<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 7, 1994)
$146,199,929 (APPROXIMATE)
GREEN TREE FINANCIAL CORPORATION, SELLER AND SERVICER
CERTIFICATES FOR HOME IMPROVEMENT LOANS
SERIES 1994-CI
<TABLE>
<S> <C>
$101,600,000 (APPROXIMATE) 7.45% CLASS A-1 $ 9,400,000 (APPROXIMATE) 8.8% CLASS B-1
$ 12,000,000 (APPROXIMATE) 8.5% CLASS M-1 $10,717,766 (APPROXIMATE) 8.9% CLASS B-2
</TABLE>
SERIES 1994-CII
$12,482,163 (APPROXIMATE) 8.1% CLASS A-2
(PRINCIPAL AND INTEREST PAYABLE ON THE 15TH DAY OF EACH MONTH BEGINNING IN
OCTOBER 1994)
--------------------
The Certificates for Home Improvement Loans offered hereby (the
'Certificates') will be issued by two separate trusts. The Class A-1, Class M-1,
Class B-1 and Class B-2 Certificates (collectively, the 'Series 1994-CI
Certificates') will be issued by, and evidence beneficial ownership interests
in, Home Improvement Loan Trust 1994-CI (the 'Series 1994-CI Trust'), and the
Class A-2 Certificates (which Certificates are also referred to herein as the
'Series 1994-CII Certificates') will be issued by, and evidence beneficial
ownership interests in, Home Improvement Loan Trust 1994-CII (the 'Series
1994-CII Trust' and, together with the Series 1994-CI Trust, the 'Trusts').
The Series 1994-CI Trust will be created by Green Tree Financial Corporation
(the 'Company') pursuant to a Pooling and Servicing Agreement, dated as of
September 1, 1994 (the 'Series 1994-CI Agreement') between the Company and First
Trust National Association, as Trustee (the 'Series 1994-CI Trustee'). The
Series 1994-CI Trust property will consist primarily of a pool of home
improvement contracts and promissory notes (the 'Series 1994-CI Contracts'),
including the right to receive payments due on the Series 1994-CI Contracts on
and after September 1, 1994 (the 'Cut-off Date'), liens on the related real
estate and amounts held for the Series 1994-CI Trust in the Series 1994-CI
Certificate Account. Each of the Series 1994-CI Contracts are secured by a
first, second or third-priority lien on the related improved real estate. The
rights of the holders of the Class M-1, Class B-1 and Class B-2 Certificates to
receive distributions of interest and principal on each Payment Date will be
subordinated to such rights of the holders of the Class A-1 Certificates and, in
addition, to such rights of the holders of the Class M-1 Certificates (in the
case of the Class B-1 and Class B-2 Certificates) and of the Class B-1
Certificates (in the case of the Class B-2 Certificates), all to the extent
described herein.
The Series 1994-CII Trust will be created by the Company pursuant to a
Pooling and Servicing Agreement, dated as of September 1, 1994 (the 'Series
1994-CII Agreement') between the Company and First Trust National Association,
as Trustee (the 'Series 1994-CII Trustee'). The Series 1994-CII Trust property
will consist primarily of a pool of home improvement contracts and promissory
notes (the 'Series 1994-CII Contracts'), including the right to receive payments
due on the Series 1994-CII Contracts on and after the Cut-off Date, and amounts
held for the Series 1994-CII Trust in the Series 1994-CII Certificate Account.
The Series 1994-CII Contracts are not secured by any mortgage or other lien on
the related improved real estate.
(Continued on next page)
--------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE RELATED TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE COMPANY, EXCEPT TO THE LIMITED EXTENT
DESCRIBED HEREIN AND IN THE PROSPECTUS. THE CERTIFICATES DO NOT
REPRESENT OBLIGATIONS OF, AND WILL NOT BE INSURED OR GUARANTEED
BY, FHA OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Class A-1 Certificate..................................................... 99.76525% .45% 99.31525%
Per Class M-1 Certificate..................................................... 99.875% .6% 99.275%
Per Class B-1 Certificate..................................................... 99.734375% .75% 98.984375%
Per Class B-2 Certificate..................................................... 99.75% .875% 98.875%
Per Class A-2 Certificate..................................................... 99.796875% .65% 99.146875%
Total......................................................................... $145,869,305.44 $744,614.51 $145,094,690.93
</TABLE>
(1) Plus accrued interest from and including September 29, 1994.
(2) Before deducting expenses, estimated to be $325,000.
--------------------
The Certificates are offered subject to prior sale, when, as and if issued
by the Trusts and accepted by the Underwriter and subject to its right to reject
orders in whole or in part. It is expected that delivery of the Certificates
will be made in book-entry form only through the Same Day Funds Settlement
system of The Depository Trust Company on or about September 29, 1994 (the
actual such date being hereinafter referred to as the 'Closing Date').
--------------------
MERRILL LYNCH & CO.
--------------------
The date of the Prospectus Supplement is September 23, 1994
<PAGE>
(Continued from previous page)
The Class B-2 Certificateholders will have the benefit of a limited
guaranty of the Company (the 'Class B-2 Limited Guaranty') to protect against
losses that would otherwise be absorbed by the Class B-2 Certificateholders. To
the extent that funds in the Series 1994-CI Certificate Account are insufficient
to distribute to the holders of the Class B-2 Certificates the Class B-2 Formula
Distribution Amount (as described herein), the Company will be obligated to pay
the Class B-2 Guaranty Payment (as described herein). See 'Description of the
Class B-2 Limited Guaranty' herein.
The Series 1994-CII Certificateholders will have the benefit of a limited
guaranty of the Company (the 'Series 1994-CII Limited Guaranty') to protect
against losses that would otherwise be absorbed by the Series 1994-CII
Certificateholders, subject to the limit of the Series 1994-CII Guaranty Amount
(as described herein). To the extent that funds in the Series 1994-CII
Certificate Account are insufficient to distribute to the holders of the Series
1994-CII Certificates the Series 1994-CII Formula Distribution Amount (as
described herein), the Company will be obligated (subject to the limit of the
Series 1994-CII Guaranty Amount) to pay the Series 1994-CII Guaranty Payment (as
described herein). The Series 1994-CII Guaranty Amount initially equals
$1,154,601 and will be reduced by Net Liquidation Losses (as described herein)
experienced on the Series 1994-CII Contracts. See 'Description of the Series
1994-CII Limited Guaranty' herein.
Principal and interest with respect to the Certificates are distributable
on the fifteenth day of each month or, if such fifteenth day is not a business
day, the first business day thereafter, beginning in October 1994. The Company
will act as servicer (in such capacity, the 'Servicer') of the Series 1994-CI
Contracts and the Series 1994-CII Contracts (collectively, the 'Contracts'). The
final scheduled Payment Date of each Series of Certificates is in October 2014.
See 'Description of the Certificates' herein and in the Prospectus.
An election will be made to treat the Series 1994-CI Trust as a real estate
mortgage investment conduit ('REMIC') for federal income tax purposes. As
described more fully herein, the Series 1994-CI Certificates will constitute
'regular interests' in the REMIC and the Class C Certificate, which is not being
offered hereby, will constitute 'residual interests' in the REMIC. See 'Certain
Federal Income Tax Consequences' herein and in the Prospectus.
There is currently no secondary market for the Certificates offered hereby,
and there is no assurance that any such market will develop or, if it does
develop, that it will continue. Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the 'Underwriter') expects, but is not obligated, to make a market
in the Certificates.
For a discussion of certain factors which should be considered by
prospective purchasers of the Certificates, see 'Special Considerations' herein
and in the Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Until December 22, 1994, all dealers effecting transactions in the
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus. This delivery requirement 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.
The Certificates offered hereby constitute Classes of two separate Series
of Certificates for Home Improvement Loans being offered by the Company from
time to time pursuant to the Prospectus. This Prospectus Supplement does not
contain complete information about the offering of the Certificates. Additional
information is contained in the Prospectus and purchasers are urged to read both
this Prospectus Supplement and the Prospectus in full. Sales of the Certificates
may not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus. To the extent that any statements in this
Prospectus Supplement conflict with statements contained in the Prospectus, the
statements in this Prospectus Supplement shall control.
S-2
<PAGE>
SUMMARY OF THE TERMS OF THE CERTIFICATES
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned them in the Prospectus and in
Article I of the Series 1994-CI Agreement and the Series 1994-CII Agreement
(collectively, the 'Agreements'), copies of which are available upon request
made to the Company.
<TABLE>
<S> <C>
Securities Offered........................... Certificates for Home Improvement Loans, Series 1994-CI and Series
1994-CII. The Class A-1, Class M-1, Class B-1 and Class B-2
Certificates (collectively, the 'Series 1994-CI Certificates')
will be issued by, and evidence beneficial ownership interests
in, Home Improvement Loan Trust 1994-CI (the 'Series 1994-CI
Trust'), the property of which consists primarily of the Series
1994-CI Contracts, having an aggregate principal balance as of
the Cut-off Date of $133,717,766.58, and all rights, benefits,
obligations and proceeds arising therefrom or in connection
therewith, including liens on the related improved real estate,
and the Class B-2 Limited Guaranty for the benefit of the Class
B-2 Certificateholders. The Class A-2 Certificates (which are
also referred to herein as the 'Series 1994-CII Certificates')
will be issued by, and evidence beneficial ownership interests
in, Home Improvement Loan Trust 1994-CII (the 'Series 1994-CII
Trust' and, together with the Series 1994-CI Trust, the
'Trusts'), the property of which consists primarily of the
Series 1994-CII Contracts, having an aggregate principal balance
as of the Cut-off Date of $12,482,163.33, all rights, benefits,
obligations and proceeds arising therefrom or in connection
therewith.
Series 1994-CI Trustee and Series 1994-CII
Trustee.................................... First Trust National Association, St. Paul, Minnesota.
Seller and Servicer.......................... Green Tree Financial Corporation.
Payment Date................................. The fifteenth day of each month or, if such day is not a business
day, the next succeeding business day, commencing in October
1994.
Cut-off Date................................. September 1, 1994.
Record Date.................................. The Business Day immediately preceding the related Payment Date.
Original Series 1994-CI Principal Balance.... $133,717,766 (approximate).
Original Class A-1 Principal Balance.... $101,600,000 (approximate).
Original Class M-1 Principal Balance.... $12,000,000 (approximate).
Original Class B-1 Principal Balance.... $9,400,000 (approximate).
Original Class B-2 Principal Balance.... $10,717,766 (approximate).
Original Series 1994-CII Principal Balance... $12,482,163 (approximate).
Class A-1 Pass-Through Rate.................. 7.45% per annum.
Class M-1 Pass-Through Rate.................. 8.5% per annum.
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Class B-1 Pass-Through Rate.................. 8.8% per annum, subject to a maximum rate equal to the effective
weighted average of the Contract Rates (as defined herein) on
the Series 1994-CI Contracts.
Class B-2 Pass-Through Rate.................. 8.9% per annum, subject to a maximum rate equal to the effective
weighted average of the Contract Rates on the Series 1994-CI
Contracts.
Series 1994-CII Pass-Through Rate............ 8.1% per annum.
Description of Certificates.................. The Class A-1 Certificates are Senior Certificates and the Class
M-1, Class B-1 and Class B-2 Certificates are Subordinated
Certificates, all as described herein, and are issued by, and
payable solely from the property of, the Series 1994-CI Trust.
The Series 1994-CII Certificates are issued in a single Class
by, and are payable solely from the property of, the Series
1994-CII Trust. The undivided percentage interest of the holder
of any Certificate in the distributions to be made to the
related Class (the 'Percentage Interest') will be equal to the
percentage obtained from dividing the denomination specified on
such Certificate by the Original Class A-1 Principal Balance,
Original Class M-1 Principal Balance, Original Class B-1
Principal Balance, Original Class B-2 Principal Balance or
Original Series 1994-CII Principal Balance, as appropriate.
Distributions................................ Holders of the Certificates will be entitled to receive on each
Payment Date, to the extent that the Amount Available in the
Certificate Account for the applicable Trust (together with, in
the case of the Class B-2 Certificates, the Class B-2 Guaranty
Payment, and, in the case of the Series 1994-CII Certificates,
the Series 1994-CII Guaranty Payment, as described below) is
sufficient therefor, distributions allocable to interest and
principal, as described herein. Distributions will be made on
each Payment Date to holders of record of the Certificates on
the preceding Record Date, except that the final distribution in
respect of the Certificates will be made only upon presentation
and surrender of the Certificates at the office or agency
appointed by the applicable Trustee for that purpose in
Minneapolis or St. Paul, Minnesota. The Amount Available for
either Trust on each Payment Date generally includes scheduled
payments on the related Contracts due during the previous
calendar month (the 'Due Period') and received on or prior to
the related Determination Date, prepayments and other
unscheduled collections received on the related Contracts during
such Due Period, any Advances (as defined herein) made by the
Servicer or the related Trustee with respect to such Due Period
and any amounts paid by the Company to repurchase a related
Contract due to a breach of representation or warranty.
Distributions on the Series 1994-CI
Certificates............................... The Amount Available in the Series 1994-CI Certificate Account
with respect to any Payment Date will be applied first to the
distribution of interest on the Series 1994-CI Certificates, and
then to the distribution of
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
principal on the Series 1994-CI Certificates, in the manner and
order of priority described below.
Interest................................ Interest will be distributable first to the Class A-1
Certificates, then to the Class M-1 Certificates, then to the
Class B-1 Certificates, and then to the Class B-2 Certificates.
Interest on each Class of Series 1994-CI Certificates will be
payable on each Payment Date in an amount equal to one month's
interest at the applicable Pass-Through Rate on the outstanding
Principal Balance of such Class immediately prior to such
Payment Date; provided that, in the case of the first Payment
Date, such interest will be payable only for the period from the
Closing Date to but excluding October 15, 1994. The 'Principal
Balance' of any Class with respect to any Payment Date will
equal the Original Principal Balance of such Class minus all
distributions previously made in respect of principal on such
Class. Accrued interest will be computed on the basis of a
360-day year of twelve 30-day months.
In the event that, on a particular Payment Date, the Amount
Available in the Series 1994-CI Certificate Account (after
payment of interest on each Class of Series 1994-CI Certificates
that is senior to such Class of Series 1994-CI Certificates),
together with (in the case of the Class B-2 Certificates) any
related Class B-2 Guaranty Payment, is not sufficient to make a
full distribution of interest to the holders of a Class of
Series 1994-CI Certificates, the amount of the shortfall will be
carried forward and added to the amount such holders will be
entitled to receive on the next Payment Date. Any such amount so
carried forward will bear interest at the applicable
Pass-Through Rate, to the extent legally permissible. See
'Description of the Certificates.'
Principal............................... Each Class of Series 1994-CI Certificates will be entitled to
receive on each Payment Date as distributions of principal, in
the order of priority set forth below and to the extent of the
Amount Available in the Series 1994-CI Certificate Account after
payment of all interest then distributable on the Series 1994-CI
Certificates, an amount equal to the sum (such sum being
hereinafter referred to as the 'Series 1994-CI Monthly
Principal') of (a) the amount of regular principal payments on
Series 1994-CI Contracts paid or applied during the prior Due
Period; (b) the amount of then distributable Principal
Prepayments received on Series 1994-CI Contracts during the
prior Due Period; (c) the principal portion of all payments on
Series 1994-CI Contracts that were Delinquent Payments with
respect to the prior Due Period; (d) the unpaid principal
balance of all Series 1994-CI Contracts that became Liquidated
Contracts during the prior Due Period; (e) the principal portion
of the Repurchase Price paid by the Company to repurchase Series
1994-CI Contracts for breach of representations and warranties
with respect to the prior Due Period, as
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
described in this Summary under 'Repurchases by the Company';
(f) the amount of any reduction in the principal amount deemed
owed on any Series 1994-CI Contract as a result of the Obligor's
bankruptcy; and (g) any principal amount described in clauses
(a) through (f) above that was not previously distributed
because of an insufficient amount of funds available in the
Series 1994-CI Certificate Account to the extent that either (i)
such Payment Date occurs on or after the Payment Date on which
the Class B-2 Principal Balance has been reduced to zero, or
(ii) such principal amount was not covered by a Class B-2
Guaranty Payment and corresponding reduction in the Class B-2
Principal Balance.
The Series 1994-CI Monthly Principal will be distributed, to the
extent of the Amount Available in the Series 1994-CI Certificate
Account after payment of interest on each Class of Series
1994-CI Certificates, first, to the Class A-1 Certificateholders
until the Class A-1 Principal Balance is reduced to zero, then
to the Class M-1 Certificateholders until the Class M-1
Principal Balance is reduced to zero, then to the Class B-1
Certificateholders until the Class B-1 Principal Balance is
reduced to zero, and then to the Class B-2 Certificateholders
until the Class B-2 Principal Balance is reduced to zero.
Subordination of Class M-1, B-1 and B-2
Certificates............................... The rights of the Class M-1, Class B-1 and Class B-2
Certificateholders to receive distributions on each Payment Date
will be subordinated, to the extent described herein, to such
rights of the Class A-1 Certificateholders; the rights of the
Class B-1 and Class B-2 Certificateholders will be similarly
subordinated to the rights of the Class M-1 Certificateholders;
and the rights of the Class B-2 Certificateholders will be
similarly subordinated to the rights of the Class B-1
Certificateholders. This subordination is intended to enhance
the likelihood of regular receipt by the holders of the more
senior Classes of Series 1994-CI Certificates of the full amount
of their scheduled monthly payments of interest and principal
and to afford such holders protection against losses on
Liquidated Contracts.
The Class A-1 Certificateholders will be entitled to receive on
any Payment Date the amount of interest due on such
Certificates, including any interest due on a prior Payment Date
but not received, prior to any distribution being made on the
remaining Classes of Series 1994-CI Certificates. Thereafter,
any remaining Amount Available in the Series 1994-CI Certificate
Account will be applied to the payment of interest due on the
other Classes of Series 1994-CI Certificates in the following
order of priority: first to the Class M-1 Certificates, then to
the Class B-1 Certificates and, finally, to the Class B-2
Certificates.
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
After payment of all interest due on the Series 1994-CI
Certificates, any remaining Amount Available will be distributed
in the following order of priority: the Class A-1
Certificateholders will be entitled to receive 100% of the
Series 1994-CI Monthly Principal until the Class A-1 Principal
Balance is reduced to zero, then the Class M-1
Certificateholders will be entitled to receive 100% of the
Series 1994-CI Monthly Principal until the Class M-1 Principal
Balance is reduced to zero, then the Class B-1
Certificateholders will be entitled to receive 100% of the
Series 1994-CI Monthly Principal until the Class B-1 Principal
Balance is reduced to zero, and then the Class B-2
Certificateholders will be entitled to receive 100% of the
Series 1994-CI Monthly Principal until the Class B-2 Principal
Balance is reduced to zero. See 'Description of the
Certificates -- Subordination of the Class M-1, B-1 and B-2
Certificates.'
Class B-2 Limited Guaranty................... In order to mitigate the effect of the subordination of the Class
B-2 Certificates and liquidation losses and delinquencies on the
Series 1994-CI Contracts, the Class B-2 Certificateholders are
entitled to receive on each Payment Date the amount equal to the
Class B-2 Guaranty Payment, if any, under the Class B-2 Limited
Guaranty of the Company. The Class B-2 Guaranty Payment for any
Payment Date will equal the amount, if any, by which (a) the sum
of (i) the Class B-2 Formula Distribution Amount (which will be
equal to one month's interest at the Class B-2 Pass-Through Rate
on the Class B-2 Principal Balance plus (if the Class B-1
Principal Balance has then been reduced to zero) the Series
1994-CI Monthly Principal for such Payment Date), and (ii) the
Class B-2 Principal Deficiency Amount (as described herein), if
any, exceeds (b) the Class B-2 Distribution Amount for such
Payment Date.
The Class B-2 Limited Guaranty will be an unsecured general
obligation of the Company and will not be supported by any
letter of credit or other credit enhancement arrangement.
Distributions on the Series 1994-CII
Certificates
Interest................................ Interest on the Series 1994-CII Certificates will be payable on
each Payment Date in an amount equal to one month's interest at
the Series 1994-CII Pass-Through Rate on the outstanding Series
1994-CII Principal Balance immediately prior to such Payment
Date; provided that, in the case of the first Payment Date, such
interest will be payable only for the period from the Closing
Date to but excluding October 15, 1994. The 'Series 1994-CII
Principal Balance' with respect to any Payment Date will equal
the Original Series 1994-CII Principal Balance minus all
distributions previously made in respect of principal on the
Series 1994-CII Certificates. Accrued interest will be computed
on the basis of a 360-day year of twelve 30-day months.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
In the event that, on a particular Payment Date, the Amount
Available in the Series 1994-CII Certificate Account, together
with any related Series 1994-CII Guaranty Payment, is not
sufficient to make a full distribution of interest to the Series
1994-CII Certificateholders, the amount of the shortfall will be
carried forward and added to the amount such holders will be
entitled to receive on the next Payment Date. Any such amount so
carried forward will bear interest at the Series 1994-CII
Pass-Through Rate, to the extent legally permissible. See
'Description of the Certificates.'
Principal............................... On each Payment Date, Series 1994-CII Certificateholders will be
entitled to receive as distributions of principal, to the extent
of the Amount Available in the Series 1994-CII Certificate
Account after payment of all interest payable on the Series
1994-CII Certificates, an amount equal to the sum (such sum
being hereinafter referred to as the 'Series 1994-CII Monthly
Principal') of (a) the amount of regular principal payments on
Series 1994-CII Contracts paid or applied during the prior Due
Period; (b) the amount of Principal Prepayments received on
Series 1994-CII Contracts during the prior Due Period; (c) the
principal portion of all payments on Series 1994-CII Contracts
that were Delinquent Payments as of the end of the prior Due
Period; (d) the unpaid principal balance of all Series 1994-CII
Contracts that became Liquidated Contracts with respect to the
prior Due Period; (e) the principal portion of the Repurchase
Price paid by the Company to repurchase Series 1994-CII
Contracts for breach of representations and warranties with
respect to the prior Due Period, as described in this Summary
under 'Repurchases by the Company'; (f) the amount of any
reduction in the principal amount deemed owed on any Series
1994-CII Contract as a result of the Obligor's bankruptcy; and
(g) any principal amount described in clauses (a) through (f)
above that was not previously distributed because of an
insufficient amount of funds available in the Series 1994-CII
Certificate Account and the Company either was not obligated to
or failed to pay such amount under the Series 1994-CII Limited
Guaranty.
Series 1994-CII Limited Guaranty............. In order to mitigate the effect of liquidation losses and
delinquencies on the Series 1994-CII Contracts, the Series
1994-CII Certificateholders are entitled to receive on each
Payment Date (subject to the limit of the Series 1994-CII
Guaranty Amount) the amount equal to the Series 1994-CII
Guaranty Payment, if any, under the Series 1994-CII Limited
Guaranty of the Company. The Series 1994-CII Guaranty Payment
for any Payment Date will equal the amount, if any, by which the
Series 1994-CII Formula Distribution Amount (equal to one
month's interest at the Series 1994-CII Pass-Through Rate on the
Series 1994-CII Principal Balance plus the Series 1994-CII
Monthly Principal for such Payment
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Date) exceeds the Amount Available in the Series 1994-CII
Certificate Account for such Payment Date.
The 'Series 1994-CII Guaranty Amount' initially equals $1,154,601.
Thereafter, on any Payment Date, the Series 1994-CII Guaranty
Amount will equal $1,154,601 minus all Net Liquidation Losses
(as defined herein) realized on the Series 1994-CII Contracts
since the Cut-off Date.
The Series 1994-CII Limited Guaranty will be an unsecured general
obligation of the Company and will not be supported by any
letter of credit or other credit enhancement arrangement.
Registration of Certificates................. The Certificates initially will each be represented by one or more
certificates registered in the name of Cede & Co. ('Cede') as
the nominee of The Depository Trust Company ('DTC'), and will
only be available in the form of book-entries on the records of
DTC and participating members thereof in minimum denominations
of $1,000, except for one Series 1994-CII Certificate in an
amount less than $1.00 which will be issued in definitive form.
Certificates will otherwise be issued in definitive form only
under the limited circumstances described herein. All references
herein to the rights of 'holders' or 'Certificateholders' shall
reflect the rights of beneficial owners as they may indirectly
exercise such rights through DTC and participating members
thereof, except as otherwise specified herein. See 'Description
of the Certificates -- Registration of the Certificates' herein.
Series 1994-CI Contracts..................... The Series 1994-CI Contracts consist of 9,011 conventional and 707
FHA-insured home improvement contracts and promissory notes (the
'Series 1994-CI Contracts'), including any and all rights to
receive payments due thereunder on and after the Cut-off Date.
The obligations of the Obligor under each Series 1994-CI
Contract are secured by the related real estate and such
Contracts constitute 'Secured Contracts' as described in the
Prospectus. The Series 1994-CI Contracts arise from loans
relating to the improvement of real estate located in 48 states
and the District of Columbia. The contractual annual percentage
rate of interest on the Series 1994-CI Contracts as of the
Cut-off Date ranges from 8.50% to 15.99% with a weighted average
of 11.68%. The Series 1994-CI Contracts had a weighted average
term to scheduled maturity, as of origination, of 170 months,
and a weighted average term to scheduled maturity, as of the
Cut-off Date, of 169 months. The final scheduled payment date on
the Series 1994-CI Contract with the latest scheduled maturity
is in September 2014. See 'The Contracts -- Series 1994-CI
Contracts.'
FHA Insurance................................ Approximately 3.82% of the Series 1994-CI Contracts, by principal
balance as of the Cut-off Date, are insured by FHA against
Obligor defaults pursuant to Title I of the National Housing Act
('FHA Insurance'). See 'Description of FHA Insurance' in the
Prospectus.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
Series 1994-CII Contracts.................... The Series 1994-CII Contracts consist of 2,014 conventional home
improvement contracts and promissory notes (the 'Series 1994-CII
Contracts'), including any and all rights to receive payments
due thereunder on and after the Cut-off Date. The obligations of
the Obligor under each Series 1994-CII Contract are unsecured
and such Contracts constitute 'Unsecured Contracts' as described
in the Prospectus. The Series 1994-CII Contracts arise from
loans relating to the improvement of real estate located in 46
states. The contractual annual percentage rate of interest on
the Series 1994-CII Contracts as of the Cut-off Date ranges from
9.81% to 17.99% with a weighted average of 15.38%. The Series
1994-CII Contracts had a weighted average term to scheduled
maturity, as of origination, of 92 months, and a weighted
average term to scheduled maturity, as of the Cut-off Date, of
91 months. The final scheduled payment date on the Series
1994-CII Contract with the latest scheduled maturity is in
September 2014. See 'The Contracts -- Series 1994-CII
Contracts.'
Advances..................................... The Company, as Servicer under each Agreement, is obligated to
make Advances each month of any scheduled payments on the
Contracts that were due but not received during the prior Due
Period. The Servicer will be entitled to reimbursement of
Advances from payments on the Contracts in the related Trust.
The Servicer will be obligated to make an Advance only to the
extent that it determines that such Advance will be recoverable
from collections on such Contract. If the Servicer fails to make
any Advance required under an Agreement, the related Trustee
will be obligated (subject to certain conditions) to make such
Advance. See 'Description of the Certificates -- Advances'
herein and in the Prospectus.
Repurchases by the Company................... The Company has agreed to repurchase any Contract in which the
related Trust's or the related Certificateholders' interest is
materially and adversely affected by a breach of a
representation and warranty with respect to such Contract made
in the related Agreement if such breach has not been cured
within 90 days of the day it was or should have been discovered
by the Servicer or the Trustee. See 'Description of the
Certificates -- Conveyance of Contracts' herein and in the
Prospectus.
Repurchase Option............................ The Servicer will have the option to repurchase all of the
outstanding Contracts in a Trust on any Payment Date on which
the Pool Scheduled Principal Balance of such Trust is less than
10% of the aggregate principal balance of such Contracts as of
the Cut-off Date. See 'Description of the
Certificates -- Repurchase Option' herein and in the Prospectus.
Monthly Servicing Fee........................ The Servicer will be entitled to monthly compensation for
servicing the Contracts in each Trust equal to 1/12 of the
product of .75% and the Pool Scheduled Principal Balance of such
Trust (the 'Monthly Servicing Fee'),
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
payable only after all interest and principal then due has been
paid to Certificateholders. See 'Description of the
Certificates -- Servicing Compensation and Payment of Expenses'
and 'Rights upon an Event of Termination' herein.
Tax Status................................... In the opinion of counsel to the Company, for federal income tax
purposes, the Series 1994-CI Trust will be treated as a real
estate mortgage investment conduit ('REMIC'). The Class A-1,
Class M-1, Class B-1 and Class B-2 Certificates will constitute
'regular interests' in such REMIC and generally will be treated
as debt instruments of the Series 1994-CI Trust for federal
income tax purposes with payment terms equivalent to the terms
of such Certificates. The Class C Certificate, which is not
being offered hereby, will constitute the 'residual interest' in
the REMIC. The holders of Series 1994-CI Certificates will be
required to include in income interest on such Certificates
(including any original issue discount) in accordance with the
accrual method of accounting. See 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
In the opinion of counsel to the Company, the Series 1994-CII
Trust will be classified as a grantor trust for federal income
tax purposes and not as an association which is taxable as a
corporation. Each Series 1994-CII Certificateholder will be
treated for such purposes as the owner of an undivided interest
in the Series 1994-CII Contracts. Accordingly, each such Series
1994-CII Certificateholder must report on its federal income tax
return its share of the income from the Series 1994-CII
Contracts and, subject to limitations on deductions by
individuals, estates and trusts, may deduct its share of the
reasonable fees paid by the Series 1994-CII Trust, determined in
accordance with such Certificateholder's tax accounting method.
See 'Certain Federal Income Tax Consequences' herein and in the
Prospectus.
ERISA Considerations......................... Subject to the conditions described herein, the Class A-1
Certificates may be purchased by employee benefit plans that are
subject to the Employee Retirement Income Security Act of 1974,
as amended ('ERISA'). No transfer of any other Certificates will
be permitted to be made to any employee benefit plan subject to
ERISA or to the Internal Revenue Code of 1986, as amended (the
'Code'), unless the opinion of counsel described under 'ERISA
Considerations' is delivered to the Trustee. See 'ERISA
Considerations' herein and in the Prospectus.
Rating....................................... It is a condition precedent to the issuance of the Certificates
that the Class A-1 Certificates be assigned a rating not lower
than 'AA' by Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc. ('S&P'), the Class M-1 Certificates be
assigned a rating not lower than 'A' by S&P, and the Class B-1
Certificates, the Class B-2 Certificates and the Series 1994-CII
Certificates each be assigned a rating not lower than 'BBB' by
S&P. S&P's
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
rating of the Certificates addresses the likelihood of timely
receipt of interest and ultimate receipt of principal on or
before the Payment Date in October 2014. The rating of the Class
B-2 Certificates and the Series 1994-CII Certificates is based
in part on an assessment of the Company's ability to make
payments under the Class B-2 Limited Guaranty and the Series
1994-CII Limited Guaranty, respectively. Any reduction in S&P's
rating of the Company's debt securities may result in a similar
reduction in the rating of the Class B-2 Certificates and the
Series 1994-CII Certificates. 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
rating agency. See 'Ratings' in the Prospectus.
The Company has not requested a rating of the Certificates from
any rating agency other than S&P. However, there can be no
assurance as to whether any other rating agency will rate the
Certificates or, if one does, what rating would be assigned by
such rating agency.
Legal Investment Considerations.............. The Certificates will not constitute 'mortgage related securities'
for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ('SMMEA') because there are a substantial number of
Contracts that are either unsecured (in the case of the Series
1994-CII Contracts) or secured by liens on real estate that are
not first liens (in the case of the Series 1994-CI Contracts),
as required by SMMEA. Accordingly, many institutions with legal
authority to invest in 'mortgage related securities' may not be
legally authorized to invest in the Certificates.
</TABLE>
S-12
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, in addition to the factors
described under 'Special Considerations' in the Prospectus, the following
factors in connection with the purchase of the Certificates:
Limited Historical Data With Respect to Home Improvement Loans. The Company
began purchasing and servicing FHA-insured home improvement contracts in April
1989, and conventional home improvement contracts in September 1992, and thus
has limited historical experience with respect to the performance, including the
rate of prepayments of home improvement loans. Accordingly, the Company's
delinquency experience and loan loss and liquidation experience set forth under
'The Contracts' herein may not be indicative of the performance of the Contracts
held by the Trusts.
STRUCTURE OF THE TRANSACTION
On or about September 29, 1994 (the 'Closing Date'), the Company will
establish the Series 1994-CI Trust pursuant to a Pooling and Servicing Agreement
to be dated as of September 1, 1994 (the 'Series 1994-CI Agreement'), between
the Company, as Seller and Servicer, and the Series 1994-CI Trustee, and will
establish the Series 1994-CII Trust pursuant to a Pooling and Servicing
Agreement to be dated as of September 1, 1994 (the 'Series 1994-CII Agreement'),
between the Company, as Seller and Servicer, and the Series 1994-CII Trustee.
The Class A-1, Class M-1, Class B-1 and Class B-2 Certificates will be
issued by the Series 1994-CI Trust, the corpus of which consists primarily of
the Series 1994-CI Contracts, including all rights to receive payments due on
such Contracts on and after September 1, 1994 (the 'Cut-off Date'), all rights
under FHA Insurance with respect to the FHA-insured Contracts, liens on the
related real estate, amounts held for the Series 1994-CI Trust in the Series
1994-CI Certificate Account (as defined below), and the Class B-2 Limited
Guaranty of the Company for the benefit of the Class B-2 Certificates, as
described in 'Description of the Class B-2 Limited Guaranty' herein.
The Series 1994-CII Certificates will be issued by the Series 1994-CII
Trust, the corpus of which consists primarily of the Series 1994-CII Contracts,
including all rights to receive payments due on the Series 1994-CII Contracts on
and after the Cut-off Date, amounts held for the Series 1994-CII Trust in the
Series 1994-CII Certificate Account (as defined below), and the Series 1994-CII
Limited Guaranty of the Company described in 'Description of the Series 1994-CII
Limited Guaranty' herein.
Payments and recoveries in respect of principal and interest on the Series
1994-CI Contracts will be paid into a separate trust account maintained at an
Eligible Institution (initially First Bank National Association, Minneapolis,
Minnesota) in the name of the Series 1994-CI Trust (the 'Series 1994-CI
Certificate Account'), no later than one Business Day after receipt. Payments
and recoveries in respect of principal and interest on the Series 1994-CII
Contracts will be paid into a separate trust account maintained at an Eligible
Institution (initially First Bank National Association, Minneapolis, Minnesota)
in the name of the Series 1994-CII Trust (the 'Series 1994-CII Certificate
Account'), no later than one Business Day after receipt. Payments deposited in
each Certificate Account in respect of each Due Period will be applied on the
fifteenth day of the next month (or, if such day is not a business day, the next
succeeding business day) (each a 'Payment Date') to make the distributions to
the related Certificateholders as of the immediately preceding Record Date as
described under 'Description of the Certificates -- Distributions on the Series
1994-CI Certificates' and ' -- Distributions on the Series 1994-CII
Certificates,' to pay certain monthly fees to the Servicer as compensation for
its servicing of the Contracts (the 'Monthly Servicing Fee'), and to pay any
remaining amounts in the related Certificate Account to the Company as
compensation for providing the related Limited Guaranty (the 'Guaranty Fee').
The Servicer will be obligated to advance any scheduled payments on the
Contracts that were due but not received during the prior Due Period
('Advances'). The Servicer will be entitled to reimbursement of Advances from
payments on the related Contracts and then from other funds in the related
Certificate Account. The Servicer will not be required to make any Advance to
the extent that it does not expect to recoup the Advance from subsequent
collections on the Contract or from liquidation
S-13
<PAGE>
proceeds thereof. If the Servicer fails to make any Advance required under the
Agreement, the related Trustee is obligated (subject to certain conditions) to
make such Advance.
Following the transfer of the Contracts from the Company to the Trusts, the
obligations of the Company are limited to (a) its obligations as Servicer to
service the Contracts, (b) certain representations and warranties in the
Agreements as described under 'Description of the Certificates -- Conveyance of
Contracts' herein, (c) certain indemnities, and (d) the Class B-2 Limited
Guaranty and the Series 1994-CII Limited Guaranty. The Company is obligated
under each Agreement to repurchase at the Repurchase Price any Contract on the
first Payment Date which is more than 90 days after the Company becomes aware,
or the Company's receipt of written notice from the Trustee, of any breach of
any such representation and warranty in the Agreement that materially adversely
affects the related Certificateholders' interest in such Contract if such breach
has not been cured prior to such date. The Agreements also provide that the
Company has certain obligations to repurchase Contracts and to indemnify the
related Trustee and related Certificateholders with respect to certain other
matters.
USE OF PROCEEDS
The Company will use the net proceeds received from the sale of the
Certificates for working capital and general corporate purposes, including
building a portfolio of home improvement contracts and promissory notes,
providing warehouse financing for the purchase of contracts and other costs of
maintaining such contracts until they are pooled and sold to other investors.
THE CONTRACTS
Each Contract is a home improvement contract originated by a
Company-approved home improvement contractor and purchased by the Company, or a
home improvement promissory note originated by the Company directly. Each
Contract finances improvements to a one- to four-family residential property, an
owner-occupied condominium or town house or a manufactured home which either
qualifies as real estate under state law or is located in a Company-approved
park, and is either secured by such real estate (in the case of the Series
1994-CI Contracts) or is unsecured (in the case of the Series 1994-CII
Contracts).
SERIES 1994-CI CONTRACTS
The Company will make certain representations and warranties in the Series
1994-CI Agreement, including that (a) each Series 1994-CI Contract is fully
amortizing with a fixed contractual rate of interest and provides for level
payments over the term of such loan, computed on the simple interest method, (b)
each Series 1994-CI Contract has its last scheduled payment due no later than
September 2014, (c) each FHA-insured Contract was originated in accordance with
applicable FHA regulations and is insured, without set-off, surcharge or
defense, by FHA Insurance, and (d) each Series 1994-CI Contract is secured by a
first, second, or third priority lien on the improved real estate. The Series
1994-CI Contracts were originated or acquired by the Company in the ordinary
course of the Company's business. A detailed listing of the Series 1994-CI
Contracts is appended to the Series 1994-CI Agreement. See 'Description of the
Certificates' herein and in the Prospectus. Approximately 3.82% of the Series
1994-CI Contracts, by principal balance as of the Cut-off Date, are insured by
FHA, to the extent described in 'Description of FHA Insurance' in the
Prospectus. The Series 1994-CI Contracts have a contractual rate of interest of
at least 8.50% per annum and not more than 15.99% and the weighted average
contractual rate of interest of the Series 1994-CI Contracts as of the Cut-off
Date is 11.68%. The Series 1994-CI Contracts have remaining maturities of at
least 22 months but not more than 240 months and original maturities of at least
24 months but not more than 240 months. The Series 1994-CI Contracts had a
weighted average term to scheduled maturity, as of origination, of 170 months,
and a weighted average term to scheduled maturity, as of the Cut-off Date, of
169 months. The average principal balance per Series 1994-CI Contract as of the
Cut-off Date was $13,759.80 and the principal balances on the Series 1994-CI
Contracts as of the Cut-off Date ranged from $1.17 to $165,294.17. The Series
1994-CI Contracts arise from loans relating to real property located in 48
states and the District of Columbia. By principal balance as of the Cut-off
Date, approximately 19.52% of the Contracts financed improvements to real estate
located in California, and approximately 9.57% of the
S-14
<PAGE>
Contracts financed improvements to real estate located in Florida. Current
loan-to-value ratios with respect to the Series 1994-CI Contracts are not
available. None of the Series 1994-CI Contracts provide for recourse to the
originating contractor in the event of a default by the Obligor.
The following table sets forth certain statistical information regarding
the FHA-insured Series 1994-CI Contracts, the conventional Series 1994-CI
Contracts and all Series 1994-CI Contracts in the Series 1994-CI Trust as of the
Cut-off Date.
CERTAIN SERIES 1994-CI CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
FHA-INSURED CONVENTIONAL TOTAL POOL
------------- --------------- ---------------
<S> <C> <C> <C>
Principal Balance........................................ $5,104,904.68 $128,612,861.90 $133,717,766.58
Number of Contracts...................................... 707 9,011 9,718
Percentage of Principal Balance.......................... 3.82% 96.18% 100.00%
Weighted Average Contract Rate........................... 12.68% 11.64% 11.68%
-- Highest Contract Rate........................... 15.99% 15.99% 15.99%
-- Lowest Contract Rate............................ 9.99% 8.50% 8.50%
Weighted Average Remaining Term to Scheduled Maturity
(Months)............................................... 126 171 169
-- Maximum Remaining Term to Scheduled Maturity.... 240 240 240
-- Minimum Remaining Term to Scheduled Maturity.... 22 22 22
Weighted Average Original Term to Scheduled Maturity
(Months)............................................... 127 172 170
-- Maximum Original Term to Scheduled Maturity..... 240 240 240
-- Minimum Original Term to Scheduled Maturity..... 24 24 24
Average Principal Balance................................ $ 7,220.51 $ 14,272.87 $ 13,759.80
-- Highest Principal Balance....................... $ 25,000.00 $ 165,294.17 $ 165,294.17
-- Lowest Principal Balance........................ $ 1,609.80 $ 1.17 $ 1.17
</TABLE>
S-15
<PAGE>
Set forth below is a description of certain additional characteristics of
the Series 1994-CI Contracts.
GEOGRAPHICAL DISTRIBUTION OF IMPROVED REAL ESTATE
<TABLE>
<CAPTION>
% OF SERIES 1994-CI
% OF SERIES 1994-CI CONTRACT
NUMBER OF CONTRACT POOL BY
SERIES 1994-CI POOL BY NUMBER AGGREGATE PRINCIPAL OUTSTANDING
CONTRACTS OF SERIES 1994-CI BALANCE PRINCIPAL
AS OF CONTRACTS AS OUTSTANDING AS OF BALANCE AS OF
CUT-OFF DATE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
-------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Alabama....................... 8 .08% $ 88,275.44 .07%
Arizona....................... 282 2.90 4,134,667.90 3.09
Arkansas...................... 160 1.65 1,593,725.84 1.19
California.................... 1,298 13.37 26,112,818.41 19.52
Colorado...................... 315 3.24 3,313,000.30 2.48
Connecticut................... 135 1.39 1,783,931.07 1.33
Delaware...................... 83 .85 1,141,290.83 .85
District of Columbia.......... 10 .10 99,677.18 .07
Florida....................... 855 8.80 12,794,780.58 9.57
Georgia....................... 274 2.82 3,240,686.12 2.42
Idaho......................... 16 .16 242,209.18 .18
Illinois...................... 276 2.84 3,154,505.33 2.36
Indiana....................... 81 .83 782,717.05 .59
Iowa.......................... 68 .70 639,857.05 .48
Kansas........................ 94 .97 1,060,261.07 .79
Kentucky...................... 47 .48 504,588.98 .38
Louisiana..................... 90 .93 1,037,711.69 .78
Maine......................... 106 1.09 1,366,066.91 1.02
Maryland...................... 192 1.98 2,896,299.92 2.17
Massachusetts................. 1 .01 18,444.80 .01
Michigan...................... 174 1.79 2,462,199.47 1.84
Minnesota..................... 102 1.05 1,477,859.10 1.11
Mississippi................... 75 .77 890,406.51 .67
Missouri...................... 174 1.79 2,295,916.10 1.72
Montana....................... 18 .19 193,489.93 .14
Nevada........................ 175 1.80 3,082,671.67 2.31
New Hampshire................. 31 .32 427,031.08 .32
New Jersey.................... 630 6.48 8,630,988.81 6.45
New Mexico.................... 79 .81 1,327,971.74 .99
North Carolina................ 319 3.28 3,906,723.53 2.92
North Dakota.................. 6 .06 38,973.14 .03
Nebraska...................... 34 .35 333,341.94 .25
New York...................... 626 6.44 8,340,059.20 6.24
Ohio.......................... 307 3.16 3,193,923.29 2.39
Oklahoma...................... 151 1.55 1,461,880.78 1.09
Oregon........................ 133 1.37 1,687,970.26 1.26
Pennsylvania.................. 496 5.10 5,825,304.49 4.36
Rhode Island.................. 39 .40 540,882.38 .40
South Carolina................ 121 1.25 1,599,825.50 1.20
South Dakota.................. 8 .08 75,325.96 .06
Tennessee..................... 238 2.45 2,763,775.08 2.07
Texas......................... 752 7.74 9,392,870.98 7.02
Utah.......................... 42 .43 577,165.19 .43
Vermont....................... 18 .19 169,384.90 .13
Virginia...................... 222 2.28 3,126,068.36 2.34
Washington.................... 193 1.99 2,291,549.88 1.71
West Virginia................. 53 .55 541,576.76 .41
Wisconsin..................... 48 .49 441,182.45 .33
Wyoming....................... 63 .65 615,932.45 .46
------- ------- ------------------- -------
Total.................... 9,718 100.00% $133,717,766.58 100.00%
------- ------- ------------------- -------
------- ------- ------------------- -------
</TABLE>
S-16
<PAGE>
YEARS OF ORIGINATION OF SERIES 1994-CI CONTRACTS
<TABLE>
<CAPTION>
% OF SERIES 1994-CI
NUMBER OF SERIES CONTRACT POOL BY
1994-CI CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT-OFF BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
- -------------------------------------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C>
1993.............................................. 7 $ 95,638.18 .07%
1994.............................................. 9,711 133,622,128.40 99.93
------ ------------------- -------
Total........................................ 9,718 $133,717,766.58 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
DISTRIBUTION OF ORIGINAL SERIES 1994-CI CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF SERIES 1994-CI
NUMBER OF SERIES CONTRACT POOL BY
1994-CI CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT AS OF CUT-OFF BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS) DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
- -------------------------------------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000................................. 3,180 $ 22,314,900.54 16.69%
$ 10,000 - $ 19,999............................... 5,057 71,746,382.83 53.66
$ 20,000 - $ 29,999............................... 1,123 26,376,640.82 19.73
$ 30,000 - $ 39,999............................... 270 8,491,554.48 6.35
$ 40,000 - $ 49,999............................... 49 2,107,853.01 1.58
$ 50,000 - $ 59,999............................... 20 1,045,452.58 .78
$ 60,000 - $ 69,999............................... 6 389,883.39 .29
$ 70,000 - $ 79,999............................... 2 149,212.65 .11
$ 80,000 - $ 89,999............................... 7 592,880.67 .44
$ 90,000 - $ 99,999............................... 0 .00 .00
$100,000 - $109,999............................... 1 108,706.53 .08
$110,000 - $119,999............................... 2 229,004.91 .17
$120,000 - $129,999............................... 0 .00 .00
$130,000 - $139,999............................... 0 .00 .00
$140,000 - $149,999............................... 0 .00 .00
$150,000 - $159,999............................... 0 .00 .00
$160,000 - $169,999............................... 1 165,294.17 .12
------ ------------------- -------
Total........................................ 9,718 $133,717,766.58 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
SERIES 1994-CI CONTRACT RATES
<TABLE>
<CAPTION>
% OF SERIES 1994-CI
NUMBER OF SERIES CONTRACT POOL BY
1994-CI CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF CONTRACTS BY AS OF CUT-OFF BALANCE OUTSTANDING BALANCE AS OF
CONTRACT RATE DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
- -------------------------------------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C>
8.00000% - 10.00000%............................. 357 $ 8,464,353.37 6.33%
10.00001% - 12.00000%............................. 5,634 88,013,524.74 65.82
12.00001% - 14.00000%............................. 3,548 35,540,428.45 26.58
14.00001% - 16.00000%............................. 179 1,699,460.02 1.27
------ ------------------- -------
Total........................................ 9,718 $133,717,766.58 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
S-17
<PAGE>
SERIES 1994-CI CONTRACTS -- REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
% OF SERIES 1994-CI
NUMBER OF SERIES CONTRACT POOL BY
MONTHS REMAINING TO 1994-CI CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
SCHEDULED MATURITY AS OF CUT-OFF BALANCE OUTSTANDING BALANCE AS OF
AS OF CUT-OFF DATE DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
----------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31...................................... 35 $ 151,347.24 0.11%
31 - 60........................................... 931 6,744,977.66 5.04
61 - 90........................................... 680 5,618,562.10 4.20
91 - 120.......................................... 2,774 30,995,361.41 23.19
121 - 150......................................... 146 1,732,817.80 1.30
151 - 180......................................... 3,514 54,138,273.16 40.49
181 - 210......................................... 6 111,998.30 0.08
211 - 240......................................... 1,632 34,224,428.91 25.59
------ ------------------- -------
Total........................................ 9,718 $133,717,766.58 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
SERIES 1994-CII CONTRACTS
The Company will make certain representations and warranties in the Series
1994-CII Agreement, including that (a) each Series 1994-CII Contract is fully
amortizing with a fixed contractual rate of interest and provides for level
payments over the term of such loan, computed on the simple interest method, and
(b) each Series 1994-CII Contract has its last scheduled payment due no later
than September 2014. The Series 1994-CII Contracts were originated or acquired
by the Company in the ordinary course of the Company's business. A detailed
listing of the Series 1994-CII Contracts is appended to the Series 1994-CII
Agreement. See 'Description of the Certificates' herein and in the Prospectus.
The Series 1994-CII Contracts have a contractual rate of interest of at least
9.81% per annum and not more than 17.99% and the weighted average contractual
rate of interest of the Series 1994-CII Contracts as of the Cut-off Date is
15.38%. The Series 1994-CII Contracts have remaining maturities of at least 22
months but not more than 240 months and original maturities of at least 24
months but not more than 240 months. The Contracts had a weighted average term
to scheduled maturity, as of origination, of 92 months, and a weighted average
term to scheduled maturity, as of the Cut-off Date, of 91 months. The average
principal balance per Series 1994-CII Contract as of the Cut-off Date was
$6,197.70 and the principal balances on the Series 1994-CII Contracts as of the
Cut-off Date ranged from $1.53 to $15,000.00. The Series 1994-CII Contracts
arise from loans relating to real property located in 46 states. By principal
balance as of the Cut-off Date, approximately 14.99% of the Contracts financed
improvements to real estate located in Massachusetts, and approximately 9.49% of
the Contracts financed improvements to real estate located in North Carolina.
None of the Series 1994-CII Contracts provide for recourse to the originating
contractor in the event of a default by the Obligor.
S-18
<PAGE>
The following table sets forth certain statistical information regarding
the Series 1994-CII Contracts as of the Cut-off Date.
CERTAIN SERIES 1994-CII CONTRACT CHARACTERISTICS
<TABLE>
<S> <C>
Principal Balance............................................................................... $12,482,163.33
Number of Contracts............................................................................. 2,014
Percentage of Principal Balance................................................................. 100.00%
Weighted Average Contract Rate.................................................................. 15.38%
-- Highest Contract Rate.................................................................. 17.99%
-- Lowest Contract Rate................................................................... 9.81%
Weighted Average Remaining
Term to Scheduled Maturity (Months)........................................................ 91
-- Maximum Remaining Term to Scheduled Maturity......................................... 240
-- Minimum Remaining Term to Scheduled Maturity......................................... 22
Weighted Average Original Term to Scheduled Maturity (Months)................................... 92
-- Maximum Original Term to Scheduled Maturity............................................ 240
-- Minimum Original Term to Scheduled Maturity............................................ 24
Average Principal Balance....................................................................... $ 6,197.70
-- Highest Principal Balance.............................................................. $ 15,000.00
-- Lowest Principal Balance............................................................... $ 1.53
</TABLE>
S-19
<PAGE>
Set forth below is a description of certain additional characteristics of
the Series 1994-CII Contracts.
GEOGRAPHICAL DISTRIBUTION OF IMPROVED REAL ESTATE
<TABLE>
<CAPTION>
% OF SERIES
% OF SERIES 1994-CII CONTRACT
1994-CII CONTRACT POOL BY
NUMBER OF POOL BY NUMBER OUTSTANDING
SERIES 1994-CII OF SERIES 1994-CII AGGREGATE PRINCIPAL PRINCIPAL
CONTRACTS AS OF CONTRACTS AS BALANCE OUTSTANDING BALANCE AS OF
CUT-OFF DATE OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
--------------- --------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Alabama........................ 1 .05% $ 2,708.00 .02%
Arizona........................ 11 .55 59,193.11 .47
California..................... 57 2.83 318,079.22 2.55
Colorado....................... 17 .84 98,684.43 .79
Connecticut.................... 45 2.23 246,911.06 1.98
Delaware....................... 5 .25 25,843.75 .21
Florida........................ 118 5.86 636,290.10 5.10
Georgia........................ 32 1.59 162,453.14 1.30
Iowa........................... 20 .99 116,510.91 .93
Idaho.......................... 6 .30 46,411.90 .37
Illinois....................... 72 3.57 421,908.76 3.38
Indiana........................ 29 1.44 174,324.52 1.40
Kansas......................... 26 1.29 187,202.43 1.50
Kentucky....................... 23 1.14 121,621.15 .97
Louisiana...................... 16 .79 84,665.39 .68
Massachusetts.................. 205 10.19 1,871,667.11 14.99
Maryland....................... 50 2.48 262,717.23 2.10
Maine.......................... 24 1.19 131,688.14 1.06
Michigan....................... 97 4.82 501,990.76 4.02
Minnesota...................... 42 2.09 233,174.14 1.87
Missouri....................... 49 2.43 309,587.81 2.48
Mississippi.................... 18 .89 100,324.81 .80
Montana........................ 7 .35 41,023.47 .33
North Carolina................. 172 8.54 1,184,676.36 9.49
Nebraska....................... 7 .35 35,631.26 .29
New Hampshire.................. 10 .50 52,354.24 .42
New Jersey..................... 80 3.97 503,934.59 4.04
New Mexico..................... 21 1.04 122,246.61 .98
Nevada......................... 7 .35 38,737.83 .31
New York....................... 98 4.87 584,546.21 4.68
Ohio........................... 59 2.93 308,047.12 2.47
Oklahoma....................... 21 1.04 125,405.12 1.00
Oregon......................... 11 .55 78,479.07 .63
Pennsylvania................... 129 6.41 739,945.96 5.94
Rhode Island................... 19 .94 117,622.48 .94
South Carolina................. 26 1.29 153,698.18 1.23
South Dakota................... 3 .15 26,493.99 .21
Tennsessee..................... 54 2.68 294,296.58 2.36
Texas.......................... 146 7.25 845,519.99 6.77
Utah........................... 7 .35 41,609.71 .33
Virginia....................... 81 4.02 544,881.20 4.37
Vermont........................ 18 .89 111,936.13 .90
Washington..................... 36 1.79 220,896.88 1.77
Wisconsin...................... 16 .79 70,921.93 .57
West Virginia.................. 16 .79 79,892.98 .64
Wyoming........................ 7 .35 45,407.57 .36
------ ------- ------------------- -------
Total..................... 2,014 100.00% $12,482,163.33 100.00%
------ ------- ------------------- -------
------ ------- ------------------- -------
</TABLE>
S-20
<PAGE>
YEARS OF ORIGINATION OF SERIES 1994-CII CONTRACTS
<TABLE>
<CAPTION>
% OF SERIES 1994-CII
CONTRACT POOL BY
NUMBER OF SERIES AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
1994-CII CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C>
1993....................................... 7 $ 43,928.29 .35%
1994....................................... 2,007 12,438,235.04 99.65
------ ------------------- -------
Total................................. 2,014 $12,482,163.33 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
DISTRIBUTION OF ORIGINAL SERIES 1994-CII CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF SERIES 1994-CII
CONTRACT POOL BY
NUMBER OF SERIES AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT 1994-CII CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS) AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000.......................... 1,845 $10,560,856.25 84.61%
$ 10,000 - $19,999......................... 169 1,921,307.08 15.39
------ ------------------- -------
Total................................. 2,014 $12,482,163.33 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
SERIES 1994-CII CONTRACT RATES
<TABLE>
<CAPTION>
% OF SERIES 1994-CII
CONTRACT POOL BY
NUMBER OF SERIES AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF CONTRACTS BY 1994-CII CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
CONTRACT RATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C>
8.00000%-10.00000%........................ 1 $ 5,997.21 .05%
10.00001%-12.00000%........................ 4 31,675.85 .25
12.00001%-14.00000%........................ 283 1,948,927.11 15.61
14.00001%-16.00000%........................ 1,691 10,296,458.23 82.49
16.00001%-18.00000%........................ 35 199,104.93 1.60
------ ------------------- -------
Total................................. 2,014 $12,482,163.33 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
REMAINING MONTHS TO MATURITY
SERIES 1994-CII CONTRACTS
<TABLE>
<CAPTION>
% OF SERIES 1994-CII
CONTRACT POOL BY
MONTHS REMAINING TO NUMBER OF SERIES AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
SCHEDULED MATURITY 1994-CII CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31............................... 72 $ 243,150.90 1.95%
31-60...................................... 772 3,418,171.27 27.38
61-90...................................... 394 2,471,920.83 19.80
91-120..................................... 754 6,145,056.55 49.23
121-150.................................... 2 16,899.91 0.14
151-180.................................... 18 167,972.72 1.35
181-210.................................... 0 0.00 0.00
211-240.................................... 2 18,991.15 0.15
------ ------------------- -------
Total................................. 2,014 $12,482,163.33 100.00%
------ ------------------- -------
------ ------------------- -------
</TABLE>
The Series 1994-CI Contracts and the Series 1994-CII Contracts constitute
substantially all of the home improvement contracts owned by the Company as of
the Cut-off Date meeting the criteria stated under 'Description of the
Certificates -- Conveyance of Contracts.'
S-21
<PAGE>
DELINQUENCY, LOAN DEFAULT AND LOSS INFORMATION
The following tables set forth the delinquency experience and loan default
and loss experience for the past 54 months of the portfolio of FHA-insured and
conventional home improvement loans serviced by the Company.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
JUNE 30, ------------------------------------
1994 1993 1992 1991 1990
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding(1).............................. 48,746 36,828 25,803 21,337 10,267
Period of Delinquency(2)
30-59 Days................................................. 229 279 355 228 87
60-89 Days................................................. 94 88 98 84 29
90 Days or More............................................ 157 169 207 164 52
-------- ------ ------ ------ ------
Total Home Improvement Contracts Delinquent..................... 480 536 660 476 168
Delinquencies as a Percent of Contracts Outstanding............. .98% 1.46% 2.56% 2.23% 1.64%
</TABLE>
- ------------
(1) Excludes defaulted contracts not yet liquidated.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
LOAN DEFAULT AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS
SIX MONTHS ENDED DECEMBER 31,
ENDED ----------------------------------------
JUNE 30, 1994 1993 1992 1991 1990
-------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Principal Balance of Contracts Serviced(1)........... 453,939 314,300 207,114 174,146 84,812
Contract Defaults(2)................................. .60% 1.51% 1.86% 1.09% .26%
Net Losses:
Dollars(3)...................................... 389 261 768 305 1
Percentage(4)................................... .09% .08% .37% .18% .00%
</TABLE>
- ------------
(1) As of period end. Includes defaulted contracts not yet liquidated.
(2) As a percentage of the total number of contracts being serviced as of period
end. The Company considers a contract defaulted when the Company has
submitted a claim to FHA (in the case of FHA-insured contracts), the Company
has commenced foreclosure or enforcement proceedings, or the contract is 180
days delinquent.
(3) Does not include any estimated losses for defaulted contracts not yet
liquidated. The calculation of net loss on FHA-insured contracts includes
unpaid interest to the date of FHA claim submission and all expenses of
liquidation, and reflects proceeds of FHA Insurance claims paid.
(4) As a percentage of the principal amount of contracts being serviced as of
period end.
--------------------
The Company's management is not aware of any trends or anomalies which have
adversely affected the delinquency, loan default and loss experience of its
portfolio of home improvement contracts.
The data presented in the foregoing tables are for illustrative purposes
only and there is no assurance that the delinquency, loan loss or liquidation
experience of the Series 1994-CI or the Series 1994-CII Contracts will be
similar to that set forth above. Moreover, since the Company began originating
and purchasing FHA-insured home improvement contracts in April 1989, and secured
and unsecured conventional home improvement contracts in September 1992, it is
likely that the Company's portfolio is not yet sufficiently seasoned to show the
delinquencies and losses that would be experienced if such data were collected
over a longer period of time. Because the Company began originating and
purchasing conventional home improvement contracts in September 1992, the data
presented in the
S-22
<PAGE>
foregoing tables do not reflect any significant experience with conventional
home improvement contracts. Moreover, such data have not been presented
separately for conventional home improvement contracts or unsecured home
improvement contracts based upon the Company's determination that such data is
not statistically meaningful.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any Certificate will depend on the price paid by the
Certificateholder, the timing of principal payments, and the timing and amount
of any liquidation losses on the Contracts.
Higher than expected 'Principal Prepayments' (payments received from
Obligors, other than regular payments of principal, which are applied upon
receipt or, in the case of partial prepayments, upon the next scheduled payment
date for such Contract, to reduce the outstanding principal balance on the
Contracts) will increase the yield on Certificates purchased at a price less
than the undivided ownership interest in the aggregate principal balance of the
Contracts represented by such Certificates and will decrease the yield on
Certificates purchased at a price greater than the undivided ownership interest
in the aggregate principal balance of the Contracts represented by such
Certificates. The Company has no significant experience with respect to the rate
of Principal Prepayments on home improvement contracts. Because the Contracts
have scheduled due dates throughout the calendar month, and because all
Principal Prepayments are passed through to Certificateholders on the Payment
Date following the Due Period in which such Principal Prepayment occurred,
prepayments on the Contracts would affect the amount of funds available to make
distributions on the Certificates on any Payment Date only if a substantial
portion of the Contracts prepaid prior to their respective due dates in a
particular month (thus paying less than 30 days' interest for that Due Period)
while very few Contracts prepaid after their respective due dates in that month.
In addition, liquidations of Defaulted Contracts or the Servicer's exercise of
its option to repurchase the entire remaining pool of Contracts (see
'Description of the Certificates -- Repurchase Option' herein) will affect the
timing of principal distributions on the Certificates. Prepayments on mortgage
loans and other consumer installment obligations are commonly measured relative
to a prepayment standard or model. The Constant Prepayment Rate ('CPR') model
assumes that the outstanding principal balance of a pool of loans prepays each
month at a specified constant annual rate. The Certificates were priced using a
prepayment assumption of 16% CPR. There can be no assurance that the Contracts
will prepay at such rate, and it is unlikely that prepayments or liquidations of
the Contracts will occur at any constant rate.
The amount of interest to which the Certificateholders of any Class are
entitled on any Payment Date will be the product of the related Pass-Through
Rate and the Principal Balance of such Class immediately following the preceding
Payment Date, based on a 360-day year consisting of 12 months of 30 days each.
Certificateholders will receive payments in respect of principal on each Payment
Date to the extent that funds available in the related Certificate Account are
sufficient therefor, in the priority described under 'Description of the
Certificates -- Distributions on the Series 1994-CI Certificates' and
' -- Distributions on the Series 1994-CII Certificates.' As required by
applicable state laws, interest paid by Obligors on the Contracts is computed
according to the simple interest method. Principal and interest payable on the
Certificates will be computed according to the actuarial method.
The final scheduled payment date on the Series 1994-CI Contract with the
latest maturity and the final scheduled payment date on the Series 1994-CII
Contract with the latest maturity is, in each case, in September 2014.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the related Contracts on the weighted average life of each Class
of Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
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 life of the Certificates will be
influenced by the rate at which principal on the Contracts is paid. Principal
payments on Contracts may be in the form of scheduled amortization or
prepayments (for this purpose,
S-23
<PAGE>
the term 'prepayment' includes repayments and liquidations due to default or
other dispositions of Contracts). Prepayments on Contracts may be measured by a
prepayment standard or model. The model used in this Prospectus Supplement, the
Constant Prepayment Rate model, is described above.
As used in the following tables, '0% CPR' assumes that none of the
Contracts are prepaid before maturity, '16% CPR' assumes the Contracts will
prepay at a CPR of 16%, and so forth.
There is no assurance, however, that prepayment of the Contracts will
conform to any level of the CPR, and no representation is made that the
Contracts will prepay at the prepayment rates shown or any other prepayment
rate. The rate of principal payments on pools of home improvement contracts is
influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates and the rate at which homeowners sell
their homes or default on their contracts. Other factors affecting prepayment of
contracts include changes in obligors' housing needs, job transfers,
unemployment and obligors' net equity in their homes. In the case of home
improvement contracts secured by real estate, in general, if prevailing interest
rates fall significantly below the interest rates on such home improvement
contracts, the home improvement contracts are likely to be subject to higher
prepayment rates than if prevailing interest rates remained at or above the
rates borne by such home improvement contracts. Conversely, if prevailing
interest rates rise above the interest rates on such home improvement contracts,
the rate of prepayment would be expected to decrease. In the case of home
improvement contracts, however, because the outstanding principal balances are,
in general, much smaller than mortgage loan balances and the original term to
maturity of each such contract is generally shorter, the reduction or increase
in the size of the monthly payment on a contract arising from a change in the
interest rate thereon is generally much smaller. Consequently, changes in
prevailing interest rates may not have a similar effect, or may have a similar
effect but to a smaller degree, on the prepayment rates on home improvement
contracts.
The percentages and weighted average lives in the following tables were
determined assuming that: (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the CPR set forth in the table; (ii) either the Company
or the Servicer exercises its right of optional termination described above;
(iii) the Original Series 1994-CI Principal Balance is $133,717,766, the
Original Series 1994-CII Principal Balance is $12,482,163, and the Contracts
have the characteristics described under 'The Contracts'; (iv) the Class A-1
Certificates have an Original Class A-1 Principal Balance of $101,600,000 and a
Class A-1 Pass-Through Rate of 7.45%, the Class M-1 Certificates have an
Original Class M-1 Principal Balance of $12,000,000 and a Class M-1 Pass-Through
Rate of 8.5%, the Class B-1 Certificates have an Original Class B-1 Principal
Balance of $9,400,000 and have a Class B-1 Pass-Through Rate of 8.8%, the Class
B-2 Certificates have an Original Class B-2 Principal Balance of $10,717,766 and
a Class B-2 Pass-Through Rate of 8.9%, and the Series 1994-CII Certificates have
an Original Series 1994-CII Principal Balance of $12,482,163 and a Series
1994-CII Pass-Through Rate of 8.1%; (v) no interest shortfalls will arise in
connection with prepayment in full of the Contracts; (vi) no delinquencies or
losses are experienced on the Contracts; (vii) distributions are made on the
Certificates on the 15th day of each month, commencing in October 1994; and
(viii) the Certificates are issued on September 29, 1994. No representation is
made that the Contracts will not experience delinquencies or losses.
It is not likely that Contracts will prepay at any constant percentage of
the CPR to maturity or that all Contracts will prepay at the same rate.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of the Class A-1 Certificates, the Class M-1
Certificates, the Class B-1 Certificates, the Class B-2 Certificates and the
Series 1994-CII Certificates and set forth the percentages of the Original Class
A-1 Principal Balance, the Original Class M-1 Principal Balance, the Original
Class B-1 Principal Balance, the Original Class B-2 Principal Balance, and the
Original Series 1994-CII Principal Balance that would be outstanding after each
of the dates shown, at the indicated percentages of the CPR.
S-24
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- --------------------------------------------------------------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage................................................... 100% 100% 100% 100% 100%
September 15, 1995................................................... 81 78 76 73 71
September 15, 1996................................................... 64 60 55 51 47
September 15, 1997................................................... 49 44 38 34 29
September 15, 1998................................................... 36 30 24 19 15
September 15, 1999................................................... 25 18 13 8 3
September 15, 2000................................................... 15 9 3 0 0
September 15, 2001................................................... 6 0 0 0 0
September 15, 2002................................................... 0 0 0 0 0
September 15, 2003................................................... 0 0 0 0 0
September 15, 2004................................................... 0 0 0 0 0
September 15, 2005................................................... 0 0 0 0 0
Weighted Average Life(1) (years)..................................... 3.2 2.9 2.6 2.3 2.1
</TABLE>
- ------------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of issuance
of such Class A-1 Certificate to the stated Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial principal balance of such
Class A-1 Certificate.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS M-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- --------------------------------------------------------------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage................................................... 100% 100% 100% 100% 100%
September 15, 1995................................................... 100 100 100 100 100
September 15, 1996................................................... 100 100 100 100 100
September 15, 1997................................................... 100 100 100 100 100
September 15, 1998................................................... 100 100 100 100 100
September 15, 1999................................................... 100 100 100 100 100
September 15, 2000................................................... 100 100 100 88 53
September 15, 2001................................................... 100 100 61 25 0
September 15, 2002................................................... 84 41 6 0 0
September 15, 2003................................................... 27 0 0 0 0
September 15, 2004................................................... 0 0 0 0 0
September 15, 2005................................................... 0 0 0 0 0
Weighted Average Life(1) (years)..................................... 8.6 7.9 7.2 6.6 6.1
</TABLE>
- ------------
(1) The weighted average life of a Class M-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of issuance
of such Class M-1 Certificate to the stated Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial principal balance of such
Class M-1 Certificate.
S-25
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- --------------------------------------------------------------------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage................................................... 100% 100% 100% 100% 100%
September 15, 1995................................................... 100 100 100 100 100
September 15, 1996................................................... 100 100 100 100 100
September 15, 1997................................................... 100 100 100 100 100
September 15, 1998................................................... 100 100 100 100 100
September 15, 1999................................................... 100 100 100 100 100
September 15, 2000................................................... 100 100 100 100 100
September 15, 2001................................................... 100 100 100 100 93
September 15, 2002................................................... 100 100 100 68 36
September 15, 2003................................................... 100 88 49 0 0
September 15, 2004................................................... 71 33 0 0 0
September 15, 2005................................................... 0 0 0 0 0
Weighted Average Life (1) (years).................................... 10.3 9.6 9.0 8.3 7.7
</TABLE>
- ------------
(1) The weighted average life of a Class B-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of issuance
of such Class B-1 Certificate to the stated Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial principal balance of such
Class B-1 Certificate.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- --------------------------------------------------------------------- ---- ---- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage................................................... 100% 100% 100% 100% 100%
September 15, 1995................................................... 100 100 100 100 100
September 15, 1996................................................... 100 100 100 100 100
September 15, 1997................................................... 100 100 100 100 100
September 15, 1998................................................... 100 100 100 100 100
September 15, 1999................................................... 100 100 100 100 100
September 15, 2000................................................... 100 100 100 100 100
September 15, 2001................................................... 100 100 100 100 100
September 15, 2002................................................... 100 100 100 100 100
September 15, 2003................................................... 100 100 100 0 0
September 15, 2004................................................... 100 100 0 0 0
September 15, 2005................................................... 0 0 0 0 0
Weighted Average Life (1) (years).................................... 10.8 10.1 9.5 8.8 8.1
</TABLE>
- ------------
(1) The weighted average life of a Class B-2 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of issuance
of such Class B-2 Certificate to the stated Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial principal balance of such
Class B-2 Certificate.
S-26
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE SERIES 1994-CII
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- --------------------------------------------------------------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage................................................... 100% 100% 100% 100% 100%
September 15, 1995................................................... 81 80 78 76 74
September 15, 1996................................................... 65 62 59 56 54
September 15, 1997................................................... 50 47 44 40 38
September 15, 1998................................................... 37 34 31 28 25
September 15, 1999................................................... 25 22 20 18 16
September 15, 2000................................................... 15 13 11 0 0
September 15, 2001................................................... 0 0 0 0 0
September 15, 2002................................................... 0 0 0 0 0
September 15, 2003................................................... 0 0 0 0 0
September 15, 2004................................................... 0 0 0 0 0
September 15, 2005................................................... 0 0 0 0 0
Weighted Average Life (1) (years).................................... 3.2 3.0 2.9 2.7 2.6
</TABLE>
- ------------
(1) The weighted average life of a Series 1994-CII Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the date
of issuance of such Series 1994-CII Certificate to the stated Payment Date,
(ii) adding the results, and (iii) dividing the sum by the initial principal
balance of such Series 1994-CII Certificate.
S-27
<PAGE>
GREEN TREE FINANCIAL CORPORATION
GENERAL
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading 'Green
Tree Financial Corporation.'
The Company is a Minnesota corporation which, as of December 31, 1993, had
total assets of approximately $1,739,582,000 and stockholders' equity of
approximately $549,429,000. The Company purchases, pools, sells and services
conditional sales contracts for manufactured homes and other consumer
installment sales contracts. The Company is currently the largest servicer of
government-insured manufactured housing contracts, and is one of the largest
servicers of conventional manufactured housing contracts, in the United States.
The Company began financing FHA-insured home improvement loans in April 1989 and
conventional home improvement loans in September 1992. Currently, the Company
also purchases, pools and services installment sales contracts for motorcycles
and continues to service recreational vehicle installment sales contracts
previously originated. It also finances certain recreational sports vehicles and
horse trailers. The Company's principal executive offices are located at 1100
Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639 (telephone
(612) 293-3400). The Company's quarterly and annual reports, which are
incorporated by reference in this Prospectus Supplement and Prospectus, are
available from the Company upon written request made to the Company.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under 'Description of
the Certificates.'
The Series 1994-CI Certificates will be issued pursuant to the Series
1994-CI Agreement between the Company, as Seller and Servicer, and the Series
1994-CI Trustee. The Series 1994-CII Certificates will be issued pursuant to the
Series 1994-CII Agreement between the Company, as Seller and Servicer, and the
Series 1994-CII Trustee. A copy of the execution form of each Agreement will be
filed in a Current Report on Form 8-K with the Securities and Exchange
Commission after the initial issuance of the Certificates. The following summary
describes the material provisions of each Agreement, reference to which is
hereby made for a complete recital of its terms.
GENERAL
The Certificates will be issued in fully registered, certificated form only
in denominations of $1,000, except for one Series 1994-CII Certificate with a
denomination of less than $1.00. The Certificates (other than the single Series
1994-CII Certificate referred to in the preceding sentence) initially will be
represented by certificates registered in the name of Cede as the nominee of
DTC, and will only be available in the form of book-entries on the records of
DTC and participating members thereof. See 'Description of the
Certificates -- Registration of the Certificates' herein. The Series 1994-CI
Trust consists primarily of the Series 1994-CI Contracts and the rights,
benefits, obligations and proceeds arising therefrom or in connection therewith,
including liens on the related real estate, rights under applicable FHA
Insurance for FHA-insured Contracts, amounts held in the Series 1994-CI
Certificate Account and the Class B-2 Limited Guaranty of the Company for the
benefit of the Class B-2 Certificateholders. The Series 1994-CII Trust consists
primarily of the Series 1994-CII Contracts and the rights, benefits, obligations
and proceeds arising therefrom or in connection therewith, amounts held in the
Series 1994-CII Certificate Account and the Series 1994-CII Limited Guaranty of
the Company.
Distributions on the Certificates will be made by the related Paying Agent
(which shall initially be the related Trustee) on each Payment Date to persons
in whose names the Certificates are registered as of the Business Day
immediately preceding such Payment Date (the 'Record Date'). See 'Description of
the Certificates -- Registration of the Certificates' herein. The first Payment
Date for the Certificates will be in October 1994. Payments will be made by
check mailed to such Certificateholder at the address appearing on the
Certificate Register (except that a Certificateholder who holds an aggregate
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Percentage Interest of at least 5% of a Class of Certificates may request
payment by wire transfer). Final payments will be made only upon tender of the
Certificates to the related Trustee for cancellation.
CONVEYANCE OF CONTRACTS
On the Closing Date, the Company will establish the Series 1994-CI Trust
and the Series 1994-CII Trust and transfer, assign, set over and otherwise
convey to the applicable Trust all right, title and interest of the Company in
the related Contracts, including all principal and interest received on or with
respect to such Contracts (other than receipts of principal and interest due on
such Contracts before the Cut-off Date). On behalf of the Trusts, as the issuers
of the Certificates offered hereby, the applicable Trustee, concurrently with
such conveyance, will execute and deliver the Certificates to or upon the order
of the Company. The Contracts are described on lists delivered to the Trustees
and certified by a duly authorized officer of the Company. Such lists include
the amount of monthly payments due on each Contract as of the date of issuance
of the Certificates, the Contract Rate on each Contract and the maturity date of
each Contract. The appropriate list will be attached as an exhibit to the
related Agreement and will be available for inspection by any Certificateholder
at the principal office of the Company. Prior to the conveyance of the Contracts
to the applicable Trust, the Company's internal audit department will have
completed a review of all the Contract files, confirming the accuracy of each
item on the list of Contracts delivered to the Trustee. Any Contract discovered
not to agree with such list in a manner that is materially adverse to the
interests of the related Certificateholders will be repurchased by the Company,
or, if the discrepancy relates to the unpaid principal balance of a Contract,
the Company may deposit cash in the related Certificate Account in an amount
sufficient to offset such discrepancy.
The Trustees will maintain possession of the Contracts and any other
documents contained in the Contract files. Uniform Commercial Code financing
statements will be filed in Minnesota, reflecting the conveyance and assignment
of the Contracts to the related Trustee, and the Company's accounting records
and computer systems will also reflect such conveyance and assignment.
Dorsey & Whitney, counsel to the Company, will render an opinion to each
Trustee that the transfer of the Contracts from the Company to the applicable
Trust would, in the event the Company became a debtor under the United States
Bankruptcy Code, be treated as a true sale and not as a pledge to secure
borrowings. If, however, the transfer of the Contracts from the Company to the
applicable Trust were treated as a pledge to secure borrowings by the Company,
the distribution of proceeds of the Contracts to the related Trust might be
subject to the automatic stay provisions of the United States Bankruptcy Code,
which would delay the distribution of such proceeds for an uncertain period of
time. In addition, a bankruptcy trustee would have the power to sell the related
Contracts if the proceeds of such sale could satisfy the amount of the debt
deemed owed by the Company, or the bankruptcy trustee could substitute other
collateral in lieu of such Contracts to secure such debt, or such debt could be
subject to adjustment by the bankruptcy trustee if the Company were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code.
The Company will make certain representations and warranties in the
Agreements with respect to each Contract, including that: (a) as of the Cut-off
Date the most recent scheduled payment was made or was not delinquent more than
59 days; (b) no provision of a Contract has been waived, altered or modified in
any respect, except by instruments or documents included in the Contract file
and reflected on the list of Contracts delivered to the Trustee; (c) each
Contract is a legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (e) each Contract (if an
FHA-insured Contract) was originated in accordance with applicable FHA
regulations and is insured, without set-off, surcharge or defense, by FHA
Insurance; (f) each Contract was originated by a home improvement contractor in
the ordinary course of such contractor's business or was originated by the
Company directly; (g) no Contract was originated in or is subject to the laws of
any jurisdiction whose laws would make the transfer of the Contract or an
interest therein pursuant to the Agreement or the Certificates unlawful; (h)
each Contract complies with all requirements of law; (i) no Contract has been
satisfied, subordinated to a lower lien ranking than its original position (if
any) or rescinded; (j) in the case of the Series 1994-CI Contracts, each
Contract
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creates a valid and perfected lien on the related improved real estate; (k) all
parties to each Contract had full legal capacity to execute such Contract; (l)
no Contract has been sold, conveyed and assigned or pledged to any other person
and the Company has good and marketable title to each Contract free and clear of
any encumbrance, equity, loan, pledge, charge, claim or security interest, and
is the sole owner and has full right to transfer such Contract to the Trustee;
(m) as of the Cut-off Date there was no default, breach, violation or event
permitting acceleration under any Contract (except for payment delinquencies
permitted by clause (a) above), no event that with notice and the expiration of
any grace or cure period would constitute a default, breach, violation or event
permitting acceleration under such Contract, and the Company has not waived any
of the foregoing; (n) each Contract is a fully-amortizing loan with a fixed rate
of interest and provides for level payments over the term of such Contract; (o)
in the case of the Series 1994-CI Contracts, each Contract contains customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for realization against the collateral; (p) the
description of each Contract set forth in the list delivered to the Trustee is
true and correct; (q) there is only one original of each Contract; and (r) each
Contract was originated or purchased in accordance with the Company's
then-current underwriting guidelines.
The Company will also make certain representations and warranties with
respect to the Series 1994-CI Contracts in the aggregate, including that (i) the
aggregate principal amount payable by the Obligors as of the Cut-off Date equals
the Original Series 1994-CI Principal Balance, and each Contract has a
contractual rate of interest of at least 8.50%; (ii) no Contract has a remaining
maturity of more than 240 months; (iii) no more than 5% of the Contracts, by
principal balance as of the Cut-off Date, were secured by properties located in
an area with the same zip code; and (iv) no adverse selection procedures were
employed in selecting the Contracts from the Company's portfolio.
The Company will also make certain representations and warranties with
respect to the Series 1994-CII Contracts in the aggregate, including that (i)
the aggregate principal amount payable by the Obligors as of the Cut-off Date
equals the Original Series 1994-CII Principal Balance, and each Contract has a
contractual rate of interest of at least 9.81%; (ii) no Contract has a remaining
maturity of more than 240 months; (iii) no more than 5% of the Series 1994-CII
Contracts, by principal balance as of the Cut-off Date, related to properties
located in an area with the same zip code; and (iv) no adverse selection
procedures were employed in selecting the Contracts from the Company's
portfolio.
Under the terms of the Agreements, the Company has agreed to repurchase, at
the Repurchase Price, any Contract that is materially and adversely affected by
a breach of a representation and warranty with respect to such Contract made in
the Agreement if such breach has not been cured within 90 days of the day it was
or should have been discovered by the Servicer or the Trustee. This repurchase
obligation constitutes the sole remedy available to the Trusts and the
Certificateholders for a breach of a representation or warranty under the
Agreements with respect to the Contracts (but not with respect to any other
breach by the Company of its obligations under the Agreements).
The 'Repurchase Price' of a Contract at any time means the outstanding
principal amount of such Contract (without giving effect to any Advances made by
the Servicer or the Trustee), plus interest at the Pass-Through Rate (which, in
the case of a Series 1994-CI Contract, will be the weighted average of the Class
A-1, M-1, B-1 and B-2 Pass-Through Rates, and, in the case of a Series 1994-CII
Contract, will be the Series 1994-CII Pass-Through Rate) on such Contract from
the end of the Due Period with respect to which the Obligor last made a payment
(without giving effect to any Advances made by the Servicer or the Trustee)
through the end of the immediately preceding Due Period.
Pursuant to each of the Agreements, the Servicer will service and
administer the related Contracts conveyed and assigned to the related Trustee as
more fully set forth below.
PAYMENTS ON CONTRACTS
The Servicer, on behalf of each Trust, will establish and maintain a
Certificate Account at a depository institution (initially First Bank National
Association, Minneapolis, Minnesota) with trust powers organized under the laws
of the United States or any state, the deposits of which are insured to the full
extent permitted by law by the Federal Deposit Insurance Corporation (the 'FDIC
'), whose short-term debt (or, in the case of the principal bank in a bank
holding company system, the short-term
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debt of such bank or the bank holding company) has a rating of A-1 or higher
from S&P, and which is subject to examination by federal or state authorities
(an 'Eligible Institution'). The Servicer may authorize the related Trustee to
invest the funds in the related Certificate Account in Eligible Investments (as
defined in the related Agreement) that will mature not later than the business
day preceding the applicable monthly Payment Date. Such Eligible Investments
include, among other investments, obligations of the United States or of any
agency thereof backed by the full faith and credit of the United States, federal
funds, certificates of deposit, time deposits and bankers acceptances sold by
eligible commercial banks; any other demand or time deposit or certificate of
deposit fully insured by the FDIC; investments in certain money-market funds;
certain repurchase agreements of United States government securities with
eligible commercial banks; corporate securities assigned the highest rating by
S&P not in excess of 10% of amounts in the related Certificate Account at the
time of such investment or pledge as security; and commercial paper assigned a
rating of at least A-1 by S&P. Any losses on such investments will be deducted
from other investment earnings or from other funds in the related Certificate
Account.
All receipts by the Servicer of payments with respect to the Contracts,
including Principal Prepayments and advance payments by Obligors not
constituting Principal Prepayments ('Advance Payments'), shall be paid into the
related Certificate Account no later than one business day following receipt
thereof, except amounts received as extension fees not allocated to regular
installments due on Contracts, which are retained by the Company as part of its
servicing fees and are not paid into the related Certificate Account. See
'Description of the Certificates -- Servicing Compensation and Payment of
Expenses' herein. In addition, all payments under FHA Insurance received by the
Servicer, any Advances by the Servicer or the Trustee as described under
'Description of the Certificates -- Advances,' and amounts paid by the Company
for Contracts repurchased as a result of breach of warranties under the
Agreement as described under 'Description of the Certificates -- Conveyance of
Contracts,' shall be paid into the related Certificate Account.
On the seventh Business Day of each month (the 'Determination Date'), the
Servicer will determine the Amount Available in each Certificate Account and the
amount of funds necessary to make all payments to be made on the next Payment
Date from such Certificate Account. Not later than one Business Day after the
Determination Date, the Company will deposit in the related Certificate Account
the Repurchase Price of any Contracts required to be repurchased on such Payment
Date as a result of a breach of representations and warranties.
DISTRIBUTIONS
Holders of the Certificates will be entitled to receive on each Payment
Date, to the extent that the Amount Available (together with, in the case of the
Class B-2 Certificates, the Class B-2 Guaranty Payment, and, in the case of the
Series 1994-CII Certificates, the Series 1994-CII Guaranty Payment, as described
below) in the Certificate Account for the applicable Trust is sufficient
therefor, distributions allocable to interest and principal, as described
herein. Distributions will be made on each Payment Date to holders of record of
the Certificates on the preceding Record Date, except that the final
distribution in respect of the Certificates will be made only upon presentation
and surrender of the Certificates at the office or agency appointed by the
applicable Trustee for that purpose in Minneapolis or St. Paul, Minnesota. The
Amount Available for either Trust on each Payment Date generally includes
scheduled payments on the related Contracts due during the previous calendar
month (the 'Due Period') and received on or prior to the related Determination
Date, prepayments and other unscheduled collections received on the related
Contracts during such Due Period, any Advances (as defined herein) made by the
Servicer or the related Trustee with respect to such Due Period and any amounts
paid by the Company to repurchase a related Contract due to a breach of
representation or warranty.
DISTRIBUTIONS ON THE SERIES 1994-CI CERTIFICATES
The Amount Available in the Series 1994-CI Certificate Account with respect
to any Payment Date will be applied first to the payment of interest on the
Series 1994-CI Certificates, and then to the
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payment of principal on the Series 1994-CI Certificates, in the manner and order
of priority described below.
Interest. Interest will be payable first to the Class A-1 Certificates,
then to the Class M-1 Certificates, then to the Class B-1 Certificates, and then
to the Class B-2 Certificates. Interest on each Class of Series 1994-CI
Certificates will be payable on each Payment Date in an amount equal to one
month's interest at the applicable Pass-Through Rate on the outstanding
Principal Balance of such Class immediately prior to such Payment Date; provided
that, in the case of the first Payment Date, such interest will be payable only
for the period from the Closing Date to but excluding October 15, 1994. The
'Principal Balance' of any Class with respect to any Payment Date will equal the
Original Principal Balance of such Class minus all distributions previously made
in respect of principal on such Class. Accrued interest will be computed on the
basis of a 360-day year of twelve 30-day months.
In the event that, on a particular Payment Date, the Amount Available in
the Series 1994-CI Certificate Account (after payment of interest on each Class
of Series 1994-CI Certificates that is senior to such Class of Series 1994-CI
Certificates), together with (in the case of the Class B-2 Certificates) any
related Class B-2 Guaranty Payment, is not sufficient to make a full
distribution of interest to the holders of a Class of Series 1994-CI
Certificates, the amount of the shortfall will be carried forward and added to
the amount such holders will be entitled to receive on the next Payment Date.
Any such amount so carried forward will bear interest at the applicable
Pass-Through Rate, to the extent legally permissible.
With respect to the Class B-1 and Class B-2 Certificates, the Pass-Through
Rate applicable to such Classes is subject to a maximum rate equal to the
effective weighted average of the Contract Rates of the Series 1994-CI
Contracts. In all but the most unusual prepayment scenarios, it is anticipated
that the Class B-1 Pass-Through Rate will be 8.8% and the Class B-2 Pass-Through
Rate will be 8.9%. In the unlikely event that a large number of Series 1994-CI
Contracts having Contract Rates equal to or higher than such rates (which
Contracts represent, in each case, approximately 99.87% of the Original Series
1994-CI Principal Balance) were to prepay while the Series 1994-CI Contracts
having Contract Rates lower than such rates did not prepay, then the Class B-1
Pass-Through Rate or the Class B-2 Pass-Through Rate, as the case may be, would
be equal to the effective weighted average of the Contract Rates on each
remaining Series 1994-CI Contract.
Principal. Each Class of Series 1994-CI Certificates will be entitled to
receive on each Payment Date as payments of principal, in the order of priority
set forth below and to the extent of the Amount Available in the Series 1994-CI
Certificate Account after payment of all interest then distributable on the
Series 1994-CI Certificates, an amount equal to the sum (such sum being
hereinafter referred to as the 'Series 1994-CI Monthly Principal') of (a) the
amount of regular principal payments on Series 1994-CI Contracts paid or applied
during the prior Due Period; (b) the amount of Principal Prepayments received on
Series 1994-CI Contracts during the prior Due Period; (c) the principal portion
of all payments on Series 1994-CI Contracts that were Delinquent Payments with
respect to the prior Due Period; (d) the unpaid principal balance of all Series
1994-CI Contracts that became Liquidated Contracts during the prior Due Period;
(e) the principal portion of the Repurchase Price paid by the Company to
repurchase Series 1994-CI Contracts for breach of representations and warranties
during the prior Due Period, as described below under 'Repurchases by the
Company'; (f) the amount of any reduction in the principal amount deemed owed on
any Series 1994-CI Contract as a result of the Obligor's bankruptcy; and (g) any
principal amount described in clauses (a) through (f) above that was not
previously distributed because of an insufficient amount of funds available in
the Series 1994-CI Certificate Account to the extent that either (i) such
Payment Date occurs after the Class B-2 Principal Balance has been reduced to
zero, or (ii) such principal amount was not covered by a Class B-2 Guaranty
Payment and corresponding reduction in the Class B-2 Principal Balance.
The Scheduled Principal Balance of a Contract for any month is its
principal balance as specified in its amortization schedule, after giving effect
to any previous Partial Principal Prepayments and to the scheduled payment due
on its scheduled payment date (the 'Due Date') in that month, but without giving
effect to any adjustments due to bankruptcy or similar proceedings. The Pool
Scheduled Principal Balance, with respect to either Trust and any Payment Date,
is the aggregate of the Scheduled Principal Balances of the Contracts in such
Trust outstanding at the end of the prior calendar month.
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The Series 1994-CI Monthly Principal will be distributed, to the extent of
the Amount Available in the Series 1994-CI Certificate Account after payment of
interest on each Class of Series 1994-CI Certificates, first, to the Class A-1
Certificateholders until the Class A-1 Principal Balance is reduced to zero,
then to the Class M-1 Certificateholders until the Class M-1 Principal Balance
is reduced to zero, then to the Class B-1 Certificateholders until the Class B-1
Principal Balance is reduced to zero, and then to the Class B-2
Certificateholders until the Class B-2 Principal Balance is reduced to zero.
On each Payment Date the Trustee will withdraw the Amount Available from
the Series 1994-CI Certificate Account and make the following payments, in the
following order of priority:
(i) to pay interest on the Series 1994-CI Certificates;
(ii) to pay principal on the Series 1994-CI Certificates;
(iii) to pay the Monthly Servicing Fee to the Servicer;
(iv) to reimburse the Series 1994-CI Trustee or any successor Servicer
for any payments of FHA Insurance premiums not paid by the Company, as
Servicer, and for which the Series 1994-CI Trustee or such successor
Servicer has not been reimbursed by the Company;
(v) to reimburse the Servicer or the Series 1994-CI Trustee, as
applicable, for Uncollectible Advances and prior Advances that have been
recovered;
(vi) to pay the related Guaranty Fee to the Company; and
(vii) to pay any remaining amounts to the holder of the Class C
Certificate.
SUBORDINATION OF THE CLASS M-1, B-1 AND B-2 CERTIFICATES
The rights of the Class M-1, Class B-1 and Class B-2 Certificateholders to
receive distributions on each Payment Date will be subordinated to such rights
of the Class A-1 Certificateholders; the rights of the Class B-1 and Class B-2
Certificateholders will be similarly subordinated to the rights of the Class M-1
Certificateholders; and the rights of the Class B-2 Certificateholders will be
similarly subordinated to the rights of the Class B-1 Certificateholders. This
subordination is intended to enhance the likelihood of regular receipt by the
Certificateholders of the more senior Classes of the full amount of their
scheduled monthly payments of interest and principal and to afford such holders
protection against losses on Liquidated Contracts.
The Class A-1 Certificateholders will be entitled to receive on any Payment
Date the amount of interest due on such Certificates, including any interest due
on a prior Payment Date but not received, prior to any distribution being made
on the remaining Classes of Series 1994-CI Certificates. Thereafter, any
remaining Amount Available in the Series 1994-CI Certificate Account will be
applied to the payment of interest due on the other classes of Series 1994-CI
Certificates in the following order of priority: first to the Class M-1
Certificates, then to the Class B-1 Certificates and, finally, to the Class B-2
Certificates.
After payment of all interest due on the Series 1994-CI Certificates, any
remaining Amount Available will be distributed in the following order of
priority: the Class A-1 Certificateholders will be entitled to receive 100% of
the Series 1994-CI Monthly Principal until the Class A-1 Principal Balance is
reduced to zero, then the Class M-1 Certificateholders will be entitled to
receive 100% of the Series 1994-CI Monthly Principal until the Class M-1
Principal Balance is reduced to zero, then the Class B-1 Certificateholders will
be entitled to receive 100% of the Series 1994-CI Monthly Principal until the
Class B-1 Principal Balance is reduced to zero, and then the Class B-2
Certificateholders will be entitled to receive 100% of the Series 1994-CI
Monthly Principal until the Class B-2 Principal Balance is reduced to zero.
DISTRIBUTIONS ON THE SERIES 1994-CII CERTIFICATES
Interest. Interest on the Series 1994-CII Certificates will be payable on
each Payment Date in an amount equal to one month's interest at the Series
1994-CII Pass-Through Rate on the outstanding Series 1994-CII Principal Balance
immediately prior to such Payment Date; provided that, in the case of the first
Payment Date, such interest will be payable only for the period from the Closing
Date to but
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excluding October 15, 1994. The 'Series 1994-CII Principal Balance' with respect
to any Payment Date will equal the Original Series 1994-CII Principal Balance
minus all distributions previously made in respect of principal on the Series
1994-CII Certificates. Accrued interest will be computed on the basis of a
360-day year of twelve 30-day months.
In the event that, on a particular Payment Date, the Amount Available in
the Series 1994-CII Certificate Account, together with any related Series
1994-CII Guaranty Payment, is not sufficient to make a full distribution of
interest to the Series 1994-CII Certificateholders, the amount of the shortfall
will be carried forward and added to the amount such holders will be entitled to
receive on the next Payment Date. Any such amount so carried forward will bear
interest at the Series 1994-CII Pass-Through Rate, to the extent legally
permissible.
Principal. On each Payment Date, Series 1994-CII Certificateholders will be
entitled to receive as distributions of principal, to the extent of the Amount
Available in the Series 1994-CII Certificate Account after payment of all
interest payable on the Series 1994-CII Certificates, an amount equal to the sum
(such sum being hereinafter referred to as the 'Series 1994-CII Monthly
Principal') of (a) the amount of regular principal payments on Series 1994-CII
Contracts paid or applied during the prior Due Period; (b) the amount of
Principal Prepayments received on Series 1994-CII Contracts during the prior Due
Period; (c) the principal portion of all payments on Series 1994-CII Contracts
that were Delinquent Payments with respect to the prior Due Period; (d) the
unpaid principal balance of all Series 1994-CII Contracts that became Liquidated
Contracts during the prior Due Period; (e) the principal portion of the
Repurchase Price paid by the Company to repurchase Series 1994-CII Contracts for
breach of representations and warranties during the prior Due Period, as
described below under 'Repurchases by the Company'; (f) the amount of any
reduction in the principal amount deemed owed on any Series 1994-CII Contract as
a result of the Obligor's bankruptcy; and (g) any principal amount described in
clauses (a) through (f) above that was not previously distributed because of an
insufficient amount of funds available in the Series 1994-CII Certificate
Account and the Company either was not obligated to or failed to pay such amount
under the Series 1994-CII Limited Guaranty.
On each Payment Date the Trustee will withdraw the Amount Available from
the Series 1994-CII Certificate Account and make the following payments, in the
following order of priority:
(i) to pay interest on the Series 1994-CII Certificates;
(ii) to pay principal on the Series 1994-CII Certificates;
(iii) to pay the Monthly Servicing Fee to the Servicer;
(iv) to reimburse the Servicer or the Series 1994-CII Trustee, as
applicable, for Uncollectible Advances and prior Advances that have been
recovered; and
(v) to pay the remainder, if any, to the Company as the related
Guaranty Fee.
ADVANCES
To the extent that collections on a Contract in any Due Period are less
than the scheduled payment due thereon, the Servicer will be obligated to make
an advance of the uncollected portion of such scheduled payment. The Servicer
will be obligated to advance a delinquent payment on a Contract only to the
extent that the Servicer, in its sole discretion, expects to recoup such Advance
from subsequent collections on the Contract or from liquidation proceeds
thereof. The Servicer will deposit any Advances in the related Certificate
Account no later than one Business Day before the following Payment Date. The
Servicer will be entitled to recoup its advances on a Contract from subsequent
payments by or on behalf of the Obligor and from liquidation proceeds (including
FHA Insurance payments, if applicable, or foreclosure resale proceeds) of the
Contract, and will release its right to reimbursements in conjunction with the
purchase of the Contract by the Company for breach of representations and
warranties. If the Servicer determines in good faith that an amount previously
advanced will not ultimately be recoverable from payments by or on behalf of the
Obligor or from liquidation proceeds (including FHA Insurance payments or
foreclosure resale proceeds) of the Contract (an 'Uncollectible Advance'), the
Servicer will be entitled to reimbursement from payments on other Contracts in
the related Trust.
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If the Servicer fails to make an Advance required under an Agreement, the
Trustee will be obligated to deposit the amount of such Advance in the related
Certificate Account on the Payment Date. The Trustee will not, however, be
obligated to deposit any such amount if (i) the Trustee does not expect to
recoup such Advance from subsequent collections on the Contract or from
liquidation proceeds thereof, or (ii) the Trustee determines that it is not
legally able to make such Advance.
REPORTS TO CERTIFICATEHOLDERS
The Servicer will include with each distribution to a Certificateholder a
statement as of such Payment Date setting forth, with respect to the appropriate
Series of Certificates and Trust:
(a) the amount of interest being paid to each Class of
Certificateholders;
(b) the amount of Monthly Principal, specifying the amounts
constituting scheduled payments by Obligors, Principal Prepayments on the
Contracts, and other payments with respect to the Contracts;
(c) the amount of principal being distributed to each Class of
Certificateholders;
(d) the Principal Balance of each Class;
(e) the amount of fees payable out of the Trust;
(f) the related Pool Factor (a percentage derived from a fraction the
numerator of which is the remaining Principal Balance of the Certificates
and the denominator of which is the Original Principal Balance of such
Certificates) immediately before and immediately after such Payment Date;
(g) the number and aggregate principal balance of Contracts delinquent
(i) 31-59 days, (ii) 60-89 and (iii) 90 or more days;
(h) the number of Contracts liquidated during the Due Period ending
immediately before such Payment Date;
(i) such customary factual information as is necessary to enable
Certificateholders to prepare their tax returns; and
(j) such other customary factual information available to the Servicer
without unreasonable expense as is necessary to enable Certificateholders
to comply with regulatory requirements.
REPURCHASE OPTION
Each Agreement provides that on any Payment Date on which the Pool
Scheduled Principal Balance is less than 10% of the Original Principal Balance
of such Certificates, the Servicer will have the option to repurchase, on 20
days' prior written notice to the Trustee, all outstanding Contracts (other
than, in the case of the Series 1994-CI Contracts, any Contract as to which
title to the underlying property has been assigned) in such Trust at a price
equal to the principal balance of the Contracts on the prior Payment Date plus
accrued interest thereon at the related Pass-Through Rate (which, in the case of
a Series 1994-CI Contract, will be the weighted average of the Class A-1, M-1,
B-1 and B-2 Pass-Through Rates, and, in the case of a Series 1994-CII Contract,
will be the Series 1994-CII Pass-Through Rate), plus (in the case of the Series
1994-CI Contracts) the fair market value (as determined by the Servicer) of any
acquired properties. Such price will be paid on the Payment Date to the related
Certificateholders of record on the last Business Day of the immediately
preceding Due Period in immediately available funds against the Trustee's
delivery of the Contracts to the Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will manage, administer, service and make collections on the
Contracts, exercising the degree of skill and care required by FHA and otherwise
consistent with the highest degree of skill and care that the Servicer exercises
with respect to similar contracts (including manufactured housing contracts)
serviced by the Servicer. The Servicer will not be required to cause to be
maintained, or otherwise monitor the maintenance of, hazard insurance on the
improved properties, but is required
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under FHA regulations to monitor and ensure the maintenance of flood insurance
on properties securing FHA-insured Contracts located in federally designated
special flood hazard areas. The Company does, however, as a matter of its own
policy, monitor proof of hazard insurance coverage (other than flood insurance)
and require that it be named as an additional loss payee on all first lien
secured contracts and on all junior lien secured contracts with amounts financed
of over $20,000.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will receive a Monthly Servicing Fee for each Due Period (paid
on the next succeeding Payment Date) equal to one-twelfth of the product of .75%
and the remaining Principal Balance of the related Contracts.
The Monthly Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the related Trust, for
additional administrative services performed by the Servicer on behalf of the
related Trust and for expenses paid by the Servicer on behalf of the related
Trust.
Customary servicing activities include collecting and recording payments,
communicating with Obligors, investigating payment delinquencies, providing
billing and tax records to Obligors and maintaining internal records with
respect to each Contract. Administrative services performed by the Servicer on
behalf of each Trust include selecting and packaging the related Contracts,
calculating distributions to Certificateholders and providing related data
processing and reporting services for Certificateholders and on behalf of the
related Trustee. Expenses incurred in connection with servicing of the Contracts
and paid by the Company from its servicing fees include payment of FHA Insurance
premiums, payment of fees and expenses of accountants, payments of all fees and
expenses incurred in connection with the enforcement of Contracts or (in the
case of Secured Contracts) foreclosure on collateral relating thereto (including
submission of FHA Insurance claims, if applicable), payment of Trustee's fees,
and payment of expenses incurred in connection with distributions and reports to
Certificateholders.
EVIDENCE AS TO COMPLIANCE
Each Agreement provides for delivery to the Trustee of a monthly report by
the Servicer no later than one Business Day following each Determination Date,
setting forth the information described under 'Description of the
Certificates -- Reports to Certificateholders.' Each report to the Trustee will
be accompanied by a statement from an appropriate officer of the Servicer
certifying the accuracy of such report and stating that the Servicer has not
defaulted in the performance of its obligations under the related Agreement. On
or before May 1 of each year, beginning in 1995, the Servicer will deliver to
the Trustee a report of KPMG Peat Marwick, or another nationally recognized
accounting firm, stating that such firm has examined the Servicer's servicing
records with respect to home improvement contracts serviced by the Servicer and
stating that, on the basis of such examination, such servicing has been
conducted in compliance with the related Agreement, except for any exceptions
set forth in such report.
Each Agreement provides that the Servicer shall furnish to the Trustee such
reasonably pertinent underlying data as can be generated by the Company's
existing data processing system without undue modification or expense.
Each Agreement provides that a Certificateholder holding Certificates
evidencing at least 5% of the interests in the related Trust will have the same
rights of inspection as the Trustee and may upon written request to the Servicer
receive copies of all reports provided to the Trustee.
TRANSFERABILITY
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code. See 'ERISA Considerations' herein and in
the Prospectus.
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CERTAIN MATTERS RELATING TO THE COMPANY
Each Agreement provides that the Company may not resign from its
obligations and duties as Servicer thereunder, except upon a determination that
the Company's performance of such duties is no longer permissible under the
Agreement or applicable law, and prohibits the Company from extending credit to
any Certificateholder for the purchase of a Certificate, purchasing Certificates
in any agency or trustee capacity or lending money to the related Trust. The
Company can be removed as Servicer only pursuant to an Event of Termination as
discussed below.
EVENTS OF TERMINATION
An Event of Termination under each of the Agreements will occur if (a) the
Servicer fails to make any payment or deposit required under the Agreement
(including an Advance) and such failure continues for four business days; (b)
the Servicer fails to observe or perform in any material respect any other
covenant or agreement in the Agreement which continues unremedied for thirty
days; (c) the Servicer conveys, assigns or delegates its duties or rights under
the Agreement, except as specifically permitted under the Agreement, or attempts
to make such a conveyance, assignment or delegation; (d) a court having
jurisdiction in the premises enters a decree or order for relief in respect of
the Servicer in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appoints a receiver,
liquidator, assignee, custodian, trustee, or sequestrator (or similar official)
of the Servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs; (e) the Servicer commences a voluntary
case under any applicable bankruptcy, insolvency or similar law, or consents to
the entry of an order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits in writing
its inability to, pay its debts as they become due, or takes any corporate
action in furtherance of the foregoing; (f) the Servicer fails to be an Eligible
Servicer; or (g) the Servicer's seller-servicer contract with GNMA is
terminated. The Servicer will be required under each Agreement to give the
Trustee and the related Certificateholders notice of an Event of Termination
promptly upon the occurrence of such Event.
RIGHTS UPON AN EVENT OF TERMINATION
If an Event of Termination has occurred and is continuing, either the
Trustee or holders of Certificates evidencing 25% or more of the related Trust
may terminate all of the Servicer's management, administrative, servicing and
collection functions under the Agreement. Upon such termination, the Trustee or
its designee will succeed to all the responsibilities, duties and liabilities of
the Company as Servicer under the Agreement and will be entitled to similar
compensation arrangements; provided, however, that neither the Trustee nor any
successor Servicer will assume any accrued obligation of the Company or any
obligation to repurchase Contracts for breach of representations and warranties,
and the Trustee will not be liable for any acts or omissions of the Company
occurring prior to a transfer of the Company's servicing and related functions
or for any breach by the Company of any of its representations and warranties
contained in the related Agreement or any related document or agreement. In
addition, the Trustee will notify FHA of the Company's termination as Servicer
of the FHA-insured Contracts and will request that the portion of the Company's
FHA Insurance reserves allocable to the FHA-insured Contracts be transferred to
the Trustee or a successor Servicer. See 'Description of FHA Insurance' in the
Prospectus. Notwithstanding such termination, the Company shall be entitled to
payment of certain amounts payable to it prior to such termination, for services
rendered prior to such termination. No such termination will affect in any
manner the Company's obligation to repurchase certain Contracts for breaches of
warranties under the Agreement. In the event that the Trustee is unwilling or
unable so to act, it may appoint, or petition a court of competent jurisdiction
for the appointment of, an Eligible Servicer to act as successor to the Company
in its capacity as servicer under either Agreement. The Trustee and such
successor may agree upon the servicing compensation to be paid (after receiving
comparable bids from other Eligible Servicers), which may not be greater than
the Monthly Servicing Fee payable to the Company under the related Agreement.
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TERMINATION OF THE AGREEMENT
Each Agreement will terminate (after distribution of all Monthly Principal
and Monthly Interest then due to Certificateholders) on the earlier of (a) the
Payment Date on which the aggregate Principal Balance of the related
Certificates is reduced to zero; or (b) the Payment Date on which the Company
repurchases the related Contracts as described under 'Description of the
Certificates -- Repurchase Option.' However, the Company's representations,
warranties and indemnities will survive any termination of either Agreement.
AMENDMENT; WAIVER
Each Agreement may be amended by agreement of the Trustee and the Company
at any time without the consent of the Certificateholders to cure any ambiguity,
to correct or supplement any provision which may be inconsistent with any other
provision or to add other provisions not inconsistent with the Agreement, upon
receipt of an opinion of counsel to the Company that such amendment will not
adversely affect in any material respect the interests of any Certificateholder.
The Series 1994-CI Agreement may also be amended by agreement of the Series
1994-CI Trustee and the Company at any time without the consent of the Series
1994-CI Certificateholders to effect the transfer of FHA Insurance reserves to
another entity in compliance with revisions to FHA regulations, provided that
prior to any such amendment S&P shall have confirmed that the ratings of the
Series 1994-CI Certificates will not be lowered or withdrawn following such
amendment.
Each Agreement may also be amended from time to time by the Trustee and the
Company with the consent of holders of Certificates evidencing 66 2/3% or more
of the related Trust, and holders of Certificates representing 66 2/3% of the
related Trust may vote to waive any Event of Termination, provided that no such
amendment or waiver shall (a) reduce in any manner the amount of, or delay the
timing of, collections of payments on Contracts or distributions which are
required to be made on any Certificate, or (b) reduce the aggregate amount of
Certificates required for any amendment of the Agreement, without unanimous
consent of the Certificateholders.
The Trustee is required under each Agreement to furnish Certificateholders
with notice promptly upon execution of any amendment to the Agreement.
INDEMNIFICATION
Each Agreement provides that the Company will defend and indemnify the
related Trust, the Trustee (including any agent of the Trustee) and the
Certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation (a) arising out of or resulting from the use or ownership by the
Company or any affiliate thereof of any real estate securing a Contract, (b) for
any taxes which may at any time be asserted with respect to, and as of the date
of, the conveyance of the Contracts to the Trust (but not including any federal,
state or other tax arising out of the creation of the Trust and the issuance of
the Certificates), and (c) with respect to certain other tax matters.
Each Agreement also provides that the Company, in connection with its
duties as servicer of the related Contracts, will defend and indemnify the
related Trust, the Trustee and the Certificateholders (which indemnification
will survive any removal of the Company as servicer of the Contracts) against
any and all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, in respect
of any action taken by the Company as Servicer with respect to any Contract.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of either Agreement, the Certificates or of any Contract, Contract file or
related documents, and will not be accountable for the use or application by the
Company of any funds paid to the Company in consideration of the conveyance of
the Contracts, or deposited into the applicable Certificate Account by the
Company. If no Event of Termination has occurred, the Trustee will be required
to perform only those duties
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specifically required of it under the applicable Agreement. However, upon
receipt of the various certificates, reports or other instruments required to be
furnished to it, the Trustee will be required to examine them to determine
whether they conform as to form to the requirements of the related Agreement.
Under each Agreement the Servicer will agree (a) to pay to the Trustee from
time to time reasonable compensation for all services rendered by it thereunder
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust); (b) to reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of the
Agreement (including FHA Insurance premiums not paid by the Servicer and
reasonable compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and (c) to indemnify the Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the related Trust and its duties
thereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties thereunder.
The Trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under either
Agreement if there is a reasonable ground for believing that the repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured.
Each Agreement also provides that the Trustee will maintain at its expense
in Minneapolis or St. Paul, Minnesota, an office or agency where Certificates
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Trustee and the certificate registrar and transfer
agent in respect of the Certificates pursuant to the Agreement may be served. On
the date hereof the Trustee's office for such purposes is located at 180 East
Fifth Street, St. Paul, Minnesota 55101. The Trustee will promptly give written
notice to the Company and the Certificateholders of any change thereof.
THE TRUSTEE
First Trust National Association has its corporate trust offices at 180
East Fifth Street, St. Paul, Minnesota 55101.
The Trustee may resign from its duties under either (or both) or the
Agreements at any time, in which event the Servicer will be obligated to appoint
a successor Trustee. The Servicer may also remove the Trustee if the Trustee
ceases to be eligible to continue as such under the related Agreement or if the
Trustee becomes insolvent. In such circumstances, the Servicer will also be
obligated to appoint a successor Trustee. Any resignation or removal of the
Trustee and appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee. Any successor Series
1994-CI Trustee must be an FHA Title I approved lender.
REGISTRATION OF THE CERTIFICATES
The Certificates (except for one Series 1994-CII Certificate with an
initial principal balance of less than $1.00) initially will be registered in
the name of Cede & Co., the nominee of DTC. The Certificates may be held by
investors only through the book-entry facilities of DTC in minimum denominations
of $1,000. DTC is a limited-purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the New York Uniform Commercial Code, and a
'clearing agency' registered pursuant to the provisions of Section 17A of the
1934 Act. DTC accepts securities for deposit from its participating
organizations ('Participants') and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers,
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dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ('indirect
participants').
The beneficial owners of Certificates ('Certificate Owners') who are not
Participants but desire to purchase, sell or otherwise transfer ownership of the
Certificates may do so only through Participants (unless and until Definitive
Certificates, as defined below, are issued). In addition, Certificate Owners
will receive all distributions of principal of, and interest on, the
Certificates from the Trustee through DTC and Participants. Certificate Owners
will not receive or be entitled to receive certificates representing their
respective interests in the Certificates, except under the limited circumstances
described below.
Unless and until Definitive Certificates (as defined below) are issued, it
is anticipated that the only 'Certificateholder' of the Certificates will be
Cede & Co., as nominee of DTC. Certificate Owners will not be recognized by the
Trustee as Certificateholders as that term is used in each Agreement.
Certificate Owners are only permitted to exercise the rights of
Certificateholders indirectly through Participants and DTC.
While 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
the Certificates and is required to receive and transmit distributions of
principal of, and interest on, the Certificates. Participants with whom
Certificate Owners have accounts with respect to Certificates are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess certificates, the Rules provide a
mechanism by which Certificate Owners will receive distributions and will be
able to transfer their interests.
Certificates will be issued in registered form to Certificate Owners, or
their nominees, rather than to DTC (such Certificates being referred to herein
as 'Definitive Certificates'), only if (i) DTC or the Company advise the Trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as nominee and depository with respect to the Certificates and
the Company or the Trustee is unable to locate a qualified successor or (ii) the
Company at its sole option advises the Trustee in writing that it elects to
terminate the book-entry system through DTC. Upon issuance of Definitive
Certificates to Certificate Owners, such Certificates will be transferable
directly (and not exclusively on a book-entry basis) and registered holders will
deal directly with the Trustee with respect to transfers, notices and
distributions.
DTC has advised the Company that, unless and until Definitive Certificates
are issued, DTC will take any action permitted to be taken by a
Certificateholder under the related Agreement only at the direction of one or
more Participants to whose DTC accounts the Certificates are credited. DTC has
advised the Company that DTC will take such action with respect to any
fractional interest of the Certificates only at the direction of and on behalf
of such Participants beneficially owning a corresponding fractional interest of
the Certificates. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates which conflict with actions
taken with respect to other Certificates.
Issuance of Certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the Certificates in the
secondary market and the ability of Certificate Owners to pledge them. In
addition, since distributions on the Certificates will be made by the Trustee to
DTC and DTC will credit such distributions to the accounts of its Participants,
with the Participants further crediting such distributions to the accounts of
indirect participants or Certificate Owners, Certificate Owners may experience
delays in the receipt of such distributions.
DESCRIPTION OF THE CLASS B-2 LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Class B-2
Certificates and liquidation losses and delinquencies on the Series 1994-CI
Contracts, the Company will provide a guaranty (the 'Class B-2 Limited
Guaranty') against losses that would otherwise be absorbed by the Class B-2
Certificates. On each Payment Date, the Company will be obligated to remit to
the Series 1994-CI
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Trustee for deposit in the Series 1994-CI Certificate Account a 'Class B-2
Guaranty Payment' equal to the amount, if any, by which (a) the sum of (i) the
Class B-2 Formula Distribution Amount for that Payment Date (equal to one
month's interest at the Class B-2 Pass-Through Rate on the Class B-2 Principal
Balance plus (if the Class B-1 Principal Balance has been reduced to zero) the
Series 1994-CI Monthly Principal for such Payment Date) and (ii) the Class B-2
Principal Deficiency Amount, if any, for that Payment Date, exceeds (b) the
Class B-2 Distribution Amount for such Payment Date. The Class B-2 Principal
Deficiency Amount for any Payment Date equals the amount, if any, by which the
sum of the Class A-1 Principal Balance, Class M-1 Principal Balance, Class B-1
Principal Balance and Class B-2 Principal Balance (after giving effect to all
distributions in respect of principal on such Payment Date) exceeds the Pool
Scheduled Principal Balance for such Payment Date. The Class B-2 Principal
Deficiency Amount is, in substance, the amount of principal delinquencies and
losses experienced on the Series 1994-CI Contracts during the related Due Period
that was not absorbed by the Guaranty Fee or the Monthly Servicing Fee relating
to the Series 1994-CI Trust.
The Class B-2 Limited Guaranty will be an unsecured general obligation of
the Company and will not be supported by any letter of credit or other credit
enhancement arrangement. The Class B-2 Limited Guaranty will not benefit in any
way, or result in any payment to, the Class A-1, Class M-1 or Class B-1
Certificateholders or the Series 1994-CII Certificateholders.
As compensation for providing the Class B-2 Limited Guaranty, the Company
will be entitled to receive a Guaranty Fee on each Payment Date equal to the
Amount Available in the Series 1994-CII Certificate Account less the Class A-1
Distribution Amount, the Class M-1 Distribution Amount, the Class B-2
Distribution Amount, the Class B-2 Distribution Amount, the Monthly Servicing
Fee under the Series 1994-CI Agreement and certain amounts required to reimburse
the Series 1994-CI Trustee or the Servicer, as described under 'Description of
the Certificates -- Distributions on the Series 1994-CI Certificates.'
DESCRIPTION OF THE SERIES 1994-CII LIMITED GUARANTY
In order to mitigate the effect of liquidation losses and delinquencies on
the Series 1994-CII Contracts, the Series 1994-CII Certificateholders are
entitled to receive on each Payment Date (subject to the limit of the Series
1994-CII Guaranty Amount) the amount equal to the Series 1994-CII Guaranty
Payment, if any, under the Series 1994-CII Limited Guaranty of the Company. The
Series 1994-CII Guaranty Payment for any Payment Date will equal the amount, if
any, by which the Series 1994-CII Formula Distribution Amount (equal to one
month's interest at the Series 1994-CII Pass-Through Rate on the Series 1994-CII
Principal Balance plus the Series 1994-CII Monthly Principal for such Payment
Date) exceeds the Amount Available in the Series 1994-CII Certificate Account
for such Payment Date.
The 'Series 1994-CII Guaranty Amount' initially equals $1,154,601.
Thereafter, on any Payment Date, the Series 1994-CII Guaranty Amount will equal
$1,154,601 minus all Net Liquidation Losses realized on the Series 1994-CII
Contracts since the Cut-off Date. 'Net Liquidation Loss' means, as to a
Liquidated Series 1994-CII Contract, the amount, if any, by which (a) the
outstanding principal balance of such Liquidated Series 1994-CII Contract plus
accrued and unpaid interest thereon at the Series 1994-CII Pass-Through Rate to
the date on which such Liquidated Series 1994-CII Contract became a Liquidated
Contract exceeds (b) the Net Liquidation Proceeds for such Liquidated Series
1994-CII Contract. 'Net Liquidation Proceeds' means, as to a Liquidated Series
1994-CII Contract, all proceeds received on or prior to the last day of the Due
Period in which such Series 1994-CII Contract became a Liquidated Contract, net
of expenses.
The Series 1994-CII Limited Guaranty will be an unsecured general
obligation of the Company and will not be supported by any letter of credit or
other credit enhancement arrangement. The Series 1994-CII Limited Guaranty will
not benefit in any way, or result in any payment to, the Series 1994-CI
Certificateholders.
As compensation for providing the Series 1994-CII Limited Guaranty, the
Company will be entitled to receive a Guaranty Fee on each Payment Date equal to
the Amount Available in the Series 1994-CII Certificate Account less the amounts
distributed to the Series 1994-CII Certificateholders, the Monthly
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Servicing Fee under the Series 1994-CII Agreement and certain amounts required
to reimburse the Series 1994-CII Trustee or the Servicer, as described under
'Description of the Certificates -- Distributions on the Series 1994-CII
Certificates.'
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
SERIES 1994-CI CERTIFICATES
With respect to the Series 1994-CI Certificates, Dorsey & Whitney, counsel
to the Company, will deliver its opinion that, assuming ongoing compliance with
the terms of the Series 1994-CI Agreement, upon the issuance of the Series
1994-CI Certificates, the Series 1994-CI Trust will qualify as a REMIC for
federal income tax purposes. The Class A-1, Class M-1, Class B-1 and Class B-2
Certificates will constitute 'regular interests' in the REMIC. The Class C
Certificate, which is not being offered hereunder, will constitute the sole
class of 'residual interests' in the REMIC.
It is not anticipated that any of the Series 1994-CI Certificates will be
issued with original issue discount for federal income tax purposes. The
prepayment assumption that will be used to determine the rate of accrual of
market discount and premium, if any, will be based on the assumption that the
Series 1994-CI Contracts will prepay at a rate equal to 16% CPR.
Series 1994-CI Certificates held by financial institutions, thrift
institutions taxed as domestic building and loan associations and real estate
investment trusts will represent interests in 'qualifying real property loans,'
'loans secured by an interest in real property' and 'real estate assets' for
purposes of Sections 593(d), 7701(a)(19)(C) or 856(c)(5) of the Code,
respectively. Furthermore, interest paid with respect to Series 1994-CI
Certificates held by a real estate investment trust will be considered to be
'interest on obligations secured by mortgages on real property or on interests
in real property' for purposes of Section 856(c)(3) of the Code.
For further information regarding federal income tax consequences of
investing in the Series 1994-CI Certificates, see 'Certain Federal Income Tax
Consequences -- REMIC Series' in the Prospectus.
SERIES 1994-CII CERTIFICATES
With respect to the Series 1994-CII Certificates, Dorsey & Whitney, counsel
to the Company, will deliver its opinion that, assuming ongoing compliance with
the terms of the Series 1994-CII Agreement, the Series 1994-CII Trust will be
classified as a grantor trust for federal income tax purposes and not as an
association which is taxable as a corporation. The Company does not intend to
treat the Series 1994-CII Certificates as Stripped Certificates for federal
income tax reporting purposes. If, however, any fees paid to the Company are
deemed to exceed a reasonable amount, the Series 1994-CII Certificates may be
required to be so treated.
Series 1994-CII Certificates held by financial institutions, thrift
institutions taxed as domestic building and loan associations and real estate
investment trusts will not represent interests in 'qualifying real property
loans,' 'loans secured by an interest in real property' or 'real estate assets'
for purposes of Sections 593(d), 7701(a)(19)(C) or 856(c)(5) of the Code,
respectively. Furthermore, interest paid with respect to Series 1994-CII
Certificates held by a real estate investment trust will not be considered to be
'interest on obligations secured by mortgages on real property or on interests
in real property' for purposes of Section 856(c)(3) of the Code.
For purposes of the exemption from United States withholding tax described
in the Prospectus, potential foreign investors are advised that all of the
Series 1994-CII Contracts were originated after July 18, 1984.
For further information regarding federal income tax consequences of
investing in the Series 1994-CII Certificates, see 'Certain Federal Income Tax
Consequences -- Non-REMIC Series' in the Prospectus.
ERISA CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under 'ERISA
Considerations.'
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The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee benefit plans that are subject to ERISA
('Plans') and on persons who are fiduciaries with respect to such 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-1 Certificates without regard to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws. However, any such governmental or church plan which is qualified under
section 401(a) of the Code and exempt from taxation under section 501(a) of the
Code is subject to the prohibited transaction rules set forth in section 503 of
the Code.
The U.S. Department of Labor ('DOL') has granted an administrative
exemption to Merrill Lynch, Pierce, Fenner & Smith Incorporated (Prohibited
Transaction Exemption 90-29; Exemption Application No. D-8012, 55 Fed. Reg.
21,459 (1990)) (the 'Exemption') from certain of the prohibited transaction
rules of ERISA and the Code with respect to the initial purchase, the holding
and the subsequent resale by Plans of certificates representing interests in
asset-backed pass-through trusts that consist of certain receivables, loans and
other obligations that meet the conditions and requirements of the Exemption.
The receivables covered by the Exemption include home improvement contracts such
as the Series 1994-CI Contracts. The Exemption will apply to the acquisition,
holding, and resale of the Class A-1 Certificates by a Plan, provided that
specified conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the Class A-1 Certificates are the following:
(1) The acquisition of the Class A-1 Certificates by a Plan is on
terms (including the price for the Class A-1 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 Class A-1 Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the 1994-CI Trust;
(3) The Class A-1 Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either S&P, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(5) The sum of all payments made to the Underwriter in connection with
the distribution of the Class A-1 Certificates represents not more than
reasonable compensation for underwriting the Class A-1 Certificates. The
sum of all payments made to and retained by the Company pursuant to the
sale of the Contracts to the 1994-CI Trust represents not more than the
fair market value of such Contracts. The sum of all payments made to and
retained by the Servicer represents not more than reasonable compensation
for the Servicer's services under the Series 1994-CI Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Class A-1 Certificates is an 'accredited
investor' as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Class A-1 Certificates in
connection with the initial issuance, at least fifty (50) percent of the Class
A-1 Certificates are acquired by persons independent of the Restricted Group (as
defined below), (ii) the Plan's investment in Class A-1 Certificates does not
exceed twenty-five (25) percent of all of the Class A-1 Certificates outstanding
at the time of the acquisition and (iii) immediately after the acquisition, no
more than twenty-five (25) percent of the assets of the Plan are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Company, the Underwriter, the Trustee, the Servicer, any
obligor with respect to Contracts included in the Series 1994-CI Trust
constituting more than five (5) percent of the aggregate unamortized principal
balance of the assets in the Series 1994-CI Trust or any affiliate of such
parties (the 'Restricted Group').
S-43
<PAGE>
The Company believes that the Exemption will apply to the acquisition and
holding of Class A-1 Certificates sold by the Underwriter and by Plans and that
all conditions of the Exemption other than those within the control of the
investors have been met. In addition, as of the date hereof, no obligor with
respect to Contracts included in the Series 1994-CI Trust constitutes more than
five (5) percent of the aggregate unamortized principal balance of the assets of
the Series 1994-CI Trust. Any Plan fiduciary who proposes to cause a Plan to
purchase Class A-1 Certificates should consult with its own counsel with respect
to the potential consequences under ERISA and the Code of the Plan's acquisition
and ownership of the Class A-1 Certificates. Assets of a Plan or individual
retirement account should not be invested in the Class A-1 Certificates unless
it is clear that the assets of the Series 1994-CI Trust will not be plan assets
or unless it is clear that the Exemption or a prohibited transaction class
exemption will apply and exempt all potential prohibited transactions. See
'ERISA Considerations' in the Prospectus.
No transfer of any other Class of Certificates will be permitted to be made
to a Plan unless such Plan, at its expense, delivers to the Trustee and the
Company an opinion of counsel (in form satisfactory to the Trustee and the
Company) to the effect that the purchase or holding of any other Class of
Certificates by such Plan will not result in the assets of the related Trust
being deemed to be 'plan assets' and subject to the prohibited transaction
provisions of ERISA and the Code and will not subject the Trustee, the Company
or the Servicer to any obligation or liability in addition to those undertaken
in the respective Agreement. Unless such opinion is delivered, each person
acquiring such a Certificate will be deemed to represent to the Trustee, the
Company and the Servicer that such person is neither a Plan, nor acting on
behalf of a Plan, subject to ERISA or to Section 4975 of the Code.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of separate
Underwriting Agreements, to purchase the Series 1994-CI Certificates and the
Series 1994-CII Certificates at the respective prices set forth on the cover
page of this Prospectus Supplement.
In each Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any such Certificates are purchased. In the event of a default
by the Underwriter, each Underwriting Agreement provides that, in certain
circumstances, the Underwriting Agreement may be terminated.
The Underwriter proposes to offer the Certificates in part directly to
purchasers at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain securities dealers at such
price less concessions not to exceed .35% of the Original Class A-1 Principal
Balance, .45% of the Original Class M-1 Principal Balance, .6% of the Original
Class B-1 Principal Balance, .725% of the Original Class B-2 Principal Balance
or .5% of the Original Series 1994-CII Principal Balance, as applicable. The
Underwriter may allow, and such dealers may reallow, concessions not to exceed
.15% of Original Class A-1 Principal Balance, .225% of the Original Class M-1
Principal Balance, .3% of the Original Class B-1 Principal Balance, .3% of the
Original Class B-2 Principal Balance or .25% of the Original Series 1994-CII
Principal Balance, as applicable, to certain brokers and dealers. After the
Certificates are released for sale to the public, the offering price and other
selling terms may be varied by the Underwriter.
Each Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Underwriter may be
required to make in respect thereof.
The Company has agreed that for a period of 30 days from the date of this
Prospectus Supplement it will not offer or sell publicly any other home
improvement contract pass-through certificates without the consent of the
Underwriter.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Company and the Trusts by Dorsey & Whitney (a partnership
including professional associations), Minneapolis, Minnesota, and for the
Underwriter by Thacher Proffitt & Wood, New York, New York. The material federal
income tax consequences of the Certificates will be passed upon for the Company
by Dorsey & Whitney.
S-44
<PAGE>
__________________________________ __________________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS SUPPLEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CERTIFICATES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR IN AFFAIRS OF THE TRUSTS SINCE THE
DATE HEREOF.
- ----------------------------------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of the Terms of the Certificates......................................................................... S-3
Special Considerations........................................................................................... S-13
Structure of the Transaction..................................................................................... S-13
Use of Proceeds.................................................................................................. S-14
The Contracts.................................................................................................... S-14
Yield and Prepayment Considerations.............................................................................. S-23
Green Tree Financial Corporation................................................................................. S-28
Description of the Certificates.................................................................................. S-28
Description of the Class B-2 Limited Guaranty.................................................................... S-40
Description of the Series 1994-CII Limited Guaranty.............................................................. S-41
Certain Federal Income Tax Consequences.......................................................................... S-42
ERISA Considerations............................................................................................. S-42
Underwriting..................................................................................................... S-44
Legal Matters.................................................................................................... S-44
PROSPECTUS
Reports to Certificateholders.................................................................................... 2
Available Information............................................................................................ 2
Additional Information........................................................................................... 2
Incorporation of Certain Documents by Reference.................................................................. 2
Summary of Terms................................................................................................. 4
Special Considerations........................................................................................... 9
The Trust Fund................................................................................................... 10
Use of Proceeds.................................................................................................. 12
Green Tree Financial Corporation................................................................................. 12
Yield Considerations............................................................................................. 13
Maturity and Prepayment Considerations........................................................................... 14
Description of the Certificates.................................................................................. 15
Description of FHA Insurance..................................................................................... 27
Certain Legal Aspects of the Contracts; Repurchase Obligations................................................... 28
ERISA Considerations............................................................................................. 37
Certain Federal Income Tax Consequences.......................................................................... 38
Legal Investment Considerations.................................................................................. 55
Ratings.......................................................................................................... 55
Underwriting..................................................................................................... 55
Legal Matters.................................................................................................... 56
Experts.......................................................................................................... 56
</TABLE>
$146,199,929 (APPROXIMATE)
[LOGO]
SELLER AND SERVICER
CERTIFICATES FOR HOME
IMPROVEMENT LOANS
SERIES 1994-CI
$101,600,000 (APPROXIMATE) 7.45% CLASS A-1
$ 12,000,000 (APPROXIMATE) 8.5% CLASS M-1
$ 9,400,000 (APPROXIMATE) 8.8% CLASS B-1
$ 10,717,766 (APPROXIMATE) 8.9% CLASS B-2
SERIES 1994-CII
$ 12,482,163 (APPROXIMATE) 8.1% CLASS A-2
-----------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------
MERRILL LYNCH & CO.
SEPTEMBER 23, 1994
__________________________________ __________________________________
