan that it services and related Property a hazard insurance
policy with a carrier licensed in the state in which such Property is located
that provides for fire and extended coverage, and which provides for a recovery
by the Trust of insurance proceeds relating to such Mortgage Loan in an amount
not less than the least of (i) the outstanding principal balance of the Mortgage
Loan (together in the case of a Junior Mortgage, with the outstanding principal
balance of the senior lien), or (ii) the minimum amount required to compensate
for loss or damage on a replacement cost basis, or (iii) the full insurable
value of the premises.
If a Mortgage Loan at the time of origination relates to a Mortgaged
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Master Servicer, in its
own name or in the name of a Sub-Servicer, will be required to maintain with
respect thereto a flood insurance policy in a form meeting the requirements of
the then-current guidelines of the Federal Insurance Administration with a
generally acceptable carrier in an amount representing coverage, and which
provides for recovery by the Master Servicer or a Sub-Servicer on behalf of the
Trust of insurance proceeds relating to such Mortgage Loan, of not less than the
least of (i) the outstanding principal balance of the Mortgage Loan, or (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis, or (iii) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973, as amended.
In the event that the Master Servicer or a Sub-Servicer obtains and
maintains a blanket policy insuring against fire with extended coverage and
against flood hazards on all of the Mortgage Loans that it services, then, to
the extent such policy names the Master Servicer or a Sub-Servicer as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance, and otherwise complies with
the requirements of the Pooling and Servicing Agreement, the Master Servicer
shall be deemed conclusively to have satisfied its obligations with respect to
fire and hazard insurance coverage under the Pooling and Servicing Agreement.
Such blanket policy may contain a deductible clause, in which case the Master
Servicer will be required, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying with the Pooling
and Servicing Agreement, and there shall have been a loss that would have been
covered by such policy, to deposit in the Principal and Interest Account from
the Master Servicer's own funds the difference, if any, between the amount that
would have been payable under a policy complying with the Pooling and Servicing
Agreement and the amount paid under such blanket policy.
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Pursuant to the Pooling and Servicing Agreement, the Master Servicer
will be required to indemnify the Trust out of its own funds for any loss to the
Trust resulting from the Master Servicer's failure to maintain any required
insurance.
DUE-ON-SALE CLAUSES
When a Property has been or is about to be conveyed by the Mortgagor,
the Master Servicer or a Sub- Servicer, to the extent it has knowledge of such
conveyance or prospective conveyance, is required to exercise its rights to
accelerate the maturity of the related Mortgage Loan under any "due on sale"
clause contained in the related Mortgage or Note; provided, however, that the
Master Servicer will not be required to exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Master Servicer, is not
enforceable under applicable law; and provided further, that the Master Servicer
may refrain from exercising any such right if the Certificate Insurer gives its
prior consent to such non-enforcement.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to foreclose upon or otherwise comparably effect the ownership in
the name of the Trust, on behalf of the Trustee, of Properties relating to
defaulted Mortgage Loans that it services as to which no satisfactory
arrangements can be made for collection of delinquent payments and which the
Master Servicer has not purchased pursuant to its purchase option described
below, unless the Master Servicer reasonably believes that Net Liquidation
Proceeds with respect to such Mortgage Loan would not be increased as a result
of such foreclosure or other action, in which case such Mortgage Loan will be
charged off and will become a Liquidated Mortgage Loan. In connection with such
foreclosure or other conversion, the Master Servicer is required to exercise or
use foreclosure procedures with the same degree of care and skill as it would
exercise or use under the circumstances in the conduct of its own affairs. Any
amounts advanced in connection with such foreclosure or other action shall
constitute "Servicing Advances".
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to sell any REO Property within 23 months of its acquisition by the
Trustee, unless the Master Servicer obtains for the Trustee an opinion of
counsel experienced in federal income tax matters, addressed to the Trustee and
the Master Servicer, to the effect that the holding by the Trust of such REO
Property for a greater specified period will not result in the imposition of
taxes on "prohibited transactions" of the Trust as defined in Section 860F of
the Code or cause the Trust to fail to qualify as a REMIC.
In accordance with the Pooling and Servicing Agreement, if the Master
Servicer has actual knowledge that a Property which it is contemplating
acquiring in foreclosure or by deed in lieu of foreclosure contains
environmental or hazardous waste risks known to it, the Master Servicer shall
notify the Certificate Insurer and the Trustee prior to acquiring the Property.
The Master Servicer is not permitted to take any action with respect to such a
Property without the prior written approval of the Certificate Insurer.
The Master Servicer is required to determine, with respect to each
defaulted Mortgage Loan that it services, when it has recovered, whether through
trustee's sale, foreclosure sale or otherwise, all amounts, if any, it expects
to recover from or on account of such defaulted Mortgage Loan, whereupon such
Mortgage Loan shall become a "Liquidated Mortgage Loan".
SERVICING COMPENSATION
As compensation for its servicing activities under the Pooling and
Servicing Agreement, the Master Servicer shall be entitled to retain the amount
of the Servicing Fee with respect to each Mortgage Loan that it services.
Additional servicing compensation in the form of release fees, bad check
charges, assumption fees, late payment charges, and any other servicing-related
fees, and similar items may, to the extent collected from Mortgagors, be
retained by the Master Servicer.
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ANNUAL STATEMENT AS TO COMPLIANCE
The Master Servicer is required to deliver, on its own behalf, to the
Trustee, the Seller and the Certificate Insurer, on or before the last day of
April of each year, commencing in 1997, an Officer's Certificate stating, as to
each signer thereof, that (i) a review of the activities of the Master Servicer
during such preceding calendar year and of performance under the Pooling and
Servicing Agreement has been made under such officer's supervision, and (ii) to
the best of such officer's knowledge, based on such review, the Master Servicer
has fulfilled all its obligations under the Pooling and Servicing Agreement for
such year, or, if there has been a default in the fulfillment of all such
obligations, specifying each such default known to such officer and the nature
and status thereof including the steps being taken by the Master Servicer to
remedy such default.
ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORTS
On or before the last day of April of each year, commencing in 1997, the
Master Servicer is required to cause to be delivered, on its own behalf, to the
Trustee and the Certificate Insurer a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Certificate Insurer stating that such firm has, with respect
to the Master Servicer's overall servicing operations (i) performed applicable
tests in accordance with the compliance testing procedures as set forth in
Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised
Mortgagees or (ii) examined such operations in accordance with the requirements
of the Uniform Single Audit Program for Mortgage Bankers, and stating such
firm's conclusions relating thereto.
ASSIGNMENT OF AGREEMENT
The Master Servicer may not assign its obligations under the Pooling and
Servicing Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Seller, the Trustee and the Certificate Insurer;
provided, however, that any assignee must meet the eligibility requirements set
forth in the Pooling and Servicing Agreement for a successor Master Servicer.
REMOVAL AND RESIGNATION OF THE MASTER SERVICER; EVENTS OF DEFAULT
The Certificate Insurer, or with the consent of the Certificate Insurer,
the Seller or the Owners of Class A Certificates owning a majority in Percentage
Interest in the Class A Certificates may remove the Master Servicer upon the
occurrence of any of the following events (each, an "Event of Default"):
(i) The Master Servicer shall (I) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (II) admit in writing its
inability to pay its debts generally as they become due, (III) make a
general assignment for the benefit of creditors, (IV) be adjudicated
bankrupt or insolvent, (V) commence a voluntary case under the federal
bankruptcy laws of the United States of America or file a voluntary
petition or answer seeking reorganization, an arrangement with creditors
or an order for relief or seeking to take advantage of any insolvency
law or file an answer admitting the material allegations of a petition
filed against it in any bankruptcy, reorganization or insolvency
proceeding or (VI) cause corporate action to be taken by it for the
purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent of the
Master Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Master Servicer an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or similar
entity with respect to the Master Servicer or of all or any substantial
part of its assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being contested
by the Master Servicer in good faith, the same shall (A) result in the
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entry of an order for relief or any such adjudication or appointment or
(B) continue undismissed or pending and unstayed for any period of sixty
(60) consecutive days; or
(iii) The Master Servicer shall fail to perform any one or more
of its obligations under the Pooling and Servicing Agreement (other than
its obligations referenced in clauses (vi) and (vii) below) and shall
continue in default thereof for a period of thirty (30) days after the
earlier to occur of (x) the date on which an authorized officer of the
Master Servicer knows or reasonably should know of such failure or (y)
receipt by the Master Servicer of a written notice by the Trustee, any
Owner, the Seller or the Certificate Insurer of said failure; or
(iv) The Master Servicer shall fail to cure any breach of any
of its representations and warranties set forth in the Pooling and
Servicing Agreement which materially and adversely affects the interests
of the Owners or Certificate Insurer for a period of thirty (30) days
after the earlier of (x) the date on which an authorized officer of the
Master Servicer knows or reasonably should know of such breach or (y)
receipt by the Master Servicer of a written notice from the Trustee, any
Owner, the Seller or the Certificate Insurer of such breach;
(v) If the Certificate Insurer pays out any money under the
Certificate Insurance Policy, or if the Certificate Insurer otherwise
funds any shortfall with its own money, because the amounts available to
the Trustee (other than from the Certificate Insurer) are insufficient
to make required distributions on the Class A Certificates;
(vi) The failure by the Master Servicer to make any required
Servicing Advance for a period of 30 days following the earlier of (x)
the date on which an authorized officer of the Master Servicer knows or
reasonably should know of such failure or (y) receipt by the Master
Servicer of a written notice from the Trustee, any Owner, the Seller or
the Certificate Insurer of such failure;
(vii) The failure by the Master Servicer to make any required
Delinquency Advance or to pay any Compensating Interest or to pay over
the Monthly Remittance; or
(viii) If the delinquency or loss levels applicable to the
Mortgage Loans serviced by the Master Servicer exceed certain "trigger"
levels set forth in the Pooling and Servicing Agreement;
provided, however, that (x) prior to any removal of the Master Servicer pursuant
to clauses (ii) through (iv) and (vi) above, any applicable grace period granted
by any such clause shall have expired prior to the time such occurrence shall
have been remedied and (y) in the event of the refusal or inability of the
Master Servicer to comply with its obligations described in clause (vii) above,
such removal shall be effective (without the requirement of any action on the
part of the Sponsor, the Seller, the Trustee or the Certificate Insurer) at 4
p.m. (New York City time) on the second business day following the day on which
the Trustee notifies the Master Servicer that a required amount described in
clause (vii) above has not been received by the Trustee, unless the required
amount described in clause (vii) above is paid by the Master Servicer prior to
such time. Upon the Trustee's determination that a required amount described in
clause (vii) above has not been made by the Master Servicer, the Trustee shall
so notify the Master Servicer, the Sponsor, the Seller and the Certificate
Insurer as soon as is reasonably practical.
The Master Servicer may not resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement, except upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Master Servicer
so causing such a conflict being of a type and nature carried on by the Master
Servicer at the date of the Pooling and Servicing Agreement. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an opinion of counsel to such effect which shall be delivered to
the Trustee, the Seller and the Certificate Insurer.
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No removal or resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer shall have assumed the Master
Servicer's responsibilities and obligations in accordance with the Pooling and
Servicing Agreement.
SUCCESSOR MASTER SERVICER
Upon removal or resignation of AFL as Master Servicer under the Pooling
and Servicing Agreement, the Trustee (x) may solicit bids for a successor Master
Servicer under the Pooling and Servicing Agreement, and (y) pending the
appointment of a successor Master Servicer under the Pooling and Servicing
Agreement, as a result of soliciting such bids, is required to serve as Master
Servicer under the Pooling and Servicing Agreement, unless AFL has been removed
without cause, in which event the Trustee prior to any such removal must
designate a successor Master Servicer under the Pooling and Servicing Agreement
acceptable to the Certificate Insurer. The Trustee, if it is unable to obtain a
qualifying bid and is prevented by law from acting as Master Servicer under the
Pooling and Servicing Agreement, may appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution which has been designated as an approved
seller-servicer by FNMA or FHLMC for first and second mortgage loans and having
equity of not less than $15,000,000, as determined in accordance with generally
accepted accounting principles, and acceptable to the Certificate Insurer.
The Trustee, or any other successor Master Servicer, upon assuming the
duties of the Master Servicer, is required immediately to make payment of all
Compensating Interest and all Delinquency Advances which the Master Servicer has
theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Trustee is acting as successor Master Servicer, the Trustee
is only required to make Delinquency Advances (including the Delinquency
Advances described in this sentence) if, in the Trustee's reasonable good faith
judgment, such Delinquency Advances will ultimately be recoverable from the
related Mortgage Loans.
INVESTMENT OF ACCOUNTS
All or a portion of the Principal and Interest Account, the Certificate
Account and any other account which may be created by the Trustee, may be
invested and reinvested in one or more Eligible Investments bearing interest or
sold at a discount. The bank serving as Trustee or any affiliate thereof, may be
the obligor on any investment in any Account which otherwise qualifies as an
Eligible Investment. No investment in any Account held by the Trustee may mature
later than the business day immediately preceding the next succeeding Payment
Date; provided, however, that if the investment is an investment of the bank
serving as Trustee, then it may mature on the Payment Date.
The Trustee will not in any way be held liable by reason of any
insufficiency in any Account resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Trustee is the
obligor thereon).
All income or other gain from investments in any Account will be
required to be deposited in such Account immediately upon receipt, and any loss
resulting from such investments will be required to be charged to such Account.
ELIGIBLE INVESTMENTS
The Pooling and Servicing Agreement defines the following as Eligible
Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States, the
timely payment or the guarantee of which constitutes a full faith and
credit obligation of the United States.
(b) Federal Housing Administration debentures, but excluding any
such securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption.
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(c) FHLMC senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption.
(d) FNMA senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption.
(e) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not
more than 365 days) of any domestic bank, the short-term debt
obligations of which have been rated A-1 or better by S&P and P-1 by
Moody's.
(f) Deposits of any bank or savings and loan association which
has combined capital, surplus and undivided profits of at least
$50,000,000 which deposits are not in excess of the applicable limits
insured by the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC, provided that the long-term deposits of such bank or
savings and loan association are rated at least "BBB" by S&P and "Baa3"
by Moody's.
(g) Commercial paper (having original maturities of not more than
270 days) rated A-1 or better by S&P and P-1 by Moody's.
(h) Investments in money market funds rated AAAm or AAAm-G by S&P
and Aaa or P-1 by Moody's.
(i) Such other investments as have been approved in writing by
S&P, Moody's and the Certificate Insurer.
provided that no instrument described above is permitted to evidence
either the right to receive (a) only interest with respect to obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provided a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations;
and provided, further, that no instrument described above may be purchased at a
price greater than par if such instrument may be prepaid or called at a price
less than its purchase price prior to stated maturity.
AMENDMENTS
The Trustee, the Master Servicer, the Sponsor and the Seller may at any
time and from time to time, with the prior written consent of the Certificate
Insurer but without the consent of the Owners, amend the Pooling and Servicing
Agreement, for the purposes of (a) curing any ambiguity, or correcting or
supplementing any provision of any such agreement which may be inconsistent with
any other provision of such agreement, (b) if accompanied by an approving
opinion of counsel experienced in federal income tax matters, removing the
restriction against the transfer of a Residual Certificate to a Disqualified
Organization (as such term is defined in the Code) or (c) complying with the
requirements of the Code; provided, however, that such action shall not, as
evidenced by an opinion of counsel delivered to the Trustee, materially and
adversely affect the interests of any Owner or materially and adversely affect
(without its written consent) the rights and interests of the Certificate
Insurer.
The Pooling and Servicing Agreement may also be amended by the Trustee,
the Master Servicer, the Sponsor and the Seller, as applicable, at any time and
from time to time, with the prior written approval of the Certificate Insurer
and of not less than 66 2/3% of the Percentage Interest represented by each
affected Class of Certificates then outstanding, for the purpose of adding any
provisions or changing in any manner or eliminating any of the provisions
thereof or of modifying in any manner the rights of the Owners thereunder;
provided, however, that no such amendment shall (a) change in any manner the
amount of, or delay the timing of, payments which are required to be distributed
to any Owner without the consent of the Owner of such Certificate or (b) change
the aforesaid percentages of Percentage Interest which are required to consent
to any
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such amendments, without the consent of the Owners of all Certificates of the
Class or Classes affected then outstanding. Any such amendment must be
accompanied by an opinion of tax counsel as to REMIC matters.
The Trustee will be required to furnish a copy of any such amendment to
each Owner in the manner set forth in the Pooling and Servicing Agreement.
TERMINATION OF THE TRUST
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Certificates from amounts other
than those available under the Certificate Insurance Policy all amounts required
to be paid to such Owners upon the final payment and other liquidation (or any
advance made with respect thereto) of the last Mortgage Loan.
OPTIONAL TERMINATION BY THE SELLER
At its option, the Seller may purchase from the Trust all (but not fewer
than all) remaining Mortgage Loans and other property, acquired by foreclosure,
deed in lieu of foreclosure, or otherwise, then constituting the Trust Estate,
and thereby effect early retirement of the Certificates, on any Payment Date
when the Pool Principal Balance has declined to ten percent or less of the
Original Pool Principal Balance.
The termination of the Trust by the preceding method is equivalent to a
prepayment of all the Mortgage Loans and a liquidation of the Trust. The Owners
of the Class A Certificates would receive from the proceeds of such purchase any
interest owed and the Owners of the Class A Certificates would receive any
principal not yet paid, in the order of priority set forth under "Description of
Certificates -- Distributions on Class A Certificates". Consequently, a
termination of the Trust pursuant to the preceding methods, if purchased at a
price in excess of par, reduces the yield to maturity on the Class A
Certificates.
AUCTION SALE; STEP UP ON CLASS A-5 PASS-THROUGH RATE
The Pooling and Servicing Agreement requires that, within ninety days
following the Seller Optional Termination Date, if the Seller has not exercised
its optional termination right by such date, the Trustee solicit bids for the
purchase of all Mortgage Loans remaining in the Trust. In the event that
satisfactory bids are received as described in the Pooling and Servicing
Agreement, the net sale proceeds will be distributed to Certificateholders, in
the same order of priority as collections received in respect of the Mortgage
Loans. If satisfactory bids are not received, the Trustee shall decline to sell
the Mortgage Loans and shall not be under any obligation to solicit any further
bids or otherwise negotiate any further sale of the Mortgage Loans. Such sale
and consequent termination of the Trust must constitute a "qualified
liquidation" of each REMIC established by the Trust under Section 860F of the
Internal Revenue Code of 1986, as amended, including, without limitation, the
requirement that the qualified liquidation takes place over a period not to
exceed 90 days.
If the Auction Sale has not occurred by the 90th day following the
Seller Optional Termination Date, the Class A-5 Pass Through Rate will be 8.350%
for each Payment Date occurring after such 90th day. Notwithstanding the
foregoing, on no Payment Date will the Class A-5 Pass-Through Rate be greater
than the Group I Available Funds Pass-Through Rate.
THE TRUSTEE
Pursuant to the Pooling and Servicing Agreement, Norwest Bank Minnesota,
National Association will serve as trustee of the Trust. The Pooling and
Servicing Agreement sets forth provisions regarding the Trustee, certain of
which are described below.
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CERTAIN COVENANTS OF THE TRUSTEE
WITHHOLDING. The Trustee is required to comply with all requirements of
the Code or any applicable state or local law with respect to the withholding
from any distributions made by it to any Owner of any applicable withholding
taxes imposed thereon and with respect to any applicable reporting requirements
in connection therewith.
UNCLAIMED MONEYS. Any money held by the Trustee in trust for the payment
of any amount due with respect to any Class A Certificate and remaining
unclaimed for the period then specified in the escheat laws of the State of New
York after such amount has become due and payable will be discharged from such
trust and be paid to the Seller, and the Owner of such Class A Certificate shall
thereafter, as an unsecured general creditor, look only to the Seller for
payment thereof (but only to the extent of the amounts so paid to the Seller),
and all liability of the Trustee with respect to such trust money will thereupon
cease; provided, however, that the Trustee, before being required to make any
such payment, may at the expense of the Seller cause to be published once, in
the eastern edition of The Wall Street Journal, notice that such money remains
unclaimed and that, after a date specified therein, which shall be not less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be paid to the Seller. The Trustee may also adopt and
employ, at the expense of the Seller, any other reasonable means of notification
of such payment (including but not limited to mailing notice of such payment to
Owners whose right to or interest in moneys due and payable but not claimed is
determinable from the Register at the last address of record for each such
Owner).
PROTECTION OF TRUST ESTATE. The trust estate (the "Trust Estate") of the
Trust primarily consists of (i) the Mortgage Loans, (ii) all moneys held in the
Accounts and (iii) the Certificate Insurance Policy. The Trustee is required to
hold the Trust Estate in Trust for the benefit of the Owners and, upon request
of and at the expense of the Sponsor and at the expense of the requesting party,
will from time to time execute and deliver all such supplements and amendments
to the Pooling and Servicing Agreement, instruments of further assurance and
other instruments, and will take such other action upon such request as it deems
reasonably necessary or advisable, to more effectively hold in trust all or any
portion of the Trust Estate.
The Trustee has the power to enforce, and is required to enforce the
obligations of the other parties to the Pooling and Servicing Agreement by
action, suit or proceeding at law or equity, and also has the power to enjoin,
by action or suit, any acts or occurrences which may be unlawful or in violation
of the rights of the Owners; provided, however, that nothing in the Pooling and
Servicing Agreement requires any action by the Trustee unless the Trustee shall
first (i) have been furnished indemnity satisfactory to it and (ii) when
required by the Pooling and Servicing Agreement, have been requested to take
such action by the Owners.
PERFORMANCE AND ENFORCEMENT OF OBLIGATIONS. The Pooling and Servicing
Agreement provides that the Trustee is under no obligation to exercise any of
the rights or powers vested in it by the Pooling and Servicing Agreement at the
request or direction of any of the Owners, unless such Owners shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction.
The Trustee may execute any of the rights or powers granted by the
Pooling and Servicing Agreement or perform any duties thereunder either directly
or by or through agents or attorneys, and the Trustee is responsible for any
misconduct or negligence on the part of any agent or attorney appointed and
supervised with due care by it thereunder.
Pursuant to the Pooling and Servicing Agreement, the Trustee is not
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that no Owner has any right
to institute any proceeding, judicial or otherwise, with respect to the Pooling
and Servicing Agreement or the Certificate
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Insurance Policy, or for the appointment of a receiver or trustee under the
Pooling and Servicing Agreement, unless:
(1) such Owner has previously given written notice to the
Sponsor, the Certificate Insurer and the Trustee of such Owner's
intention to institute such proceeding;
(2) the Owners of not less than 25% of the Percentage Interests
represented by any Class of Class A Certificates then outstanding or, if
there are no Class A Certificates then outstanding, by such Percentage
Interest represented by the Class B Certificates then outstanding, shall
have made written request to the Trustee to institute such proceeding in
its own name as representative of the Owners;
(3) such Owner or Owners have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute such proceeding;
and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Owners of a
majority of the Percentage Interests represented by each Class of Class
A Certificates then outstanding or, if there are no Class A Certificates
then outstanding, by a majority of the Percentage Interests represented
by the Class B Certificates then outstanding.
The Pooling and Servicing Agreement provides that no one or more Owners
shall have any right in any manner whatever by virtue of, or by availing
themselves of, any provision of the Pooling and Servicing Agreement to affect,
disturb or prejudice the rights of any other Owner of the same Class or to
obtain or to seek to obtain priority or preference over any other Owner of the
same Class or to enforce any right under the Pooling and Servicing Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee receives conflicting or inconsistent requests
and indemnity from two or more groups of Owners, each representing less than a
majority of the applicable Class of Certificates, the Trustee shall follow the
directions of the Certificate Insurer.
The Certificate Insurer or, with the consent of the Certificate Insurer,
the Owners of a majority of the Percentage Interests represented by each Class
of Class A Certificates then outstanding or, if there are no Class A
Certificates then outstanding, by such majority of the Percentage Interests
represented by the Class B Certificates then outstanding, may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate
provided that: (1) such direction is not in conflict with any rule of law or
with the Pooling and Servicing Agreement; (2) the Trustee has been provided with
indemnity satisfactory to it; and (3) the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction;
provided, however, that the Trustee need not take any action which it determines
might involve it in liability or may be unjustly prejudicial to the Owners not
so directing.
DISPOSITION OF TRUST ESTATE. The Trustee covenants not to permit the
Trust to sell, transfer, exchange or otherwise dispose of any of the Trust
Estate except as expressly permitted by the Pooling and Servicing Agreement.
REPORTING REQUIREMENTS. On each Payment Date the Trustee is required to
report in writing to each Owner: (i) the amount of the distribution with respect
to the Class A Certificates, the Class B Certificates and the Residual
Certificates; (ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Prepayments or other
recoveries of principal included therein; (iii) the amount of such distributions
allocable to interest; (iv) the amount of such distributions allocable to the
Class A Carry-Forward Amount or the Class B Carry-Forward Amount; (v) the amount
of any Insured Payment made with respect to
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such Payment Date; (vi) the Class A Principal Balance as of such Payment Date,
together with the principal amount of each Class A Certificate (based on a
Certificate in the original principal amount of $1,000) then outstanding, in
each case after giving effect to any payment of principal on such Payment Date;
(vii) the Class B Principal Balance as of such Payment Date, together with the
principal amount of each Class B Certificate (based on a Certificate in the
original principal amount of $1,000) then outstanding, in each case after giving
effect to any payment of principal on such Payment Date; (viii) the total of any
Substitution Amounts and any Loan Purchase Prices included in such distribution;
(ix) the amount of the Servicing Fee paid with respect to such Payment Date; and
(x) the Subordinated Amount as of such Payment Date.
REMOVAL OF TRUSTEE FOR CAUSE
The Trustee may be removed upon the occurrence of any of the following
events (whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners entitled
thereto on any Payment Date amounts available for distribution in
accordance with the terms of the Pooling and Servicing Agreement; or
(2) the Trustee shall fail in the performance of, or breach, any
covenant or agreement of the Trustee in the Pooling and Servicing
Agreement, or if any representation or warranty of the Trustee made in
the Pooling and Servicing Agreement or in any certificate or other
writing delivered pursuant thereto or in connection therewith shall
prove to be incorrect in any material respect as of the time when the
same shall have been made, and such failure or breach shall continue or
not be cured for a period of 30 days after, there shall have been given,
by registered or certified mail, to the Trustee by the Sponsor or by the
Certificate Insurer or by the Owners of at least 25% of the aggregate
Percentage Interest represented by any Class of Class A Certificates
then outstanding, or, if there are no Class A Certificates then
outstanding, by such Percentage Interest represented by the Class B
Certificates then outstanding, a written notice specifying such failure
or breach and requiring it to be remedied; or
(3) certain insolvency events related to the Trustee.
If any event described above occurs and is continuing, then and in every
such case (x) the Sponsor or the Certificate Insurer or (y) with the consent of
the Certificate Insurer, the Owners of a majority Percentage Interest
represented by any Class of Class A Certificates or, if there are no Class A
Certificates then outstanding, by such Percentage Interest represented by the
Class B Certificates then outstanding, may immediately appoint a successor
trustee.
LIABILITY OF THE TRUSTEE
The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in the
Pooling and Servicing Agreement. If an Event of Default has occurred and has not
been cured or waived, the Trustee shall exercise such of the rights and powers
vested in it by the Pooling and Servicing Agreement, and use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs. Prior to the
occurrence of an Event of Default, and after the curing of all such Events of
Default which may have occurred, the Trustee (i) undertakes to perform such
duties and only such duties as are specifically set forth in the Pooling and
Servicing Agreement, and no implied covenants or obligations shall be read into
the Pooling and Servicing Agreement against the Trustee and (ii) in the absence
of bad faith on its part, may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions
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furnished pursuant to and conforming to the requirements of the Pooling and
Servicing Agreement; provided, however, that such provisions do not protect the
Trustee or any such person against any liability which would otherwise be
imposed by reason of negligent action, negligent failure to act or willful
misconduct in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder.
The Trustee and any director, officer, employee or agent of the Trustee
may rely and will be protected in acting or refraining from acting in good faith
in reliance on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the authorized officer of any person
respecting any matters arising under the Pooling and Servicing Agreement.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
GENERAL
Financial Guaranty Insurance Company, as the Certificate Insurer,
considers its role in providing insurance to be credit enhancement rather than
credit substitution. The Certificate Insurer only insures securities that it
considers to be of investment grade quality. With respect to each category of
obligations considered for insurance, the Certificate Insurer has established
and maintains its own underwriting standards that are based on those aspects of
credit quality that the Certificate Insurer deems important for the category and
that take into account criteria established for the category typically used by
rating agencies. Credit criteria for evaluating securities include economic and
social trends, debt management, financial management and legal and
administrative factors, the adequacy of anticipated cash flow, including the
historical and expected performance of assets pledged for payment of securities
under varying economic scenarios, underlying levels of protection such as
insurance or overcollateralization, and, particularly in the case of long-term
municipal securities, the importance of the project being financed.
The Certificate Insurer also reviews the security features and reserves
created by the financing documentation, as well as the financial and other
covenants imposed upon the credit backing the issue. In connection with
underwriting new issues, the Certificate Insurer sometimes requires, as a
condition to insuring an issue, that collateral be pledged or, in some
instances, that a third-party guarantee be provided for a term of the insured
obligation by a party of acceptable credit quality obligated to make payment
prior to any payment by the Certificate Insurer.
Insurance written by the Certificate Insurer insures the full and timely
payment of debt service on the insured debt securities and scheduled payments
due in respect of pass-through securities such as the Class A Certificates. If
the issuer of a security insured by the Certificate Insurer defaults on its
obligations to pay such debt service or, in the case of a pass-through security,
available funds are insufficient to pay the insured amounts, the Certificate
Insurer will make scheduled insured payments, without regard to any acceleration
of the securities which may have occurred, and will be subrogated to the rights
of security holders to the extent of its payments. The claims paying ability of
the Certificate Insurer is rated Aaa, AAA and AAA by Moody's, S&P and Fitch,
respectively.
In consideration for issuing its insurance, the Certificate Insurer
receives a premium which is generally paid in full upon issuance of the policy
or on an annual, semi-annual or monthly basis. The premium rates charged depend
principally on the credit strength of the securities as judged by the
Certificate Insurer according to its internal credit rating system and the type
of issue.
The Certificate Insurer, a New York stock insurance company, is a
monoline financial guaranty insurance company which, since January 1984, has
been a leading insurer of bonds issued by municipal governmental subdivisions
and agencies thereof. The Certificate Insurer also insures a variety of
non-municipal structured debt obligations. The Certificate Insurer is authorized
to write insurance in 50 states and the District of Columbia and is also
authorized to carry on general insurance business in the United Kingdom and to
write
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credit and guaranty insurance in France. The Certificate Insurer is subject to
regulation by the State of New York Insurance Department.
The Certificate Insurer is a wholly-owned subsidiary of FGIC
Corporation, a Delaware holding company. FGIC Corporation is a subsidiary of
General Electric Capital Corporation ("GE Capital"). Neither FGIC Corporation
nor GE Capital is obligated to pay the debts of or the claims of the Certificate
Insurer.
The Certificate Insurer and its holding company, FGIC Corporation, are
subject to regulation by each jurisdiction in which the Certificate Insurer is
licensed to write insurance. These regulations vary from jurisdiction to
jurisdiction, but generally require insurance holding companies and their
insurance subsidiaries to register and file certain reports, including
information concerning their capital structure, ownership and financial
condition and require prior approval by the insurance department of their state
of domicile, of changes in control, of dividends and other intercorporate
transfers of assets and of transactions between insurance companies, their
parents and affiliates. The Certificate Insurer is required to file quarterly
and annual statutory financial statements and is subject to statutory
restrictions concerning the types and quality of investments, the use of policy
forms, premium rates and the size of risk that it may insure, subject to
reinsurance. Additionally, the Certificate Insurer is subject to triennial
audits by the State of New York Insurance Department.
As of June 30, 1996, December 31, 1995 and 1994, the Certificate Insurer
had written directly, or assumed through reinsurance, guaranties of
approximately $190.7 billion, $180.0 billion and $160.2 billion par value of
securities, respectively (of which approximately 87 percent, 88 percent and 89
percent constituted guaranties of municipal bonds), for which it had collected
gross premiums of approximately $1.99 billion, $1.95 billion and $1.78 billion,
respectively. As of June 30, 1996, the Certificate Insurer had reinsured
approximately 18 percent of the risks it had written, 36 percent through quota
share reinsurance and 64 percent through facultative arrangements.
CAPITALIZATION
The following table sets forth the capitalization of the Certificate
Insurer as of December 31, 1994, December 31, 1995 and June 30, 1996,
respectively, on the basis of generally accepted accounting principles. No
material adverse change in the capitalization of the Certificate Insurer has
occurred since June 30, 1996.
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<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
(UNAUDITED)
------------- ------------ ------------
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
Unearned Premiums.................................. $ 757 $ 728 $698
Other Liabilities.................................. 261 304 276
Stockholder's Equity
Common Stock.................................... 15 15 15
Additional Paid-in Capital...................... 334 334 334
Net Unrealized Gains/(Losses)................... (42) 64 (6)
Foreign Currency Translation Adjustment......... (1) (2) (2)
Retained Earnings............................... 974 1,137 1,229
------ ------ ------
Total Stockholder's Equity......................... 1,280 1,548 1,570
------ ------ ------
Total Liabilities and Stockholder's Equity......... $2,298 $2,580 $2,544
====== ====== ======
</TABLE>
For further financial information concerning the Certificate Insurer,
see the audited financial statements of the Certificate Insurer included as
Appendix A and the unaudited financial statements of the Certificate Insurer
included as Appendix B.
Copies of the Certificate Insurer's quarterly and annual statutory
statements filed by the Certificate Insurer with the New York Insurance
Department are available upon request to Financial Guaranty Insurance Company,
115 Broadway, New York, New York 10006, Attention: Corporate Communications
Department. The Certificate Insurer's telephone number is (212) 312-3000.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of information regarding the Certificate Insurer and the Certificate Insurance
Policy set forth under the heading "The Certificate Insurance Policy and The
Certificate Insurer" and in Appendix A and Appendix B.
An indemnification agreement among the Certificate Insurer, the Sponsor,
the Seller and the Underwriters provides that each of the parties to such
agreement will indemnify each other for certain liabilities under the 1933 Act.
THE CERTIFICATE INSURANCE POLICY
The Seller will obtain the Certificate Insurance Policy, issued by the
Certificate Insurer, in favor of the Owners of the Class A Certificates. The
Certificate Insurance Policy provides for 100% coverage of the related Insured
Distribution Amount.
The Certificate Insurance Policy unconditionally guarantees the payment
of Insured Payments on the Class A Certificates. The Certificate Insurer is
required to make Insured Payments to the Trustee as paying agent on the later of
the Payment Date or on the business day next following the day on which the
Certificate
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Insurer shall have received telephonic or telegraphic notice, subsequently
confirmed in writing, or written notice by registered or certified mail, from
the Trustee that an Insured Payment is due.
The Pooling and Servicing Agreement will provide that the term "Total
Available Funds" does not include Insured Payments and does not include any
amounts that cannot be distributed to the Owners of any Class A Certificates by
the Trustee as a result of final, non-appealable proceedings under the United
States Bankruptcy Code.
Each Owner of a Class A Certificate which pays to the bankruptcy court
as a "voidable preference" under the United States Bankruptcy Code any amounts
("Preference Amounts") theretofore received by such Owner on account of such
Class A Certificate will be entitled to receive reimbursement for such amounts
from the Certificate Insurer, but only after (i) delivering a copy to the
Trustee of a final, nonappealable order (a "Preference Order") of a court having
competent jurisdiction demanding payment of such amount to the bankruptcy court
and (ii) assigning such Owner's claim with respect to such Preference Order to
the Certificate Insurer. In no event shall the Certificate Insurer pay more than
one Insured Payment in respect of any Preference Amount.
The Certificate Insurance Policy is non-cancelable.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The Certificate Insurer's obligation under the Certificate Insurance
Policy will be discharged to the extent that funds are received by the Trustee
for distribution to the Class A Certificateholders, whether or not such funds
are properly distributed by the Trustee.
The Certificate Insurance Policy does not guarantee to the owners of the
Class A Certificates any specific rate of prepayments of principal of the
Mortgage Loans. Also, the Certificate Insurance Policy does not guarantee the
payment of any Supplemental Interest Amount.
Pursuant to the Pooling and Servicing Agreement, the Certificate Insurer
is subrogated to the rights of the Owners of the Class A Certificates to the
extent of any such payment under the Certificate Insurance Policy.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the Certificate Insurance Policy
is protection for credit risk and not for prepayment risk. A claim may not be
made under the Certificate Insurance Policy in an attempt to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.
FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the Class
A Certificates is to be considered only in connection with "Federal Income Tax
Consequences" in the Prospectus. The discussion herein and in the Prospectus is
based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change. The discussion below and in the Prospectus does not
purport to deal with all federal tax consequences applicable to all categories
of investors, some of which may be subject to special rules. Investors should
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
Class A Certificates.
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REMIC ELECTION
The Trustee will cause one or more elections to be made to treat certain
assets of the Trust as one or more real estate mortgage investment conduits
("REMICs") within the meaning of Code Section 860D. Dewey Ballantine, special
tax counsel, will advise that, in its opinion, for federal income tax purposes,
assuming the REMIC elections are made and compliance with the Pooling and
Servicing Agreement, each Class of Class A Certificates will be treated as a
"regular interest" in a REMIC. For federal income tax purposes, regular
interests in a REMIC are treated as debt instruments issued by the REMIC on the
date on which those interests are created, and not as ownership interests in the
REMIC or its assets. Owners of REMIC Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to such Certificates under an accrual method.
The Class A Certificates may be issued with "original issue discount"
for federal income tax purposes. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount on the Class A
Certificates is the Prepayment Assumption. See "Maturity, Prepayment and Yield
Considerations" herein and "Certain Federal Income Tax Considerations - Discount
and Premium" in the Prospectus.
TAXATION OF THE CLASS A-6 GROUP II CERTIFICATES
The Owners of Class A-6 Group II Certificates and the related rights to
receive Supplemental Interest Amounts will be treated for tax purposes as owning
two separate investments: (i) Class A-6 Group II Certificates without the right
to receive Supplemental Interest Amounts and (ii) the right to receive the
Supplemental Interest Amounts. The Owners of Class A-6 Group II Certificates
must allocate the purchase price of their Certificates between these two
investments based on their relative fair market values. The purchase price
allocated to the first investment will be the issue price of the Class A-6 Group
II Certificates for calculating accruals of OID (if any). See "Certain Federal
Income Tax Considerations--Original Issue Discount" in the Prospectus.
An Owner of a Class A-6 Group II Certificate and the related rights to
receive Supplemental Interest Amounts will be treated for federal income tax
purposes as having entered into a notional principal contract on the date that
it purchases its Certificate. Treasury Regulations under Section 446 of the
Internal Revenue Code (the "Code") relating to notional principal contracts (the
"Notional Principal Contract Regulations") provide that taxpayers must recognize
periodic payments with respect to a notional principal contract under the
accrual method of accounting. Any Supplemental Interest Amounts will be periodic
payments. Income with respect to periodic payments under a notional principal
contract for a taxable year should constitute ordinary income. The purchase
price allocated to the right to receive the related Supplemental Interest
Amounts will be treated as a nonperiodic payment under the Notional Principal
Contract Regulations. Such a nonperiodic payment may be amortized using several
methods, including the level payment method described in the Notional Principal
Contract Regulations.
The right to receive the Supplemental Interest Amounts will not
constitute: (i) a "real estate asset" within the meaning of section 858(c)(5)(A)
of the Code if held by a real estate investment trust; (ii) a "qualified
mortgage" within the meaning of section 860G(a)(3) of the Code or a "permitted
investment" within the meaning of section 860G(a)(5) of the Code if held by a
REMIC, or (iii) an asset described in section 7701(a)(19)(C)(xi) of the Code if
held by a thrift. Moreover, other special rules may apply to certain investors,
including dealers in securities and dealers in notional principal contracts.
TAXATION OF FOREIGN INVESTORS
In general, foreign investors will not be subject to U.S. withholding on
income from the Class A Certificates. See "Certain Federal Income Tax
Considerations - Taxation of Certain Foreign Investors" in the Prospectus.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans to which
it applies ("ERISA Plan") and on those persons who are fiduciaries with respect
to such ERISA Plans. Certain employee benefit plans, such as governmental plans
(as defined in ERISA Section 3(32)) and certain church plans (as defined in
ERISA Section 3(33)), are not subject to ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a Class A Certificate, an ERISA
Plan fiduciary should determine whether such an investment is permitted under
the governing ERISA Plan instruments and is appropriate for the ERISA Plan in
view of its overall investment policy and the composition and diversification of
its portfolio.
In addition, provisions of ERISA, and the corresponding provisions of
the Code, prohibit a broad range of transactions involving assets of ERISA
Plans, individual retirement accounts, and Keogh plans covering only a sole
proprietor or partners (collectively, the "Plans") and persons having certain
specified relationships to such a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. Certain affiliates of the Originators, the Sponsor,
the Seller, the Master Servicer, any Sub-Servicer, and of the Trustee might be
considered "parties in interest" or "disqualified persons" with respect to a
Plan. If so, the acquisition or holding of Class A Certificates by or on behalf
of such Plan could be considered to give rise to a "prohibited transaction"
within the meaning of ERISA or the Code unless an exemption is available.
Furthermore, if an investing Plan's assets were deemed to include an interest in
the assets of the Mortgage Loans which constitute the Trust Estate and not
merely an interest in the Class A Certificates, transactions occurring in the
servicing of the Mortgage Loans might constitute prohibited transactions unless
an administrative exemption applies.
The DOL has issued to Prudential Securities Incorporated an
administrative exemption, Prohibited Transaction Exemption 90-24 (the
"Exemption"), which generally exempts from the application of the prohibited
transaction provisions of Section 406(a), Section 406(b)(1) and Section
406(b)(2) of ERISA and the excise taxes imposed pursuant to Sections 4975(a) and
(b) of the Code, certain transactions relating to the servicing and operation of
asset pools, including pools of mortgage loans, and the purchase, sale and
holding of asset-backed pass-through certificates, including pass-through
certificates evidencing interests in mortgage loans, such as the Class A
Certificates underwritten by Prudential Securities Incorporated and certain of
its affiliates, provided that certain conditions set forth in the Exemption are
satisfied.
If the general conditions of Section II of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Class A Certificates by Plans in the initial issue of Certificates, the
holding of Class A Certificates by Plans or the direct or indirect acquisition
or disposition in the secondary market of Class A Certificates by Plans.
However, no exemption is provided from the restrictions of Section 406(a)(1)(E),
406(a)(2) and 407 of ERISA for the acquisition or holding of a Class A
Certificate on behalf of an "Excluded Plan" (defined below) by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates, an
Excluded Plan is a Plan sponsored by (1) the Underwriters, (2) the Master
Servicer and any Sub- Servicer, (3) the Certificate Insurer, (4) the Trustee,
(5) the Sponsor, (6) the Seller, (7) any Mortgagor with respect to Mortgage
Loans constituting more than 5 percent of the aggregate unamortized principal
balance of the Mortgage Loans as of the date of initial issuance and (8) any
affiliate or successor of a person described in (1) to (7) above (the
"Restricted Group").
If the specific conditions of paragraph I.B of Section I of the
Exemption are also satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(1)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Class A Certificates in the initial issuance of Class A
Certificates between the Sponsor, the Seller, the Underwriters and a Plan when
the person
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who has discretionary authority or renders investment advice with respect to the
investment of Plan assets in Class A Certificates is (a) a mortgagor with
respect to 5 percent or less of the fair market value of the Mortgage Loans or
(b) an affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Class A Certificates by Plans and (3) the
holding of Class A Certificates by Plans.
If the specific conditions of paragraph I.C of Section I of the
Exemption are satisfied, the Exemptions may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code for transactions in connection with the servicing,
management and operation of the Trust.
The Exemption may provide an exemption from the restrictions imposed by
Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Class A Certificates.
The Exemption set forth the following seven general conditions which
must be satisfied for a transaction to be eligible for exemptive relief
thereunder.
(1) The acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(2) The rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) The certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poor's Corporation ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Rating Co.
("D&P") or Fitch Investors Service, Inc. ("Fitch");
(4) The trustee is not an affiliate of any other member of the
Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution of certificates
represents not more than reasonable compensation for underwriting the
certificates. The sum of all payments made and retained by the seller
pursuant to the assignment of the loans to the trust fund represents not
more than the fair market value of such loans. The sum of all payments
made to and retained by the servicer represents not more than reasonable
compensation for such person's services under the pooling and servicing
agreement and reimbursement of such person's reasonable expenses in
connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act of 1933.
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of
assets of the type that have been included in other investment
pools;
(ii) certificates in such other investment pools must have
been rated in one of the three highest generic rating categories
of S&P, Moody's, Fitch or D&P for at least one year prior to the
Plan's acquisition of certificates; and
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(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of
certificates.
It is a condition of issuance of the Class A Certificates that they be
rated AAA or Aaa by S&P and Moody's, respectively. Before purchasing a Class A
Certificate, based on the Exemption, a fiduciary of a Plan should itself confirm
(1) that such Certificate constitutes a "certificate" for purposes of the
Exemption and (2) that the specific conditions set forth in Section I of the
Exemption, the general conditions set forth in Section II of the Exemption and
the other requirements set forth in the Exemption would be satisfied.
Any person purchasing a Class A-6 Group II Certificate and the related
right to receive Supplemental Interest Amounts will have acquired for purposes
of ERISA and for federal income tax purposes, such Class A-6 Certificate without
the right to receive the Supplemental Interest Amounts, together with the right
to receive the Supplemental Interest Amounts. The Exemption does not apply to
the acquisition, holding or resale of the right to receive the Supplemental
Interest Amounts. Accordingly, the acquisition of the right to receive the
Supplemental Interest Amounts by a Plan could result in a prohibited transaction
unless another administrative exemption to ERISA's prohibited transaction rules
is applicable. One or more alternative exemptions may be available with respect
to certain prohibited transaction rules of ERISA that might apply in connection
with the initial purchase, holding and resale of the right to receive the
Supplemental Interest Amounts, including, but not limited to: (i) Prohibited
Transaction Class Exemption ("PTCE") 91-38, regarding investments by bank
collective investment funds; (ii) PTCE 90-1, regarding investments by insurance
company pooled separate accounts; (iii) PTCE 84-14, regarding transactions
negotiated by qualified professional asset managers; or (iv) PTCE 75-1, Part II,
regarding principal transactions by broker-dealers (the "Principal Transactions
Exemption"). It is believed that the conditions of the Principal Transactions
Exemption will be met with respect to the acquisition of a right to receive the
Supplemental Interest Amounts by a Plan, so long as such Underwriter is not a
fiduciary with respect to the Plan (and is not a party in interest with respect
to the Plan by reason of being a participating employer or affiliate thereof).
Before purchasing Class A-6 Group II Certificates based on an administrative
exemption (or exemptions), a fiduciary of a Plan should determine whether the
conditions of such exemption (or exemptions) would be met and whether the scope
of the relief provided by such exemption (or exemptions) would cover all acts
that might be construed as prohibited transactions.
Prospective Plan investors in the Class A Certificates should consult
with their legal advisors concerning the impact of ERISA and the Code, the
applicability of the Exemption, and the potential consequences in their specific
circumstances, prior to making an investment in the Class A Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment prudence and diversification an investment in
the Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
In addition to the matters described above, purchasers of a Class A
Certificate that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank, 114 S.CT. 517 (1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances. Prospective
purchasers using insurance company general account assets should determine
whether the decision affects their ability to make purchases of the Class A
Certificates.
NON-ERISA PLANS
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, assets of such plans
may be invested in the Class A Certificates without regard to the ERISA
restrictions described above, subject to applicable provisions of other federal
and state laws.
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RATINGS
Ratings which are assigned to securities such as the Class A
Certificates generally evaluate the ability of the issuer (i.e., the Trust) and
any guarantor (i.e., the Certificate Insurer) to make timely payment when such
payments are due, as required by such securities. The amounts which are "due"
with respect to the Class A Certificates consist of principal and interest. In
general, ratings address credit risk and not prepayment risk. The ratings issued
with respect to the Class A-6 Group II Certificates do not cover the payment of
the Supplemental Interest Amounts.
It is a condition of the original issuance of the Class A Certificates
that they receive ratings of AAA or Aaa by S&P and Moody's, respectively.
Explanations of the significance of such rating may be obtained from such rating
agency. The ratings will be the views only of such rating agencies. There is no
assurance that any such ratings will continue for any period of time or that
such ratings will not be revised or withdrawn. Any such revision or withdrawal
of such ratings may have an adverse effect on the market price of the Class A
Certificates. A security rating is not a recommendation to buy, sell or hold
securities.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). Accordingly, many institutions may not be legally authorized to
invest in the Class A Certificates.
UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated August 22, 1996 (the "Underwriting Agreement"),
Prudential Securities Incorporated and J.P. Morgan Securities Inc. (together,
the "Underwriters") have agreed to purchase, and the Sponsor and the Seller have
agreed to sell, the Class A Certificates offered hereby.
In the Underwriting Agreement, each of the Underwriters has agreed,
subject to the terms and conditions set forth therein, to purchase, the
principal amount of the Class A Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL AMOUNT OF CLASS A CERTIFICATES
<S> <C>
Prudential Securities Incorporated............. $103,298,500
J.P. Morgan Securities Inc..................... 103,298,500
-----------
Total..................................... $206,597,000
</TABLE>
The Underwriters have advised the Sponsor and the Seller that they
propose to offer the Class A Certificates for sale from time to time in one or
more transactions (which may include block transactions), in negotiated
transactions or otherwise, or a combination of such methods of sale, at market
prices prevailing at the time of sale or at negotiated prices. The Underwriters
may effect such transactions by selling the Class A Certificates to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriters and/or the
purchasers of the Class A Certificates for whom they may act as agents. In
connection with the sale of the Class A Certificates, the Underwriters may be
deemed to have received compensation from the Sponsor and the Seller in the form
of underwriting discounts, and the Underwriters may also receive commissions
from purchasers of the Class A Certificates for whom it may act as agent. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Class A Certificates may be deemed to be underwriters, and
any discounts or commissions
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received by them and any profit on the resale of the Class A Certificates by
them may be deemed to be underwriting discounts or commissions.
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 Class A Certificates offered
hereby if any are purchased.
The Class A Certificates are a new issue of securities with no
established trading market. The Underwriters have advised the Sponsor and the
Seller that they intend to act as market makers for the Class A Certificates.
However, the Underwriters are not obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Class A Certificates.
The Seller has agreed to indemnify each Underwriter against certain
liabilities, including civil liabilities under the Securities Act of 1933, or
contribute to payments which either Underwriter may be required to make in
respect thereof.
EXPERTS
The financial statements of Financial Guaranty Insurance Company,
included in this Prospectus Supplement in Appendix A and in the registration
statement, as of December 31, 1995 and 1994 and for each of the years in the
three year period ended December 31, 1995, have been included in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing in Appendix A and the registration statement, and upon the authority
of such firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP refers to changes, in 1993, in
accounting methods for multiple-year retrospectively rated reinsurance
contracts, and for the adoption of the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
CERTAIN LEGAL MATTERS
Certain legal matters will be passed upon for the Sponsor and the Seller
by James G. Ray, Esq., counsel to the Sponsor and the Seller. Certain tax
matters concerning the issuance of the Certificates will be passed upon by Dewey
Ballantine, New York, New York.
S-72
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<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Access
Financial Mortgage Loan Trust 1996-3 Class A 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 Depositories 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 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 home
equity loan asset-backed certificates issues in same-day funds.
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Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and CEDEL or Euroclear 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 procedures, 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., the 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 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
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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
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 registered debt issued 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 Certificate 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 non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons 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 (Form W-9). 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).
I-3
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U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to (i)
withholding income tax on U.S.-source income paid to Non-U.S. Persons; (ii)
claiming Non-U.S. Person status to avoid backup withholding; and (iii) reporting
to the IRS of payments to Non-U.S. Persons. The proposed regulations would
substantially revise some aspects of the current system for withholding on and
reporting amounts paid to Non-U.S. Persons. The regulations unify current
certification procedures and forms and reliance standards are clarified. Most
forms are proposed to be combined into a single form: Form W-8. The regulations
are proposed to be effective for payments made after December 31, 1997.
Certificates issued, however, on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
All proposed regulations are subject to change before adoption in their final
form. No reliable prediction can be made as to when, if ever, the proposed
regulations will be made final and if so, as to their final form.
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 or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This discussion 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.
I-4
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APPENDIX A
AUDITED FINANCIAL STATEMENTS
FINANCIAL GUARANTY INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1995 AND 1994
WITH REPORT OF INDEPENDENT AUDITORS
A-1
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<PAGE>
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KPMG Peat Marwick LLP
FINANCIAL GUARANTY INSURANCE COMPANY
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
================================================================================
Audited Financial Statements
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors..............................................................1
Balance Sheets..............................................................................2
Statements of Income........................................................................3
Statements of Stockholder's Equity..........................................................4
Statements of Cash Flows....................................................................5
Notes to Financial Statements...............................................................6
</TABLE>
<PAGE>
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Report of Independent Auditors'
The Board of Directors and Stockholder
Financial Guaranty Insurance Company:
We have audited the accompanying balance sheets of Financial Guaranty Insurance
Company as of December 31, 1995 and 1994, and the related statements of income,
stockholder's equity, and cash flows for each of the years in the three year
period then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. 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 audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the fnancial position of Financial Guaranty
Insurance Company as of December 31, 1995 and 1994 and the results of its
operations and its cash flows for each of the years in the three year period
then ended in conformity with generally accepted accounting
principles.
As described in notes 6 and 2, respectively, in 1993, the Company changed
its methods of accounting for multiple-year retrospectively rated reinsurance
contracts and for the adoption of the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investrnents in Debt and Equity Securities.
KPMG Peat Marwick LLP
January 19, 1996
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Balance Sheets
================================================================================
<TABLE>
<CAPTION>
($ in Thousands, except per share amounts)
December 31, December 31,
Assets 1995 1994
--------------- -------------
<S> <C> <C>
Fixed maturity securities available-for-sale
(amortized cost of $2,043,453 in 1995 and $1,954,177 in 1994) $2,141,584 $1,889,910
Short-term investments, at cost, which approximates market 91,032 75,674
Cash 199 1,766
Accrued investment income 37,347 40,637
Reinsurance recoverable 7,672 14,472
Prepaid reinsurance premiums 162,087 164,668
Deferred policy acquisition costs 94,868 90,928
Property and equipment, net of accumulated depreciation
($12,861 in 1995 and $10,512 in 1994) 6,314 7,912
Receivable for securities sold 26,572 -
Prepaid expenses and other assets 12,627 12,243
---------- ----------
Total assets $2,580,302 $2,298,210
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums $ 727,535 $ 757,425
Loss and loss adjustment expenses 77,808 98,746
Ceded reinsurance balances payable 1,942 2,258
Accounts payable and accrued expenses 32,811 28,489
Payable to Parent 1,647 18,600
Current federal income taxes payable 51,296 82,123
Deferred federal income taxes 99,171 22,640
Payable for securities purchased 40,211 8,206
---------- ---------
Total liabilities 1,032,421 1,018,487
---------- ---------
Stockholder's Equity:
Common stock, par value $1,500 per share;
10,000 shares authorized, issued and outstanding 15,000 15,000
Additional paid-in capital 334,011 334,011
Net unrealized gains (losses) on fixed maturity securities available-
for-sale, net of tax 63,785 (41,773)
Foreign currency translation adjustment (1,499) (1,221)
Retained earnings 1,136,584 973,706
---------- ----------
Total stockholder's equity 1,547,881 1,279,723
---------- ----------
Total liabilities and stockholder's equity $2,580,302 $2,298,210
========== ==========
See accompanying notes to financial statements.
</TABLE>
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Financial Guaranty Insurance
Company Statements of Income
================================================================================
<TABLE>
<CAPTION>
($ in Thousands)
For the Year Ended December 31,
---------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gross premiums written $ 97,288 $ 161,940 $ 291,052
Ceded premiums (19,319) (46,477) (49,914)
---------- ---------- ---------
Net premiums written 77,969 115,463 241,138
Decrease (increase) in net unearned premiums 27,309 53,364 (74,902)
-------- ---------- ---------
Net premiums earned 105,278 168,827 166,236
Net investment income 120,398 109,828 99,920
Net realized gains 30,762 5,898 35,439
------- ---------- ---------
Total revenues 256,438 284,553 301,595
------- --------- ---------
Expenses:
Loss and loss adjustment expenses (8,426) 3,646 42,894
Policy acquisition costs 13,072 15,060 19,592
(Increase) decrease in deferred policy acquisition costs (3,940) 3,709 2,658
Other underwriting expenses 19,100 21,182 21,878
-------- --------- ---------
Total expenses 19,806 43,597 87,022
-------- --------- ---------
Income before provision for Federal income taxes 236,632 240,956 214,573
-------- --------- ---------
Federal income tax expense (benefit):
Current 28,913 43,484 59,505
Deferred 19,841 7,741 (7,284)
--------- ---------- ----------
Total Federal income tax expense 48,754 51,225 52,221
--------- --------- ---------
Net income before cumulative effect of
change in accounting principle 187,878 189,731 162,352
--------- --------- --------
Net cumulative effect of change in
accounting principle - - 3,008
-------- --------- --------
Net income $187,878 $189,731 $165,360
======== ======== ========
See accompanying notes to financial statements.
</TABLE>
-3-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Statements of Stockholder's Equity
================================================================================
<TABLE>
<CAPTION>
($ in Thousands)
Net Unrealized
Gains (Losses) on
Additional Fixed Maturity Foreign
Common Paid-in Securities Available Currency Retained
Stock Capital For-Sale, Net of Tax Adjustment Earnings
------------ ----------- -------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 2,500 $324,639 $ 7,267 $(1,597) $ 618,615
Net income -- -- -- -- 165,360
Capital contribution -- 21,872 -- -- --
Adjustment to common stock par value 12,500 (12,500) -- -- --
Unrealized gains on fixed maturity securities
previously held at market, net of tax of ($713) -- -- (1,325) -- --
Implementation of change in accounting for
adoption of SFAS 115, net of tax of $45,643 -- -- 84,766 -- --
Foreign currency translation adjustment -- -- -- (668) --
------- -------- --------- ------- ----------
Balance, December 31, 1993 15,000 334,011 90,708 (2,265) 783,975
Net income -- -- -- -- 189,731
Unrealized losses on fixed maturity securities
available-for-sale, net of tax of ($71,336) -- -- (132,481) -- --
Foreign currency translation adjustment -- -- -- 1,044 --
------- -------- --------- ------- ----------
Balance, December 31, 1994 15,000 334,011 (41,773) (1,221) 973,706
Net income -- -- -- -- 187,878
Dividend paid -- -- -- -- (25,000)
Unrealized gains on fixed maturity securities
available for sale, net of tax of $56,839 -- -- 105,558 -- --
Foreign currency translation adjustment -- -- -- (278) --
------- -------- --------- ------- ----------
Balance, December 31, 1995 $15,000 $334,011 $ 63,785 $(1,499) $1,136,584
======= ======== ========= ======= ==========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
($ in Thousands)
For the Year Ended December 31,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $187,878 $189,731 $165,360
Adjustments to reconcile net income
to net cash provided by operating activities:
Cumulative effect of change in accounting principle, net of tax - - (3,008)
Change in unearned premiums (29,890) (45,927) 90,429
Change in loss and loss adjustment expense reserves (20,938) 2,648 51,264
Depreciation of property and equipment 2,348 2,689 2,012
Change in reinsurance receivable 6,800 (304) (9,040)
Change in prepaid reinsurance premiums 2,581 (7,437) (15,527)
Change in foreign currency translation adjustment (427) 1,607 (1,029)
Policy acquisition costs deferred (16,219) (18,306) (19,592)
Amortization of deferred policy acquisition costs 12,279 22,015 22,250
Change in accrued investment income, and prepaid
expenses and other assets 2,906 (5,150) (9,048)
Change in other liabilities (12,946) 2,577 7,035
Change in deferred income taxes 19,841 7,741 (7,284)
Amortization of fixed maturity securities 1,922 5,112 8,976
Change in current income taxes payable (30,827) 33,391 30,089
Net realized gains on investments (30,762) (5,898) (35,439)
--------- --------- --------
Net cash provided by operating activities 94,546 184,489 277,448
--------- --------- --------
Investing Activities:
Sales and maturities of fixed maturity securities $ 836,103 $ 550,534 $ 789,036
Purchases of fixed maturity securities (891,108) (721,908) (1,090,550)
Purchases, sales and maturities of short-term investments, net (15,358) (11,486) 4,164
Purchases of property and equipment, net (750) (1,290) (985)
--------- --------- --------
Net cash used in investing activities (71,113) (184,150) (298,335)
--------- --------- --------
Financing Activities:
Dividends paid (25,000) - -
Capital contribution - - 21,872
--------- --------- --------
Net cash provided by financing activities (25,000) - 21,872
--------- --------- --------
(Decrease) Increase in cash (1,567) 339 985
Cash at beginning of year 1,766 1,427 442
--------- --------- --------
Cash at end of year $ 199 $ 1,766 $ 1,427
========= ========= ========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements
================================================================================
(1) Business
Financial Guaranty Insurance Company (the "Company"), a wholly-owned
insurance subsidiary of FGIC Corporation (the "Parent"), provides
financial guaranty insurance on newly issued municipal bonds and
municipal bonds trading in the secondary market, the latter including
bonds held by unit investment trusts and mutual funds. The Company also
insures structured debt issues outside the municipal market.
Approximately 88% of the business written since inception by the
Company has been municipal bond insurance.
The Company insures only those securities that, in its judgment, are of
investment grade quality. Municipal bond insurance written by the
Company insures the full and timely payment of principal and interest
when due on scheduled maturity, sinking fund or other mandatory
redemption and interest payment dates to the holders of municipal
securities. The Company's insurance policies do not provide for
accelerated payment of the principal of, or interest on, the bond
insured in the case of a payment default. If the issuer of a
Company-insured bond defaults on its obligation to pay debt service,
the Company will make scheduled interest and principal payments as due
and is subrogated to the rights of bondholders to the extent of
payments made by it.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(2) Significant Accounting Policies
The accompanying financial statements have been prepared on the basis
of generally accepted accounting principles ("GAAP") which differ in
certain respects from the accounting practices prescribed or permitted
by regulatory authorities (see Note 3). The prior years financial
statements have been reclassified to conform to the 1995 presentation.
Significant accounting policies are as follows:
Investments
As of December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." The Statement defines three
categories for classification of debt securities and the related
accounting treatment for each respective category. The Company has
determined that its fixed maturity securities portfolio should be
classified as available-for-sale. Under SFAS 115, securities held as
available-for-sale are recorded at fair value and unrealized holding
gains/losses are recorded as a separate component of stockholder's
equity, net of applicable income taxes.
Short-term investments are carried at cost, which approximates fair
value. Bond discounts and premiums are amortized over the remaining
terms of the securities. Realized gains or losses on the sale of
investments are determined on the basis of specific identification.
-6-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
Premium Revenue Recognition
Premiums are earned over the period at risk in proportion to the amount
of coverage provided which, for financial guaranty insurance policies,
generally declines according to predetermined schedules.
When unscheduled refundings of municipal bonds occur, the related
unearned premiums, net of premium credits allowed against the premiums
charged for insurance of refunding issues and applicable acquisition
costs, are earned immediately. Unearned premiums represent the portion
of premiums written related to coverage yet to be provided on policies
in force.
Policy Acquisition Costs
Policy acquisition costs include only those expenses that relate
directly to premium production. Such costs include compensation of
employees involved in underwriting, marketing and policy issuance
functions, rating agency fees, state premium taxes and certain other
underwriting expenses, offset by ceding commission income on premiums
ceded to reinsurers (see Note 6). Net acquisition costs are deferred
and amortized over the period in which the related premiums are earned.
Anticipated loss and loss adjustment expenses are considered in
determining the recoverability of acquisition costs.
Loss and Loss Adjustment Expenses
Provision for loss and loss adjustment expenses is made in an amount
equal to the present value of unpaid principal and interest and other
payments due under insured risks at the balance sheet date for which,
in management's judgment, the likelihood of default is probable. Such
reserves amounted to $77.8 million and $98.7 million at December 31,
1995 and 1994, respectively. As of December 31, 1995 and 1994, such
reserves included $28.8 million and $71.0 million, respectively,
established based on an evaluation of the insured portfolio in light of
current economic conditions and other relevant factors. Loss and loss
adjustment expenses include amounts discounted at an interest rate of
5.5% in 1995 and 7.8% in 1994. The reserve for loss and loss adjustment
expenses is necessarily based upon estimates, however, in management's
opinion the reserves for loss and loss adjustment expenses is adequate.
However, actual results will likely differ from those estimates.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. These temporary differences relate principally to
unrealized gains (losses) on fixed maturity securities
available-for-sale, premium revenue recognition, deferred acquisition
costs and deferred compensation. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Financial guaranty insurance companies are permitted to deduct from
taxable income, subject to certain limitations, amounts added to
statutory contingency reserves (see Note 3). The amounts deducted must
be included in taxable income upon their release from the reserves or
upon earlier release of such amounts from such reserves to cover excess
losses as permitted by insurance regulators. The amounts deducted are
allowed as deductions from taxable income only to the extent that U.S.
government non-interest bearing tax and loss bonds are purchased and
held in an amount equal to the tax benefit attributable to such
deductions.
-7-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
Property and Equipment
Property and equipment consists of furniture, fixtures, equipment and
leasehold improvements which are recorded at cost and are charged to
income over their estimated service lives. Office furniture and
equipment are depreciated straight-line over five years. Leasehold
improvements are amortized over their estimated service life or over
the life of the lease, whichever is shorter. Computer equipment and
software are depreciated over three years. Maintenance and repairs are
charged to expense as incurred.
Foreign Currency Translation
The Company has established foreign branches in France and the United
Kingdom and determined that the functional currencies of these branches
are local currencies. Accordingly, the assets and liabilities of these
foreign branches are translated into U.S. dollars at the rates of
exchange existing at December 31, 1995 and 1994 and revenues and
expenses are translated at average monthly exchange rates. The
cumulative translation loss at December 31, 1995 and 1994 was $1.5
million and $1.2 million, respectively, net of tax, and is reported as
a separate component of stockholder's equity.
(3) Statutory Accounting Practices
The financial statements are prepared on the basis of GAAP, which
differs in certain respects from accounting practices prescribed or
permitted by state insurance regulatory authorities. The following are
the significant ways in which statutory-basis accounting practices
differ from GAAP:
(a) premiums are earned in proportion to the reduction of the
related risk rather than in proportion to the coverage
provided;
(b) policy acquisition costs are charged to current operations
as incurred rather than as related premiums are earned;
(c) a contingency reserve is computed on the basis of
statutory requirements for the security of all
policyholders, regardless of whether loss contingencies
actually exist, whereas under GAAP, a reserve is
established based on an ultimate estimate of exposure;
(d) certain assets designated as non-admitted assets are
charged directly against surplus but are reflected as
assets under GAAP, if recoverable;
(e) federal income taxes are only provided with respect to
taxable income for which income taxes are currently
payable, while under GAAP taxes are also provided for
differences between the financial reporting and the tax
bases of assets and liabilities;
(f) purchases of tax and loss bonds are reflected as admitted
assets, while under GAAP they are recorded as federal
income tax payments; and
(g) all fixed income investments are carried at amortized cost
rather than at fair value for securities classified as
available-for-sale under GAAP.
-8-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
The following is a reconciliation of net income and stockholder's equity
presented on a GAAP basis to the corresponding amounts reported on a
statutory-basis for the periods indicated below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------- --------------------
Net Stockholder's Net Stockholder's Net Stockholder's
Income Equity Income Equity Income Equity
----------- ------------- ------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
GAAP basis amount $187,878 $1,547,881 $ 189,731 $1,279,723 $165,360 $1,221,429
Premium revenue recognition (22,555) (166,927) (4,970) (144,372) (16,054) (139,401)
Deferral of acquisition costs (3,940) (94,868) 3,709 (90,928) 2,658 (94,637)
Contingency reserve -- (386,564) -- (328,073) -- (252,542)
Non-admitted assets -- (5,731) -- (7,566) -- (8,951)
Case basis loss reserves 4,048 (52) (3,340) (4,100) 1,626 (759)
Portfolio loss reserves (22,100) 24,000 (11,050) 46,100 43,650 57,150
Deferral of income taxes (benefits) 19,842 64,825 7,741 45,134 (7,284) 35,209
Unrealized gains (losses) on fixed maturity
securities held at fair value, net of tax -- (63,785) -- 41,773 -- (90,708)
Recognition of profit commission 3,096 (5,744) (2,410) (8,840) (4,811) (4,811)
Provision for unauthorized reinsurance -- -- -- (266) -- --
Contingency reserve tax deduction (see Note 2) -- 78,196 -- 55,496 -- 45,402
Allocation of tax benefits due to
Parent's net operating loss to the
Company (see Note 5) 637 10,290 (63) 9,653 -- 9,716
-------- ---------- --------- ---------- -------- ----------
Statutory-basis amount $166,906 $1,001,521 $ 179,348 $ 893,734 $185,145 $ 777,097
======== ========== ========= ========== ======== ==========
</TABLE>
-9-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
(4) Investments
Investments in fixed maturity securities carried at fair value of $3.2
million and $3.0 million as of December 31, 1995 and 1994,
respectively, were on deposit with various regulatory authorities as
required by law.
The amortized cost and fair values of short-term investments and of
investments in fixed maturity securities classified as
available-for-sale are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
1995 Cost Gains Losses Value
---- --------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 71,182 $ 1,696 - $ 72,878
Obligations of states and political
subdivisions 1,942,001 98,458 $1,625 2,038,834
Debt securities issued by foreign
governments 30,270 152 550 29,872
--------------- --------------- ------------- ----------------
Investments available-for-sale 2,043,453 100,306 2,175 2,141,584
Short-term investments 91,032 - - 91,032
--------------- --------------- ------------- ----------------
Total $2,134,485 $100,306 $2,175 $2,232,616
=============== =============== ============= ================
</TABLE>
The amortized cost and fair values of short-term investments and of
investments in fixed maturity securities available-for-sale at December
31, 1995, by contractual maturity date, are shown below. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
1995 Cost Value
---- ----------- ------------
<S> <C> <C>
Due in one year or less $ 99,894 $ 99,984
Due after one year through five years 137,977 141,235
Due after five years through ten years 287,441 300,560
Due after ten years through twenty years 1,406,219 1,476,261
Due after twenty years 202,954 214,576
----------- -----------
Total $2,134,485 $2,232,616
========== ==========
</TABLE>
-10-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
1994 Cost Gains Losses Value
---- -------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 10,945 $ 8 $ (519) $ 10,434
Obligations of states and political
subdivisions 1,839,566 25,809 (85,200) 1,780,175
Debt securities issued by foreign
governments 103,666 400 (4,765) 99,301
---------- ------- -------- ----------
Investments available-for-sale 1,954,177 26,217 (90,484) 1,889,910
Short-term investments 75,674 - - 75,674
---------- ------- -------- ----------
Total $2,029,851 $26,217 $(90,484) $1,965,584
========== ======= ======== ==========
</TABLE>
In 1995, 1994 and 1993, proceeds from sales of investments in fixed
maturity securities available-for-sale carried at fair value were
$836.1 million, $550.5 million, and $789.0 million, respectively. For
1995, 1994 and 1993 gross gains of $36.3 million, $18.2 million and
$36.1 million respectively, and gross losses of $5.5 million, $12.3
million and $1.0 million respectively, were realized on such sales.
Net investment income of the Company is derived from the following
sources (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
-------- ------- -----
<S> <C> <C> <C>
Income from fixed maturity securities $112,684 $108,519 $ 97,121
Income from short-term investments 8,450 2,479 3,914
-------- -------- --------
Total investment income 121,134 110,998 101,035
Investment expenses 736 1,170 1,115
-------- -------- --------
Net investment income $120,398 $109,828 $ 99,920
======== ======== ========
</TABLE>
As of December 31, 1995, the Company did not have more than 10% of its
investment portfolio concentrated in a single issuer or industry.
-11-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
(5) Income Taxes
The Company files a federal tax return as part of the consolidated
return of General Electric Capital Corporation ("GE Capital"). Under a
tax sharing agreement with GE Capital, taxes are allocated to the
Company and the Parent based upon their respective contributions to
consolidated net income. The Company's effective federal corporate tax
rate (20.6 percent in 1995, 21.3 percent in 1994 and 24.3 percent in
1993) is less than the corporate tax rate on ordinary income of 35
percent in 1995, 1994 and 1993.
Federal income tax expense (benefit) relating to operations of the
Company for 1995, 1994 and 1993 is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Current tax expense $28,913 $43,484 $59,505
Deferred tax expense 19,841 7,741 (7,284)
------- ------- -------
Federal income tax expense $48,754 $51,225 $52,221
======= ======= =======
</TABLE>
The following is a reconciliation of federal income taxes computed at
the statutory rate and the provision for federal income taxes (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
-------- ---------- ---------
<S> <C> <C> <C>
Income taxes computed on income
before provision for federal
income taxes, at the statutory rate $82,821 $84,334 $75,101
Tax effect of:
Tax-exempt interest (30,630) (30,089) (27,185)
Other, net (3,437) (3,020) 4,305
--------- --------- --------
Provision for income taxes $48,754 $51,225 $52,221
======= ======= =======
</TABLE>
-12-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 1995 and 1994
are presented below (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -------------
<S> <C> <C>
Deferred tax assets:
Unrealized losses on fixed maturity
securities, available-for-sale - $22,493
Loss reserves $ 8,382 16,136
Deferred compensation 5,735 9,685
Tax over book capital gains 1,069 365
Other 3,248 3,760
----------- -------------
Total gross deferred tax assets 18,434 52,439
----------- -------------
Deferred tax liabilities:
Unrealized gains on fixed maturity
securities, available-for-sale 34,346 -
Deferred acquisition costs 33,204 31,825
Premium revenue recognition 32,791 24,674
Rate differential on tax and loss bonds 9,454 9,454
Other 7,810 9,126
----------- -------------
Total gross deferred tax liabilities 117,605 75,079
----------- -------------
Net deferred tax liability $ 99,171 $22,640
=========== =============
</TABLE>
Based upon the level of historical taxable income, projections of
future taxable income over the periods in which the deferred tax assets
are deductible and the estimated reversal of future taxable temporary
differences, the Company believes it is more likely than not that it
will realize the benefits of these deductible differences and has not
established a valuation allowance at December 31, 1995 and 1994. The
company anticipates that the related deferred tax asset will be
realized.
Total federal income tax payments during 1995, 1994 and 1993 were $59.8
million, $10.1 million, and $29.4 million, respectively.
-13-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
(6) Reinsurance
The Company reinsures portions of its risk with other insurance
companies through quota share reinsurance treaties and, where
warranted, on a facultative basis. This process serves to limit the
Company's exposure on risks underwritten. In the event that any or all
of the reinsuring companies were unable to meet their obligations, the
Company would be liable for such defaulted amounts. The Company
evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from activities or economic
characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. The Company holds
collateral under reinsurance agreements in the form of letters of
credit and trust agreements in various amounts with various reinsurers
totaling $33.7 million that can be drawn on in the event of default.
Effective January 1, 1993, the Company adopted the Emerging Issues Task
Force Issue 93-6, "Accounting for Multiple-Year Retrospectively-Rated
Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"). EITF 93-6
requires that an asset be recognized by a ceding company to the extent
a payment would be received from the reinsurer based on the contract's
experience to date, regardless of the outcome of future events. To
reflect the adoption of EITF 93-6 in the accompanying financial
statements, an initial adjustment of $4.6 million, before applicable
income taxes, has been reflected in the 1993 income statement.
Net premiums earned are presented net of ceded earned premiums of $21.9
million, $39.0 million and $34.4 million for the years ended December
31, 1995, 1994 and 1993, respectively. Loss and loss adjustment
expenses incurred are presented net of ceded losses of $1.1 million,
$0.3 million and $9.1 million for the years ended December 31, 1995,
1994 and 1993, respectively.
-14-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
(7) Loss and Loss Adjustment Expenses
Activity in the reserve for loss and loss adjustment expenses is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1995 1994 1993
-------------- --------------- -----------------
<S> <C> <C> <C>
Balance at January 1, $98,746 $96,098 $44,834
Less reinsurance recoverable 14,472 14,168 5,128
------ -------- --------
Net balance at January 1, 84,274 81,930 39,706
Incurred related to:
Current year 26,681 15,133 -
Prior years (1,207) (437) (756)
Portfolio reserves (33,900) (11,050) 43,650
-------- -------- --------
Total Incurred (8,426) 3,646 42,894
------- -------- --------
Paid related to:
Current year (197) (382) -
Prior years (5,515) (920) (670)
------- --------- ---------
Total Paid (5,712) (1,302) (670)
------- --------- ---------
Net balance at December 31, 70,136 84,274 81,930
Plus reinsurance recoverable 7,672 14,472 14,168
-------- -------- --------
Balance at December 31, $77,808 $98,746 $96,098
======= ======= =======
</TABLE>
The changes in incurred portfolio reserves principally relate to
business written in prior years. The changes are based upon an
evaluation of the insured portfolio in light of current economic
conditions and other relevant factors.
-15-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
(8) Related Party Transactions
The Company has various agreements with subsidiaries of General
Electric Company ("GE") and GE Capital. These business transactions
include appraisal fees and due diligence costs associated with
underwriting structured finance mortgage-backed security business;
payroll and office expenses incurred by the Company's international
branch offices but processed by a GE subsidiary; investment fees
pertaining to the management of the Company's investment portfolio; and
telecommunication service charges. Approximately $3.2 million, $3.2
million and $1.0 million in expenses were incurred in 1995, 1994 and
1993, respectively, related to such transactions.
The Company also insured certain non-municipal issues with GE Capital
involvement as sponsor of the insured securitization and/or servicer of
the underlying assets. For some of these issues, GE Capital also
provides first loss protection in the event of default. Gross premiums
written on these issues amounted to $1.3 million in 1995, $2.5 million
in 1994, and $3.3 million in 1993.
The Company insures bond issues and securities in trusts that were
sponsored by affiliates of GE (approximately 1 percent of gross
premiums written in 1995 and 1994 and 2 percent in 1993).
(9) Compensation Plans
Officers and other key employees of the Company participate in the
Parent's incentive compensation, deferred compensation and profit
sharing plans. Expenses incurred by the Company under compensation
plans and bonuses amounted to $7.5 million, $12.2 million and $16.7
million in 1995, 1994 and 1993, respectively, before deduction for
related tax benefits.
(10) Dividends
Under New York insurance law, the Company may pay a dividend only from
earned surplus subject to the following limitations: (a) statutory
surplus after such dividend may not be less than the minimum required
paid-in capital, which was $2.1 million in 1995 and 1994, and (b)
dividends may not exceed the lesser of 10 percent of its surplus or 100
percent of adjusted net investment income, as defined by New York
insurance law, for the 12 month period ending on the preceding December
31, without the prior approval of the Superintendent of the New York
State Insurance Department. At December 31, 1995 and 1994, the amount
of the Company's surplus available for dividends was approximately
$100.2 million and $89.3 million, respectively.
During 1995, the company paid dividends of $25 million. No dividends
were paid during 1994 or 1993.
-16-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
===============================================================================
(ii) Financial Instruments
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
Fixed Maturity Securities: Fair values for fixed maturity securities
are based on quoted market prices, if available. If a quoted market price is not
available, fair values is estimated using quoted market prices for similar
securities. Fair value disclosure for fixed maturity securities is included in
the balance sheets and in Note 4.
Short-Term Investments: Short-term investments are carried at cost,
which approximates fair value.
Cash, Receivable for Securities Sold, and Payable for Securities
Purchased: The carrying amounts of these items approximate their fair values.
The estimated fair values of the Company's financial instruments at
December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------------ ----------------------
Carrying Fair Carrying Fair
amount Value amount Value
----------- ------ -------- ------
<S> <C> <C> <C> <C>
Financial Assets
Cash
On hand and in demand accounts $ 199 $ 199 $1,766 $1,766
Short-term investments 91,032 91,032 75,674 75,674
Fixed maturity securities 2,141,584 2,141,584 1,889,910 1,889,910
</TABLE>
Financial Guaranties: The carrying value of the Company's financial
guaranties is represented by the unearned premium reserve, net of
deferred acquisition costs, and loss and loss adjustment expense
reserves. Estimated fair values of these guaranties are based on
amounts currently charged to enter into similar agreements (net of
applicable ceding commissions), discounted cash flows considering
contractual revenues to be received adjusted for expected prepayments,
the present value of future obligations and estimated losses, and
current interest rates. The estimated fair values of such financial
guaranties range between $412.8 million and $456.2 million compared to
a carrying value of $540.6 million as of December 31, 1995 and between
$518.1 million and $565.9 million compared to a carrying value of
$585.1 million as of December 31, 1994.
-17-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
Concentrations of Credit Risk
The Company considers its role in providing insurance to be credit
enhancement rather than credit substitution. The Company insures only those
securities that, in its judgment, are of investment grade quality. The Company
has established and maintains its own underwriting standards that are based on
those aspects of credit that the Company deems important for the particular
category of obligations considered for insurance. Credit criteria include
economic and social trends, debt management, financial management and legal and
administrative factors, the adequacy of anticipated cash flows, including the
historical and expected performance of assets pledged for payment of securities
under varying economic scenarios and underlying levels of protection such as
insurance or overcollateralization.
In connection with underwriting new issues, the Company sometimes
requires, as a condition to insuring an issue, that collateral be pledged or, in
some instances, that a third-party guarantee be provided for a term of the
obligation insured by a party of acceptable credit quality obligated to make
payment prior to any payment by the Company. The types and extent of collateral
pledged varies, but may include residential and commercial mortgages, corporate
debt, government debt and consumer receivables.
As of December 31, 1995, the Company's total insured principal exposure
to credit loss in the event of default by bond issuers was $98.7 billion, net of
reinsurance of $20.7 billion. The Company's insured portfolio as of December 31,
1995 was broadly diversified by geography and bond market sector with no single
debt issuer representing more than 1% of the Company's principal exposure
outstanding, net of reinsurance.
As of December 31, 1995, the composition of principal exposure by type
of issue, net of reinsurance, was as follows (in millions):
<TABLE>
<CAPTION>
Net
Principal
Outstanding
------------
<S> <C>
Municipal:
General obligation $43,308.2
Special revenue 38,137.9
Industrial revenue 2,480.0
Non-municipal 14,734.2
----------
Total $98,660.3
==========
</TABLE>
-18-
<PAGE>
<PAGE>
Financial Guaranty Insurance
Company Notes to Financial Statements (Continued)
================================================================================
The Company is authorized to do business in 50 states, the District of
Columbia, and in the United Kingdom and France. Principal exposure outstanding
at December 31, 1995 by state, net of reinsurance, was as follows (in millions):
<TABLE>
<CAPTION>
Net
Principal
Outstanding
-----------
<S> <C>
California $10,440.2
Florida 8,869.3
Pennsylvania 8,653.4
New York 7,706.7
Illinois 5,697.5
Texas 5,478.7
New Jersey 4,181.9
Michigan 3,385.9
Arizona 2,776.9
Ohio 2,327.7
---------
Sub-total 59,518.2
Other states and International 39,142.1
---------
Total $98,660.3
=========
</TABLE>
(12) Commitments
Total rent expense was $2.2 million, $2.6 million and $2.4 million in
1995, 1994 and 1993, respectively. For each of the next five years and
in the aggregate as of December 31, 1995, the minimum future rental
payments under noncancellable operating leases having remaining terms
in excess of one year approximate (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 2,297
1997 2,909
1998 2,909
1999 2,909
2000 2,909
Subsequent to 2000 2,911
-----
Total minimum future rental payments $16,844
=======
</TABLE>
-19-
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
================================================================================
UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 1996
Balance Sheets 1
Statements of Income 2
Statements of Cash Flows. 3
Notes to Unaudited Interim Financial Statements. 4
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE
COMPANY BALANCE SHEETS
($ in Thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Fixed maturity securities, available for sale, at fair value
(amortized cost of $2,066,231 in 1996 and $2,043,453 in 1995) $2,057,812 $2,141,584
Short-term investments, at cost, which approximates market 133,832 91,032
Cash 1,294 199
Accrued investment income 37,753 37,347
Reinsurance receivable 7,358 7,672
Deferred policy acquisition costs 93,100 94,868
Property, plant and equipment net of
accumulated depreciation of $14,094 in
1996 and $12,861 in 1995 5,573 6,314
Prepaid reinsurance premiums 156,055 162,088
Prepaid expenses and other assets 50,908 39,198
------------- ------------
Total assets $2,543,685 $2,580,302
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums 698,149 727,535
Losses and loss adjustment expenses 71,034 77,808
Ceded reinsurance payable 2,777 1,942
Accounts payable and accrued expenses 38,035 32,811
Due to parent 267 1,647
Current federal income taxes payable 67,077 51,296
Deferred federal income taxes payable 63,850 99,171
Payable for securities purchased 32,186 40,211
------------- ------------
Total liabilities 973,375 1,032,421
============= ============
Stockholder's Equity:
Common stock, par value $1,500 per share at June 30,
1996 and at December 31, 1995: 10,000 shares authorized,
issued and outstanding 15,000 15,000
Additional paid-in capital 334,011 334,011
Net unrealized (losses) gains on fixed maturity securities
available for sale, net of tax (5,472) 63,785
Foreign currency translation adjustment (2,296) (1,499)
Retained earnings 1,229,067 1,136,584
------------- ------------
Total stockholder's equity 1,570,310 1,547,881
------------- ------------
Total liabilities and stockholder's equity $2,543,685 $2,580,302
============= ============
</TABLE>
See accompanying notes to interim financial statements
-1-
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE
COMPANY STATEMENTS OF INCOME
($ in Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
(UNAUDITED)
<S> <C> <C>
REVENUES:
Gross premiums written $ 45,481 $ 42,773
Ceded premiums (6,643) (5,965)
----------- ----------
Net premiums written 38,838 36,808
Decrease in net unearned premiums 23,353 18,136
----------- ----------
Net premiums earned 62,191 54,944
Net investment income 61,513 59,327
Net realized gains 8,348 17,446
----------- ----------
Total revenues 132,052 131,717
----------- ----------
EXPENSES:
Losses and loss adjustment expenses (2,702) 815
Policy acquisition costs 9,637 5,308
Other underwriting expenses 7,561 8,662
----------- ----------
Total expenses 14,496 14,785
----------- ----------
Income before provision for federal income taxes 117,556 116,932
Provision for federal income taxes 25,071 25,066
----------- ----------
Net income $ 92,485 $ 91,866
=========== ==========
</TABLE>
See accompanying notes to interim financial statements
-2-
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE
COMPANY STATEMENTS OF CASH FLOW
($ in Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
(UNAUDITED)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 92,485 $ 91,866
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for deferred income taxes 2,400 11,991
Amortization of fixed maturity securities 398 1,096
Policy acquisition costs deferred (8,565) (10,254)
Amortization of deferred policy acquisition costs 10,333 5,308
Depreciation of fixed assets 1,233 1,167
Change in reinsurance receivable 314 4,569
Change in prepaid reinsurance premiums 6,033 5,877
Foreign currency translation adjustment (1,226) 972
Change in accrued investment income, prepaid
expenses and other assets (12,116) (3,483)
Change in unearned premiums (29,386) (24,013)
Change in losses and loss adjustment expense reserves (6,774) (4,617)
Change in other liabilities 4,678 (11,076)
Change in current income taxes payable 15,781 (9,625)
Net realized gains on investments (8,348) (17,446)
---------- ----------
Net cash provided by operating activities 67,240 42,332
---------- ----------
Investing activities:
Sales or maturities of fixed maturity securities 406,676 478,328
Purchases of fixed maturity securities (429,529) (413,181)
Sales or maturities (purchases) of short-term investments, (42,800) (102,414)
net
Purchases of property and equipment, net (492) (354)
---------- ----------
Net cash used for investing activities (66,145) (37,621)
---------- ----------
Increase (decrease) in cash 1,095 4,711
Cash at beginning of period 199 1,766
---------- ----------
Cash at end of period $ 1,294 $ 477
========== ==========
</TABLE>
See accompanying notes to interim financial statements
-3-
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE
COMPANY NOTES TO FINANCIAL STATEMENTS
June 30, 1996 and 1995
(Unaudited)
(1) BASIS OF PRESENTATION
The interim financial statements of Financial Guaranty Insurance
Company (the Company) in this report reflect all adjustments
necessary, in the opinion of management, for a fair statement of
(a) results of operations for the six months ended June 30, 1996
and 1995, (b) the financial position at June 30, 1996 and
December 31, 1995, and (c) cash flows for the six months ended
June 30, 1996 and 1995.
These interim financial statements should be read in conjunction
with the financial statements and related notes included in the
1995 audited financial statements. The 1995 financial statements
have been reclassified to conform to the 1996 presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(2) STATUTORY ACCOUNTING PRACTICES
The financial statements are prepared on the basis of GAAP, which
differs in certain respects from accounting practices prescribed
or permitted by state insurance regulatory authorities. The
following are the significant ways in which statutory basis
accounting practices differ from GAAP:
(a) premiums are earned in proportion to the reduction of the
related risk rather than in proportion to the coverage
provided;
(b) policy acquisition costs are charged to current operations
as incurred rather than as related premiums are earned;
(c) a contingency reserve is computed on the basis of statutory
requirements for the security of all policyholders,
regardless of whether loss contingencies actually exist,
whereas under GAAP, a reserve is established based on an
ultimate estimate of exposure;
(d) certain assets designated as "non-admitted assets" are
charged directly against surplus but are reflected as
assets under GAAP, if recoverable;
(e) federal income taxes are only provided with respect to
taxable income for which income taxes are currently
payable, while under GAAP taxes are also provided for
differences between the financial reporting and tax bases
of assets and liabilities;
(f) purchases of tax and loss bonds are reflected as admitted
assets, while under GAAP they are recorded as federal
income tax payments; and
(g) all fixed income investments are carried at amortized cost,
rather than at fair value for securities classified as
"Available for Sale" under GAAP.
-4 -
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE
COMPANY NOTES TO FINANCIAL STATEMENTS
================================================================================
The following is a reconciliation of the net income and stockholder's equity of
Financial Guaranty prepared on a GAAP basis to the corresponding amounts
reported on a statutory basis for the periods indicated below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
NET STOCKHOLDER'S NET STOCKHOLDER'S
INCOME EQUITY INCOME EQUITY
------ -------- ------ -----
<S> <C> <C> <C> <C>
GAAP basis amount $92,485 $1,570,310 $ 91,866 $1,441,820
Premium revenue recognition (4,061) (170,988) (9,905) (154,322)
Deferral of acquisition costs 1,768 (93,100) (4,946) (95,874)
Contingency reserve - (415,603) - (357,817)
Non-admitted assets - (4,837) - (6,579)
Case-basis losses incurred and salvage
recoverable (3,394) (3,446) 6,631 2,531
Portfolio loss reserves - 24,000 (10,900) 35,200
Deferral of income tax 2,400 66,796 11,991 57,466
Unrealized gains on fixed maturity
securities held at fair value, net of taxes - 5,472 - (27,827)
Profit commission 1,273 (4,471) 4,909 (3,931)
Contingency reserve tax deduction - 85,176 - 78,196
Provision for unauthorized reinsurance - - - (266)
Allocation of tax benefits due to Parent's
net operating loss to the Company (4) 10,287 244 9,898
-------- ---------- ------- --------
Statutory basis amount $ 90,467 $1,069,596 $89,845 $978,495
======== ========== ======= ========
</TABLE>
-5-
<PAGE>
<PAGE>
FINANCIAL GUARANTY INSURANCE
COMPANY NOTES TO FINANCIAL STATEMENTS
June 30, 1996 and 1995
(Unaudited)
(3) DIVIDENDS
Under New York Insurance Law, the Company may pay a dividend only
from earned surplus subject to the following limitations:
-- Statutory surplus after dividends may not be less than the
minimum required paid-in capital, which was $2,100,000 in
1996.
-- Dividends may not exceed the lesser of 10 percent of its
surplus or 100 percent of adjusted net investment income,
as defined therein, for the twelve month period ending on
the preceding December 31, without the prior approval of
the Superintendent of the New York State Insurance
Department.
The amount of the Company's surplus available for dividends
during 1996 is approximately $106.2 million.
(4) INCOME TAXES
The Company's effective Federal corporate tax rate (21.3 percent
and 21.4 percent for the six months ended June 30, 1996 and 1995,
respectively) is less than the statutory corporate tax rate (35
percent in 1996 and 1995) on ordinary income due to permanent
differences between financial and taxable income, principally
tax-exempt interest.
(5) REINSURANCE
In accordance with Statement of Financial Accounting Standards
No. 113 ("SFAS 113"), "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts", adopted in 1993,
the Company reports assets and liabilities relating to reinsured
contracts gross of the effects of reinsurance. Net premiums
earned are shown net of premiums ceded of $12.7 million and $11.6
million, respectively, for the six months ended June 30, 1996 and
1995.
- 6 -
<PAGE>
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
1933 Act ..............................................................................3
Accrual Period ..............................................................................8
AFL .............................................................................18
Appraised Values........................................................................23, 29
Auction Sale .............................................................................13
Balloon Loans ..............................................................................6
Beneficial Certificate Owner................................................................12
Book-Entry Certificates.....................................................................47
Cargill .............................................................................18
Cede ..........................................................................3, 12
CEDEL .............................................................................12
CEDEL Participants..........................................................................48
Certificate Account.........................................................................43
Certificateholder............................................................................3
Certificates ..........................................................................5, 41
CFSC .............................................................................18
Citibank .............................................................................12
Class .............................................................................41
Class A Carry-Forward Amount................................................................11
Class A Certificate Principal Balance.......................................................11
Class A Certificates.....................................................................5, 41
Class A Distribution Amount.................................................................11
Class A Group I Certificate Principal Balance...............................................11
Class A Group I Certificates.............................................................5, 41
Class A Group II Certificate Principal Balance..............................................11
Class A Insured Distribution Amount.........................................................12
Class A Interest Distribution Amount.........................................................9
Class A Principal Distribution Amount........................................................9
Class A-1 Group I Certificates..............................................................41
Class A-1 Pass-Through Rate..................................................................7
Class A-2 Group I Certificates..............................................................41
Class A-3 Group I Certificates..............................................................41
Class A-4 Group I Certificates..............................................................41
Class A-5 Group I Certificates..............................................................41
Class A-6 Formula Pass-Through Rate..........................................................8
Class A-6 Group II Certificates..........................................................5, 41
Class A-6 Pass-Through Rate..................................................................8
Class B Certificates.........................................................................5
Class B Group I Certificates.................................................................5
Class B Group II Certificates................................................................5
Class B Interest............................................................................45
Closing Date ..............................................................................4
Combined Loan-to-Value Ratio............................................................22, 29
Commission ..............................................................................3
Compensating Interest.......................................................................53
Cooperative .............................................................................49
Coupon Rates ..............................................................................6
Cut-Off Date .......................................................................4, 5, 19
D&P .............................................................................69
Definitive Certificate......................................................................47
Delinquency Advances........................................................................43
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Description of the Certificates..............................................................5
Disqualified persons........................................................................68
DTC ..........................................................................3, 12
DTC Participants............................................................................48
ERISA .........................................................................14, 68
ERISA Plan .............................................................................68
Euroclear .............................................................................12
Euroclear Operator..........................................................................49
Euroclear Participants......................................................................49
European Depositaries.......................................................................47
European Depositories.......................................................................12
Event of Default............................................................................55
Excluded Plan .............................................................................68
Exemption .........................................................................14, 68
Financial Intermediary......................................................................47
Fitch .............................................................................69
GE Capital .............................................................................64
Global Securities............................................................................1
Group I ..............................................................................6
Group I Available Funds Pass-Through Rate....................................................7
Group I Interest Remittance Amount..........................................................42
Group I Monthly Remittance..................................................................42
Group I Principal Remittance Amount.........................................................42
Group I Subordination Deficit...............................................................45
Group I Total Available Funds...............................................................46
Group II ..............................................................................6
Group II Interest Remittance Amount.........................................................42
Group II Monthly Remittance.................................................................42
Group II Principal Remittance Amount........................................................42
Group II Subordination Deficit..............................................................45
Group II Total Available Funds..............................................................46
Insurance Proceeds..........................................................................10
Insured Payment.............................................................................43
Interest Determination Date.................................................................44
Interest Remittance Amount..................................................................42
LIBOR ..........................................................................7, 44
Liquidated Mortgage Loan....................................................................54
Liquidation Proceeds........................................................................10
LSI .............................................................................18
Master Servicer.............................................................................50
Monthly Remittance..........................................................................42
Moody's .............................................................................69
Morgan .............................................................................12
Mortgage Loan Group......................................................................6, 19
Mortgaged Properties........................................................................19
Mortgages ..............................................................................6
Mortgagors .............................................................................36
Net Liquidation Proceeds....................................................................10
Non-U.S. Person..............................................................................4
Notes .............................................................................19
Original Group I Pool Principal Balance......................................................6
Original Group II Pool Principal Balance.....................................................6
Original Pool Principal Balance..............................................................6
Original Variable Rate Pool Principal Balance
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Original Variable Rate Pool Principal Balance........................................4
Owner ..............................................................................3
Participants .............................................................................47
Parties in interest.........................................................................68
Payment Date ..........................................................................8, 41
Percentage Interest.........................................................................42
Plans .........................................................................14, 68
Pooling and Servicing Agreement..........................................................5, 41
Preference Amounts..........................................................................66
Preference Order............................................................................66
Prepayments .........................................................................10, 16
Principal and Interest Account..............................................................42
Principal Remittance Amount.................................................................42
Properties .............................................................................19
Qualifying Rate.............................................................................35
Record Date ..............................................................................8
Reference Banks.............................................................................44
Released Mortgaged Property Proceeds........................................................10
Relevant Depositary.........................................................................47
REMICs .............................................................................67
Remittance Date.............................................................................42
Remittance Period...........................................................................42
Reserve Interest Rate.......................................................................44
Residual Certificates....................................................................5, 41
Restricted Group............................................................................68
Reuters Screen LIBO Page....................................................................44
Rules .............................................................................47
S&P .............................................................................69
Seller ..........................................................................4, 18
Seller Optional Termination Date............................................................13
Servicing Advances..........................................................................54
Servicing Fee .............................................................................13
SMMEA .........................................................................15, 71
Specified Subordinated Amount...............................................................45
Sponsor ..............................................................................4
Subordinated Amount.........................................................................45
Subordination Deficiency....................................................................45
Subordination Increase Amount...............................................................46
Subordination Reduction Amount..............................................................46
Terms and Conditions........................................................................49
The Mortgage Loan Pool.......................................................................5
Total Available Funds.......................................................................46
Trust ..............................................................................4
Trust Estate .............................................................................60
Trustee ..............................................................................4
U.S. Person ..............................................................................4
Underwriters .............................................................................71
Underwriting Agreement......................................................................71
Weighted average life.......................................................................37
</TABLE>
iii
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
__________________________________ _________________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER
OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE SPONSOR, THE SELLER, OR THE CERTIFICATE INSURER SINCE SUCH
DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Available Information........................................................................................................ S-3
Reports to the Holders....................................................................................................... S-3
Summary...................................................................................................................... S-4
Risk Factors................................................................................................................. S-16
Use of Proceeds.............................................................................................................. S-17
The Seller and Master Servicer............................................................................................... S-18
The Mortgage Loan Pool....................................................................................................... S-19
Maturity, Prepayment and Yield Considerations................................................................................ S-36
Description of the Certificates.............................................................................................. S-41
The Trustee.................................................................................................................. S-59
The Certificate Insurance Policy and the Certificate Insurer................................................................. S-63
Federal Income Tax Consequences.............................................................................................. S-66
ERISA Considerations......................................................................................................... S-68
Ratings...................................................................................................................... S-71
Legal Investment Considerations.............................................................................................. S-71
Underwriting................................................................................................................. S-71
Experts...................................................................................................................... S-72
Certain Legal Matters........................................................................................................ S-72
Annex I...................................................................................................................... I-1
Appendix A -- Audited Financial Statements of Certificate Insurer............................................................ A-1
Appendix B -- Unaudited Financial Statements of Certificate Insurer.......................................................... B-1
Index of Principal Definitions............................................................................................... i
PROSPECTUS
Incorporation of Certain Documents by Reference.............................................................................. 5
Summary of Prospectus........................................................................................................ 6
Risk Factors................................................................................................................. 15
The Trusts................................................................................................................... 20
The Mortgage Pools........................................................................................................... 27
Mortgage Loan Program........................................................................................................ 29
Description of the Securities................................................................................................ 37
Subordination................................................................................................................ 52
Description of Credit Enhancement............................................................................................ 53
Hazard Insurance: Claims Thereunder.......................................................................................... 59
The Sponsor.................................................................................................................. 60
The Servicer................................................................................................................. 60
The Pooling and Servicing Agreement.......................................................................................... 60
The Trustee.................................................................................................................. 64
Yield Considerations......................................................................................................... 66
Maturity and Prepayment Considerations....................................................................................... 68
Certain Legal Aspects of the Mortgage Loans and Related Matters.............................................................. 70
Certain Federal Income Tax Consequences...................................................................................... 77
ERISA Considerations......................................................................................................... 103
Legal Investment Matters..................................................................................................... 106
Use of Proceeds.............................................................................................................. 107
Methods of Distribution...................................................................................................... 107
Legal Matters................................................................................................................ 108
Additional Information....................................................................................................... 109
Index of Principal Definitions............................................................................................... 110
</TABLE>
------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT OR A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
ACCESS FINANCIAL'tm'
MORTGAGE LOAN TRUST
1996-3
$206,597,000
MORTGAGE LOAN PASS-THROUGH
CERTIFICATES,
SERIES 1996-3
$44,843,000 Class A-1 Group I Certificates,
Variable Pass-Through Rate
$28,572,000 Class A-2 Group I Certificates,
6.900% Pass-Through Rate
$13,552,000 Class A-3 Group I Certificates,
7.250% Pass-Through Rate
$10,000,000 Class A-4 Group I Certificates,
7.500% Pass-Through Rate
$10,744,000 Class A-5 Group I Certificates,
7.600% Pass-Through Rate
$98,886,000 Class A-6 Group II Certificates,
Variable Pass-Through Rate
ACCESS FINANCIAL LENDING CORP.
SELLER AND MASTER SERVICER
FINANCIAL GUARANTY INSURANCE
[Logo] COMPANY
FGIC is a registered service mark used by Financial Guaranty Insurance Company,
a private company not affiliated with any U.S. Government agency.
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PROSPECTUS SUPPLEMENT
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PRUDENTIAL SECURITIES INCORPORATED
J.P. MORGAN & CO.
August 23, 1996
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STATEMENT OF DIFFERENCES
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The trademark symbol shall be expressed as..................... 'tm'
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