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USAA AUTO LOAN GRANTOR TRUST 1999-1
Issuer
$699,376,130 FIXED RATE AUTOMOBILE LOAN PASS-THROUGH CERTIFICATES
[LOGO]
USAA FEDERAL SAVINGS BANK
Seller and Servicer
The certificates will be issued by the trust. The certificates represent
interests in the trust. The sources for payments on the certificates will be
collections received on a pool of auto loans held by the trust and the funds
held in a cash reserve account.
THE CERTIFICATES
USAA Auto Loan Grantor Trust 1999-1 will issue the following two classes of
certificates:
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CLASS A CERTIFICATES CLASS B CERTIFICATES
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Initial Principal Amount............................ $673,149,000 $26,227,130
Interest Rate....................................... 6.10% 6.67%
Final Scheduled Distribution Date................... February 15, 2006 February 15, 2006
Price to Public(1).................................. 99.945802% N/A
Underwriting Discount............................... 0.20% N/A
Proceeds to Seller(2)............................... 99.745802% N/A
First Distribution Date............................. August 16, 1999 August 16, 1999
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(1) Plus accrued interest, if any, at the applicable interest rate from
July 15, 1999.
(2) Before deducting expenses payable by the seller, estimated to be $560,000.
Interest and principal on the certificates will be payable monthly, on the 15th
or the first business day after the 15th, beginning August 16, 1999.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
The certificates represent interests in the trust only and do not represent
obligations of or interests in, and are not guaranteed by, USAA Federal Savings
Bank or any of its affiliates.
This prospectus may be used to offer and sell the certificates.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE 'SEC') NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS ACCURATE AND COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITERS OF THE CLASS A CERTIFICATES
J.P. MORGAN & CO.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
The date of this prospectus is July 22, 1999.
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TABLE OF CONTENTS
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SUMMARY OF TERMS. 5
THE PARTIES............................................ 5
THE SECURITIES......................................... 5
RISK FACTORS................................................ 9
THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS................. 13
Origination of Motor Vehicle Loans..................... 13
Underwriting of Motor Vehicle Loans.................... 13
Insurance.............................................. 15
Collection Procedures.................................. 15
Delinquency and Loan Loss and Recovery Information..... 16
DESCRIPTION OF THE TRUST.................................... 18
DESCRIPTION OF THE RECEIVABLES POOL......................... 18
Maturity and Prepayment Assumptions.................... 21
YIELD CONSIDERATIONS........................................ 22
POOL FACTORS................................................ 22
USE OF PROCEEDS............................................. 23
USAA FEDERAL SAVINGS BANK................................... 23
UNITED SERVICES AUTOMOBILE ASSOCIATION...................... 24
DESCRIPTION OF THE CERTIFICATES............................. 25
General................................................ 25
Book-Entry Registration................................ 25
DTC's Year 2000 Efforts................................ 28
Definitive Certificates................................ 29
Sale and Assignment of the Receivables................. 29
Description of the Trust's Accounts.................... 31
Collections on the Receivables......................... 31
Servicing Procedures................................... 32
Advances............................................... 33
Servicing Compensation................................. 33
The Reserve Account.................................... 34
The Yield Supplement Agreement......................... 35
Distributions on Certificates.......................... 36
Statements to Certificateholders....................... 39
Evidence as to Compliance.............................. 40
Certain Matters Regarding the Servicer................. 41
Events of Servicing Termination........................ 42
Rights Upon an Event of Servicing Termination.......... 42
Amendment.............................................. 43
List of Certificateholders............................. 43
Termination............................................ 43
Duties of the Trustee.................................. 44
The Trustee............................................ 44
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................... 46
General................................................ 46
Security Interests in the Financed Vehicles............ 46
Enforcement of Security Interests in Vehicles.......... 47
Other Matters.......................................... 48
Repurchase Obligation.................................. 48
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................... 48
Tax Status of the Trust; Scope of Tax Opinion.......... 48
Treatment of Certificate Owners' Interest in Trust
Assets................................................ 49
Treatment of Certificate Owners' Share of Trust
Expenses.............................................. 51
Discount and Premium................................... 51
Effect of Subordination................................ 53
Yield Supplement Amounts............................... 53
Sale of a Certificate.................................. 54
Foreign Certificate Owners............................. 54
Backup Withholding..................................... 55
Certain State Tax Consequences......................... 55
ERISA CONSIDERATIONS........................................ 55
Prohibited Transaction Exemption for Class A
Certificates.......................................... 55
Prohibited Transaction Exemptions for Class B
Certificates.......................................... 57
Special Considerations Applicable to Insurance Company
General Accounts...................................... 58
UNDERWRITING................................................ 59
VALIDITY OF THE CERTIFICATES................................ 59
GLOSSARY OF TERMS........................................... 60
ANNEX A..................................................... A-1
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WHERE YOU CAN FIND MORE INFORMATION
Federal law requires the filing of information with the SEC, including
periodic reports and other information. You can read and copy these documents at
the public reference facility maintained by the SEC at Judiciary Plaza, 450
Fifth Street, NW, Room 1024, Washington, D.C. 20549. You can also copy and
inspect such reports, proxy statements and other information at the following
regional offices of the SEC:
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New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
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Please call the SEC at 1-800-SEC-0330 for further information on public
reference rooms. SEC filings are also available to the public on the SEC's web
site at http://www.sec.gov.
This prospectus is part of a registration statement filed by the trust with
the SEC (Registration No. 333-81385).
You should rely only on the information provided in this prospectus. We
have not authorized anyone else to provide you with different information. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the cover page of this prospectus.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined beginning on page 59 in this prospectus.
We include cross-references to sections where you can find additional
information. The table of contents on the back cover provides the location of
these sections.
In this prospectus, the terms 'we,' 'us' and 'our' refer to USAA Federal
Savings Bank.
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SUMMARY OF TERMS
This summary highlights selected information from this document and does not
contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the
certificates, we urge you to read carefully this entire prospectus.
This summary provides an overview of calculations, cash flows and other
information to aid your understanding and is qualified by the full description
of these calculations, cash flows and other information in this prospectus.
THE PARTIES
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Issuer.................................... USAA Auto Loan Grantor Trust 1999-1
Seller of the Auto Loans and Servicer..... USAA Federal Savings Bank
Trustee................................... The Bank of New York, a banking corporation organized
under the laws of the State of New York
Seller's Address.......................... 10750 McDermott Freeway, San Antonio, Texas 78288
Seller's Telephone Number................. (210) 498-2265
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THE SECURITIES
The Terms of the Certificates:
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CLASS A CLASS B
CERTIFICATES CERTIFICATES
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Principal Amount:................................... $673,149,000 $26,227,130
Interest Rate per Annum:............................ 6.10% 6.67%
Interest Accrual Method:............................ 30/360 30/360
Distribution Date:.................................. monthly (15th) monthly (15th)
First Distribution Date:............................ August 16, 1999 August 16, 1999
Final Scheduled Distribution Date:.................. February 15, 2006 February 15, 2006
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THE CERTIFICATES
The trust will issue the following certificates:
$673,149,000 Class A 6.10% Automobile Loan Pass-Through Certificates
$26,227,130 Class B 6.67% Automobile Loan Pass-Through Certificates
An affiliate of the seller will purchase the Class B Certificates in the
aggregate principal amount of $26,227,130.
RATINGS OF CERTIFICATES
The trust will not issue the certificates unless:
(1) the Class A Certificates are rated in the highest rating category, and
(2) the Class B Certificates are rated in at least the 'BBB' category or its
equivalent,
by at least one nationally recognized statistical rating agency. After the
certificates are issued, any ratings may be lowered or withdrawn by the
applicable rating agency.
CLOSING DATE
The deposit of the auto loans and the issuance of the certificates is expected
to take place on July 29, 1999.
INTEREST PAYMENTS
The interest rates for the certificates are the fixed rates specified above and
on the cover page of this prospectus. Interest will be payable on all
certificates on each distribution date.
Interest on the Class A and Class B Certificates will be calculated on the basis
of a 360-day year consisting of 12 months of 30 days each.
On any distribution date, interest on the Class B Certificates will not be paid
until all accrued and unpaid interest on the Class A Certificates has been
paid in full.
PRINCIPAL PAYMENTS
The Class A Certificates and the Class B Certificates will be entitled to their
proportionate share of principal collections on the auto loans. However, the
trust will make principal payments to the Class A Certificates before making
principal payments to the Class B Certificates on each distribution date.
FINAL SCHEDULED DISTRIBUTION DATE
The outstanding principal amount, if any, of each class of certificates will be
payable in full on the following final scheduled distribution date:
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FINAL SCHEDULED
CERTIFICATES DISTRIBUTION DATE
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Class A.................. February 15, 2006
Class B.................. February 15, 2006
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REDEMPTION OF CERTIFICATES
The Class A Certificates and the Class B Certificates will be redeemed in whole
on any distribution date if the seller exercises its option to purchase the auto
loans and other trust property from the trust.
The seller may exercise its option to purchase when the aggregate principal
balance of the auto loans declines to 5% or less of the aggregate starting
principal balance.
BOOK-ENTRY FORM
The trust will initially issue the certificates in book-entry form. You will
hold your interest in the certificates through The Depository Trust Company,
Cedel Bank, societe anonyme, or the Euroclear System.
You will not be entitled to receive a definitive certificate representing your
interest except under limited circumstances. See 'Description of the
Certificates -- Book-Entry Registration' in this prospectus.
CREDIT ENHANCEMENT
SUBORDINATION OF CLASS B CERTIFICATES
Payments on the Class B Certificates are subordinated to those on the Class A
Certificates to the extent explained below. This provides additional credit
enhancement for the Class A Certificates.
No interest will be paid on the Class B Certificates on any distribution date
until all accrued and unpaid interest on the Class A Certificates has been
paid in full;
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No principal will be paid on the Class B Certificates on any distribution
date until all principal owed on the Class A Certificates has been paid
in full; and
Amounts otherwise payable as principal on the Class B Certificates will be
available to make payments of interest and principal on the Class A
Certificates.
RESERVE ACCOUNT
Funds on deposit in the reserve account will be available on each distribution
date to cover shortfalls in distributions of interest and principal on the
certificates due to delinquencies and defaults on the auto loans. Amounts in the
reserve account will also be available to pay servicing fees.
The reserve account will be funded as follows:
On the closing date, the seller will make an initial deposit of $5,245,321
into the reserve account.
On each distribution date, any collections on the auto loans remaining after
providing for all required payments to certificateholders, payment of the
total servicing fee and reimbursement of outstanding servicing advances will
be deposited in the reserve account up to the specified reserve account
balance.
The specified reserve account balance for any distribution date will equal the
greater of (a) 1.25% of the outstanding principal balance of the auto loans and
(b) 0.50% of the initial principal balance of the auto loans. The reserve
amount, however, will not exceed the amount of the outstanding principal
balance.
YIELD SUPPLEMENT AGREEMENT
If any auto loan has, as of the cutoff date, a contract rate below the sum of
(1) the weighted average of the interest rates on the Class A Certificates and
the Class B Certificates, and (2) the servicing rate, the seller, the servicer
and the trust will enter into a Yield Supplement Agreement. The Yield Supplement
Agreement will provide for payment by the seller of a yield supplement amount
which is equal to the difference between (1) interest that would be payable on
each auto loan if the rate on that auto loan were equal to the sum of the
weighted average of the interest rates on the certificates and the servicing
rate and (2) interest that is actually payable on each auto loan at its contract
rate.
Due to the fact that no auto loan had, as of the cutoff date, a contract rate
below the sum of (i) the weighted average of the interest rates on the Class A
Certificates and the Class B Certificates and (2) the servicing rate, there will
be no Yield Supplement Agreement and no payment at any time of any yield
supplement amount.
TRUST PROPERTY
The primary assets of the trust will be the auto loans, which are a pool of
fixed rate simple interest motor vehicle installment contracts made by the
seller. The auto loans in the trust will be deposited by the seller in the
trust. The trust property will also include:
All monies due or received under the auto loans on or after the cutoff date of
July 1, 1999;
A security interest in the new and used automobiles and light-duty trucks
financed by the auto loans;
Any proceeds from claims on related insurance policies or from borrowers under
the auto loans;
Amounts on deposit in the trust accounts, including the right to receive
payments from the reserve account and pursuant to the Yield Supplement
Agreement; and
All rights of the trust against the seller under the Pooling and Servicing
Agreement.
THE AUTO LOANS
On the closing date, the trust will acquire auto loans with an aggregate
principal balance of $699,376,130 as of the cutoff date. As of the cutoff date:
the weighted average contract rate of the auto loans is approximately 8.30%;
the weighted average remaining term of the auto loans, that is, the period
starting after the cutoff date and including each auto loan's scheduled
maturity date, is approximately 51.0 months; and
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the weighted average original term of the auto loans is approximately
57.8 months.
The weighted averages listed above are averages that take into account the
differences in the principal amounts of the auto loans.
CERTIFICATE ACCOUNT; PRIORITY OF DISTRIBUTIONS
Payments received on the auto loans will be deposited in the certificate account
until paid to the certificateholders. On each distribution date, funds on
deposit in the certificate account collected during the prior monthly collection
period will be applied in the priority indicated below:
reimbursement of outstanding advances;
the total servicing fee;
accrued and unpaid interest on the Class A Certificates;
accrued and unpaid interest on the Class B Certificates;
principal on the Class A Certificates;
principal on the Class B Certificates; and
the remaining balance, if any, to be deposited in the reserve account.
SERVICING COMPENSATION
The trust will pay the servicer a monthly fee on each distribution date. The
monthly servicing fee will equal one-twelfth of 1.00% of the outstanding
principal balance of the auto loans in the trust as of the end of the prior
month. In addition, the servicer will receive as additional compensation
investment earnings on trust property, unless the servicer fails to make certain
advances of funds to the trust. The servicer has the option, but is not
obligated, to make advances to the trust in the amount of interest due on an
auto loan but not yet received. See 'Description of the Certificates --
Advances' and ' -- Servicing Compensation' in this prospectus.
TAX STATUS
Jones, Day, Reavis & Pogue, special tax counsel to the trust, will deliver its
opinion that the trust will be classified for federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. You must
report your respective allocable share of income earned on trust assets
excluding certain amounts retained by the seller. You may deduct your respective
allocable share of reasonable servicing fee and other fees, subject to
limitations applicable to individuals, estates, trusts and partnerships.
However, the tax code is complex, and we recommend that you and your tax
advisors review the information under the caption 'Certain Federal Income Tax
Consequences' in this prospectus.
ERISA CONSIDERATIONS
The Class A Certificates may be purchased by employee benefit or other
retirement plans if certain conditions are satisfied. The Class B Certificates
may be purchased and held by such plans only if exempt from certain prohibited
transaction rules. See 'ERISA Considerations' in this prospectus.
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RISK FACTORS
You should carefully consider, among other things, the following risk
factors before deciding to invest in the certificates offered by this
prospectus.
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ABSENCE OF PUBLIC MARKET FOR YOUR The certificates will not be listed on any securities
CERTIFICATES COULD LIMIT YOUR ABILITY TO exchange and there is currently no public market for the
RESELL CERTIFICATES. certificates. The underwriters expect, but are not
obligated, to make a market in the Class A Certificates.
If no public market develops, as a certificateholder,
you may not be able to sell the certificates you
purchased prior to maturity. There is no assurance that
any such market will be created or, if created, will
continue. Transfers of the certificates can only be made
through DTC, and direct and indirect participating
organizations. You may not be able to pledge a
certificate as collateral to an entity or person that
does not participate in those transfer systems. In
addition, some investors may be unwilling to purchase
certificates for which there are no physical
certificates.
THE TRUST WILL NOT ENGAGE IN ANY OTHER The seller will establish the trust by selling and
ACTIVITY. assigning the auto loans to the trust in exchange for
the certificates. After formation, the trust will not
engage in any activity other than holding the auto loans
and distributing payments.
INTERESTS OF OTHER PERSONS IN THE AUTO In order to protect the trust's ownership of the auto
LOANS AND TRUST PROPERTY MAY TAKE PRIORITY loans, the seller will file UCC-1 financing statements
OVER THE TRUST'S SECURITY INTEREST. with the appropriate governmental authorities in the
State of Texas to give notice of the trust's ownership
of the auto loans and their proceeds. Therefore, the
trust's security interest will be perfected by the UCC
filings and not by possession of the auto loans. Under
the Pooling and Servicing Agreement, the seller will be
obligated to maintain the perfection of the trust's
ownership interest in the auto loans. However, a
purchaser of an auto loan who gives new value and takes
possession of the original document evidencing the auto
loan in the ordinary course of such purchaser's business
will have priority over the trust's security interest,
if such purchaser acts in good faith without knowledge
that the specific auto loan is subject to the trust's
security interest. While the seller's master computer
records will evidence the sale of the auto loans to the
trust, any purchaser would be deemed not to have
knowledge of the sale by virtue of the UCC filings or a
review of the auto loans since they would not be marked
to show the sale.
The seller will assign its security interest in the
individual financed vehicles to the trust. However,
because of the administrative burden and expense, and
since the seller will be the servicer of the auto loans,
neither the seller nor the trustee will amend the
certificates of title to identify the trust as the new
secured party. Accordingly, the seller will continue to
be named as the secured party in the certificates of
title relating to the financed vehicles. In some states,
in the absence of endorsement and delivery, the trustee
may not have a perfected security interest in the
financed vehicles. See 'Certain Legal Aspects of the
Receivables'.
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YOU MAY BE REQUIRED TO REINVEST YOUR All of the auto loans may be prepaid at any time without
PRINCIPAL IN THE CERTIFICATES BECAUSE OF penalty. Prepayments may also result from liquidations
PREPAYMENTS WHICH MAY REDUCE YOUR YIELD. due to:
default, the receipt of proceeds from theft, physical
damage, credit life and credit disability insurance
policies;
repurchases by the seller as a result of the failure of
an auto loan to meet certain criteria in the Pooling and
Servicing Agreement;
purchases by the servicer as a result of breach of
certain of its covenants with respect to the auto loans
made by it in the Pooling and Servicing Agreement; or
as a result of an exercise by the seller of its option
to purchase the auto loan.
The rate of prepayment and default of auto loans may be
influenced by a variety of economic and other factors.
For example, changes in economic conditions, interest
rates and natural disasters such as floods, hurricanes,
earthquakes and tornadoes may affect prepayments.
The seller does not maintain adequate records to provide
meaningful prepayment information with respect to the
auto loans. No prediction can be made as to the actual
prepayment rates which will be experienced on the auto
loans. You will bear all reinvestment risk resulting
from prepayments on the auto loans and the corresponding
acceleration of payments on the certificates.
GEOGRAPHIC CONCENTRATION OF AUTO LOANS MAY Adverse economic conditions or other factors
ADVERSELY AFFECT YOUR CERTIFICATES. particularly affecting any state or region where a high
concentration of auto loans is located could adversely
affect the certificates. As of June 30, 1999,
approximately 18.90%, 9.42%, 6.37% and 5.83% of the auto
loans, based on the principal balance and mailing
address of the borrowers, were located in Texas,
California, Florida and Virginia, respectively. The
seller is unable to determine and has no basis to
predict, with respect to any state or region, whether
any such conditions have occurred or may occur, or to
what extent such conditions may affect the auto loans or
the repayment of amounts due under your certificates.
The location of the auto loans by state, based upon
borrowers' addresses at the time the auto loans were
made, is set out in the table beginning on page 20 of
this prospectus.
LIMITED ASSETS OF THE TRUST COULD RESULT You may suffer a loss on your certificates if the assets
IN LOSSES ON YOUR CERTIFICATES. of the trust are insufficient to pay the principal
amount of the certificates in full. The only sources of
funds for payments on the certificates will be the
assets of the trust. The assets of the trust are limited
to the auto loans, payments made on the auto loans,
funds on deposit in the trust's accounts and the right
to payments from the reserve account and pursuant to the
Yield Supplement Agreement (if applicable). The
certificates represent interests solely in the trust and
neither the seller, the servicer, the trustee, the
collateral agent or any other person or entity will
insure or guarantee the certificates. Consequently,
certificateholders
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will only be able to look to payments on the auto loans,
amounts on deposit in the trust's accounts and the right
to payments from the reserve account and pursuant to the
Yield Supplement Agreement (if applicable) for payment.
Amounts to be deposited in the reserve account are
limited in amount and will be reduced as the principal
balance of the auto loans declines.
Amounts on deposit in the reserve account will be
available on any distribution date first to cover
shortfalls in:
reimbursement of outstanding advances and payment of the
servicing fee to the servicer; then
interest distributions on the Class A Certificates; then
interest distributions on the Class B Certificates; then
principal distributions on the Class A Certificates; and
finally
principal distributions on the Class B Certificates.
If the reserve account is exhausted and not replenished,
the trust will depend solely on payments on the auto
loans to make distributions on the certificates.
Therefore, you will bear directly the credit and other
risks associated with ownership of the auto loans,
without any additional credit enhancement. There can be
no assurance that the future delinquency, loan loss or
repossession experience of the trust with respect to the
auto loans will be better or worse than the information
provided with respect to the seller's portfolio of motor
vehicle loans owned and serviced by the seller. See
'Description of the Certificates -- The Reserve Account'
and ' -- Distributions on Certificates'.
CLASS B CERTIFICATES WILL ABSORB CASH The Class B certificateholders will not receive any
SHORTFALLS BEFORE THE CLASS A interest distributions until the interest on the Class A
CERTIFICATES. Certificates has been paid in full on each distribution
date. The Class B certificateholders will not receive
any principal distributions until the interest and
principal then due on the Class A Certificates has been
paid in full on that distribution date. You must rely on
payments on the auto loans, funds on deposit in the
trust's accounts and the right to payments from the
reserve account for your payment. If funds in the
reserve account are exhausted, the trust will depend
solely on current payments on the auto loans to make
distributions on the certificates. Delinquent payments
on the auto loans may result in a shortfall in the
distributions on the Class B Certificates on any date
due to the priority of payments on the Class A
Certificates.
A CHANGE IN THE CERTIFICATES' RATINGS MAY It is a condition to the issuance of the certificates
ADVERSELY AFFECT THE MARKETABILITY OF YOUR that the Class A Certificates be rated in the highest
CERTIFICATES. rating category, and the Class B Certificates be rated
in at least the 'BBB' category or its equivalent by at
least one rating agency. A security rating is not a
recommendation to buy, sell, or hold securities and may
be revised or withdrawn at any time by the assigning
rating agency. There can be no assurance that a rating
agency will not lower or withdraw its ratings, if
warranted. The seller cannot predict with certainty what
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effect any revision or withdrawal of a rating may have
on the liquidity or market value of the Class A
Certificates or the Class B Certificates.
THE LACK OF PHYSICAL CERTIFICATES MAY The Class A Certificates and the Class B Certificates
ADVERSELY AFFECT YOUR RIGHTS AS A will each be represented in book-entry form through DTC,
CERTIFICATEHOLDER. Cedel and Euroclear. You will not be entitled to receive
a physical certificate representing your interest in the
trust except under limited circumstances. Therefore, you
will not be recognized as a certificateholder, and you
will not be permitted to exercise your rights as a
certificateholder except indirectly through DTC, Cedel
or Euroclear. See 'Description of the
Certificates -- Book-Entry Registration'.
POTENTIAL DELAYS IN PAYMENTS ON YOUR The servicer is in the process of addressing issues
CERTIFICATES DUE TO POTENTIAL COMPUTER arising from the year 2000 issue that could impact the
PROGRAM PROBLEMS BEGINNING IN THE YEAR timely payment of principal and interest on your
2000. certificates. The year 2000 issue results from the
custom of writing computer programs using two digits to
define a year. Computer programs that have
time-sensitive software may recognize a date using '00'
as the year 1900 rather than the year 2000. Any such
occurrence could result in major computer system failure
or miscalculations. Although the servicer reasonably
believes that its servicing system will be year 2000
compliant prior to the year 2000, it is presently
engaged in various procedures to determine if its
computer systems and software and those of its material
suppliers, customers and agents will be year 2000
compliant.
In the event that the servicer, or any of its suppliers,
customers or agents do not successfully and timely
achieve year 2000 compliance, the servicer's performance
of its obligations under the Pooling and Servicing
Agreement could be adversely affected. This could result
in delays in processing payments on the auto loans and
could cause a delay in payments to you.
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THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS
ORIGINATION OF MOTOR VEHICLE LOANS
USAA Federal Savings Bank (the 'BANK' which is also referred to in this
prospectus as the 'SELLER' or the 'SERVICER' when it is acting in those
capacities) has a portfolio of motor vehicle installment loans secured by new
and used automobiles and light-duty trucks (the 'MOTOR VEHICLE LOANS'), all of
which are originated directly by the Bank. Applications for Motor Vehicle Loans
are made by individuals to the Bank's office in San Antonio, Texas and are
reviewed by the Bank in accordance with the Bank's underwriting procedures.
Applications are accepted in person, by mail or by telephone.
The Bank services all of its Motor Vehicle Loans. The servicing functions
performed by the Bank include customer service, document file keeping,
computerized account record keeping, vehicle title processing and collections.
The servicing policies and practices of the Bank may change over time in
accordance with the Bank's business judgment.
UNDERWRITING OF MOTOR VEHICLE LOANS
The Bank makes credit decisions with respect to Motor Vehicle Loans in two
alternative ways: on a judgmental basis, which, since September 1992, has
included a credit scoring process, or on a pre-approved basis.
Other than customers who are pre-approved for Motor Vehicle Loans, the Bank
requires each applicant for a Motor Vehicle Loan (an 'APPLICANT') to complete an
application which sets forth the Applicant's income, liabilities, credit and
employment history, and other personal information as well as a description of
the Financed Vehicle which is intended to secure a Motor Vehicle Loan. Each
application is reviewed for completeness and for compliance with the Bank's
guidelines and applicable consumer regulations. The Bank evaluates the
applications by considering, based on information provided in the application
and the credit bureau reports referred to below, the relationship of the
Applicant's income to expenses, including expenses relating to such Motor
Vehicle Loan.
Each Applicant for a Motor Vehicle Loan is evaluated using uniform
underwriting standards developed by the Bank. These underwriting standards are
intended to assess the Applicant's ability to repay such Motor Vehicle Loan and
the adequacy of the Financed Vehicle as collateral, based upon a review of the
information contained in the Applicant's loan application. Each application is
reviewed by a credit analyst. Among the criteria considered in evaluating the
individual applications are:
(1) stability of the Applicant with specific regard to the Applicant's
occupation and length of employment;
(2) the Applicant's payment history based on information known directly by
the Bank or as provided by various credit reporting agencies with
respect to present and past debt;
(3) a debt service to gross monthly income ratio test; and
(4) a loan to value ratio test taking into account the age, type and market
value of the Financed Vehicle.
The Bank's general policy has been not to allow an Applicant's debt service
to gross monthly income ratio to exceed 55%.
An empirically based credit scoring process using credit scores provided by
credit bureaus is used to objectively assess an Applicant's creditworthiness.
This scoring process was created using historical information from the database
of Motor Vehicle Loans owned and serviced by the Bank. Through credit scoring,
the Bank evaluates credit profiles to quantify credit risk. The credit scoring
process entails the use of statistics to correlate common characteristics with
credit risk. The credit scoring process used by the Bank is periodically
reviewed and, if necessary, updated to reflect current statistical data. The
Bank's scoring process is intended to provide a basis for lending decisions, not
to supersede the judgment of the credit analyst.
13
<PAGE>
Applications are reviewed using the credit scoring process and are approved
without further review if the resulting credit score exceeds pre-set parameters.
Applications that are not so approved are reviewed by a credit analyst using the
criteria described above.
Motor Vehicle Loan approval at variance with standard credit guidelines has
occurred, both before and after implementation of the credit scoring process,
but generally has required concurrent approval of a second, designated senior
credit analyst or credit manager of the Bank. Motor Vehicle Loans which do not
comply with all the Bank's guidelines must have strong compensating factors
which indicate a high ability of the Applicant to repay the loan. Generally in
such cases, if a Motor Vehicle Loan is approved it is because the Applicant has
made a down payment and the amount financed is lower than the maximum permitted
by the Bank's guidelines.
The Bank has a program of pre-approving potential customers for Motor
Vehicle Loans. The Bank obtains names of potential customers from its existing
Motor Vehicle Loan database, credit card database, database of requests for
automobile pricing lists, and various other sources. The potential customer
names are screened against the Bank's credit card database, although an existing
credit card account is not a prerequisite for preapproval. If the potential
customer has a credit card account, the Bank's credit card database must show
that the account:
(1) is current and has been active more than twelve months;
(2) has not been more than 30 days delinquent on more than two occasions in
the most recent 12 month period;
(3) has had no record of bankruptcy, closed account or collection problems;
and
(4) has no lost or stolen account or fraudulent activity record.
A potential customer without a credit card account is eligible for a
pre-approved Motor Vehicle Loan in the amount of $15,000 if the individual has
an existing Motor Vehicle Loan that:
(1) has not been more than 30 days delinquent;
(2) has a term greater than one year and has been outstanding for more than
one year;
(3) has no record of bankruptcy or collection problems on any Bank loan
products; and
(4) had an original principal balance in excess of $7,500.
All potential customer names are also screened against the database
maintained by the Bank's parent company, United Services Automobile Association
('USAA'). USAA's database must show that the potential customer:
(1) is an active, or is eligible to be a, USAA insurance policyholder; and
(2) is not identified in USAA's database as a customer who should not
receive advertising from USAA or its subsidiary companies.
A potential customer who is pre-approved using the credit card account
prescreening process described above is offered a Motor Vehicle Loan in an
amount determined by the credit limit amount of the individual's credit card
accounts with the Bank and the individual's credit score. Pre-approved potential
customers are offered Motor Vehicle Loans in amounts of $15,000 to $30,000. The
Bank notifies potential customers that they have been pre-approved for a Motor
Vehicle Loan by direct mail under certain circumstances and, if a pre-approved
individual calls the Bank to inquire about a Motor Vehicle Loan, by telephone. A
potential customer who has been pre-approved identifies the make, model, year
and price of the Financed Vehicle and, because of the information known by the
Bank through USAA's database and the Bank's credit card database, is not
required to provide additional credit related information.
The amount advanced by the Bank under any Motor Vehicle Loan, including
Motor Vehicle Loans offered pursuant to the pre-approved program, generally has
not exceeded:
(1) for a new Financed Vehicle, the manufacturer's suggested retail price
plus taxes, and title and license fees on the Financed Vehicle; or
14
<PAGE>
(2) for a used Financed Vehicle, 110% of the 'retail' value stated in the
most recently published National Automobile Dealers Association Used
Car Price Guide, adjusted for high or low mileage and before credit for
any optional equipment.
However, the maximum amount advanced for Motor Vehicle Loans is often less
than such amounts depending on a number of factors, including the length of the
Motor Vehicle Loan term and the model and year of the financed vehicle. These
adjustments are made to assure that the Financed Vehicle constitutes adequate
collateral to secure the Motor Vehicle Loan. In addition, whether a Financed
Vehicle is new or used, the Bank will also finance service warranties under a
Motor Vehicle Loan.
Periodically, the Bank makes a detailed analysis of its portfolio to
evaluate the effectiveness of the Bank's credit guidelines and scoring process.
If external economic factors, credit delinquencies or credit losses change,
credit guidelines are adjusted to maintain the asset quality deemed acceptable
by the Bank's management. The Bank reviews, on an annual basis, the quality of
its Motor Vehicle Loans by conducting internal audits of certain randomly
selected Motor Vehicle Loans to ensure compliance with established policies and
procedures.
INSURANCE
Each Motor Vehicle Loan requires the obligor (the 'OBLIGOR') to obtain
comprehensive and collision insurance with respect to the Financed Vehicle. Most
Obligors obtain the required comprehensive and collision insurance from USAA or
an affiliate thereof. USAA's insurance financial strength is rated 'Aaa' and
'AAA' by Moody's and Standard & Poor's, respectively.
If an Obligor fails to maintain the required insurance, the Bank may, but
is not obligated to, purchase limited comprehensive and collision insurance to
protect the interests of the Bank and the Obligor and charge the Obligor for the
cost of such insurance (the 'FORCE PLACED INSURANCE'). The Bank currently does
not obtain Force Placed Insurance if the Obligor fails to maintain the required
insurance.
COLLECTION PROCEDURES
Collection activities with respect to delinquent Motor Vehicle Loans are
performed by the Bank. Collection activities include prompt investigation and
evaluation of the causes of any delinquency. An Obligor is considered delinquent
when he or she makes any payment that is less than 100% of a scheduled monthly
payment.
The Bank maintains an on-line collection system for use in collection
efforts. The collection system provides relevant Obligor information (for
example, current addresses, phone numbers and loan information) and records of
all contact of the Bank with Obligors. The system also records an Obligor's
promise to pay, affords supervisors the ability to review collection personnel
activity and modify priorities with respect to Obligor contacts and provides
reports concerning Motor Vehicle Loan delinquencies. Under the Bank's current
practices, contact by mail is initiated with an Obligor whose Motor Vehicle Loan
has become ten days delinquent. An additional mail contact is initiated with an
Obligor when his or her Motor Vehicle Loan has become 20 days delinquent. In the
event that such contacts fail to result in a payment sufficient to bring
scheduled payments current under the Motor Vehicle Loan, telephone contact with
the Obligor is attempted on or about the 22nd day of delinquency. Generally,
after a Motor Vehicle Loan continues to be delinquent for 35 days, an additional
mail contact is made. Repossession procedures generally will be initiated after
a Motor Vehicle Loan continues to be delinquent for 60 days. However, if a Motor
Vehicle Loan is deemed uncollectible, if the Financed Vehicle is deemed by
collection personnel to be in danger of being damaged, destroyed or made
unavailable for repossession, or if the Obligor voluntarily surrenders the
Financed Vehicle, a repossession may occur without regard to the length or
existence of payment delinquency. Repossessions are conducted by third parties
who are engaged in the business of repossessing vehicles for secured parties.
After repossession, the Obligor generally has an additional 15 days to redeem
the Financed Vehicle before the Financed Vehicle is resold.
15
<PAGE>
Losses may occur in connection with delinquent Motor Vehicle Loans and can
arise in several ways, including inability to locate the Financed Vehicle or the
Obligor, or because of a discharge of the Obligor in a bankruptcy proceeding.
The current policy of the Bank is to recognize losses at the time the Motor
Vehicle Loan is deemed uncollectible, or during the month the Motor Vehicle Loan
becomes 120 days delinquent, whichever occurs first.
Upon repossession and sale of the Financed Vehicle, any deficiency
remaining is pursued to the extent deemed practical by the Bank and to the
extent permitted by law. The loss recognition and collection policies and
practices of the Bank may change over time in accordance with the Bank's
business judgment.
The Bank offers certain Obligors credit-related extensions. Generally,
these extensions are offered only when:
(1) the Bank believes that the Obligor's financial difficulty has been
resolved or will no longer impair the Obligor's ability to make future
payments;
(2) the extension will result in the Obligor's payments being brought
current;
(3) the total number of credit-related extensions granted on the Motor
Vehicle Loan will not exceed two and the total credit-related
extensions granted on the Motor Vehicle Loan will not exceed four
months in the aggregate; and
(4) there have been no credit-related extensions granted on the Motor
Vehicle Loan in the immediately preceding twelve months.
Any deviation from this policy requires the concurrence of the Bank's
collection manager and a representative of the Bank's senior officers credit
committee. See 'Description of the Certificates -- Servicing Procedures' for
certain additional conditions on credit-related extensions which must be
satisfied with respect to Receivables in the Trust.
DELINQUENCY AND LOAN LOSS AND RECOVERY INFORMATION
The following tables set forth information with respect to the Bank's
experience relating to delinquencies, loan losses and recoveries for each of the
periods shown for the portfolio of Motor Vehicle Loans originated and serviced
by the Bank. The portfolio of Motor Vehicle Loans originated and serviced by the
Bank during the periods shown includes both fixed rate Motor Vehicle Loans and
variable rate Motor Vehicle Loans. The Bank does not maintain separate records
with respect to fixed rate Motor Vehicle Loans and variable rate Motor Vehicle
Loans regarding delinquency, loan loss and recovery experience. The Receivables
include only fixed rate Motor Vehicle Loans. The Bank believes that the
inclusion of variable rate Motor Vehicle Loans has an immaterial effect on the
information set forth in the following tables with respect to the Bank's
experience relating to delinquencies, loan losses and recoveries.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
---------------------- ------------------------------------------------------------------------
1999 1998 1997 1996
---------------------- ---------------------- ---------------------- ----------------------
DOLLARS NUMBER OF DOLLARS NUMBER OF DOLLARS NUMBER OF DOLLARS NUMBER OF
(IN 000S) LOANS (IN 000S) LOANS (IN 000S) LOANS (IN 000S) LOANS
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstandings............ $3,250,316 260,455 $2,802,144 234,281 $2,076,318 186,560 $1,687,922 159,812
Delinquencies over
30 days(2)(3)......... $ 11,676 1,215 $ 12,297 1,366 $ 7,028 871 $ 8,634 1,082
Delinquencies over
30 days(%)(4)......... 0.36% 0.47% 0.44% 0.58% 0.34% 0.47% 0.51% 0.68%
<CAPTION>
AT DECEMBER 31,
----------------------
1995
----------------------
DOLLARS NUMBER OF
(IN 000S) LOANS
--------- -----
<S> <C> <C>
Outstandings............ $1,454,843 145,246
Delinquencies over
30 days(2)(3)......... $ 580 2,338
Delinquencies over
30 days(%)(4)......... 0.34% 0.40%
</TABLE>
- ------------
(1) The figures shown include information with respect to certain consumer loans
which are not Motor Vehicle Loans but for which the Bank does not maintain
separate records regarding delinquency experience. These other consumer
loans did not exceed 10% of outstandings as of
(footnotes continued on next page)
16
<PAGE>
(footnotes continued from previous page)
each of the dates shown in the table. The Bank believes that the inclusion
of these other consumer loans has an immaterial effect on the data shown.
(2) Delinquencies include principal amounts only.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
(4) As a percent of outstandings.
LOAN LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -------------------------------------------------
1999(7) 1998 1997 1996 1995
------- ---- ---- ---- ----
(DOLLARS IN 000S)
<S> <C> <C> <C> <C> <C>
Number of Loans(2)................................. 260,455 234,281 186,560 159,812 145,246
Period Ending Outstandings......................... $3,250,316 $2,802,144 $2,076,318 $1,687,922 $1,454,843
Average Outstandings(3)............................ $3,009,524 $2,375,294 $1,867,280 $1,527,686 $1,298,116
Number of Gross Charge-Offs........................ 659 874 797 805 422
Gross Charge-Offs(4)............................... $7,178 $9,311 $6,157 $4,131 $2,244
Gross Charge-Offs as a % of Period End
Outstandings..................................... 0.44% 0.33% 0.30% 0.24% 0.15%
Gross Charge-Offs as a % of Average Outstandings... 0.48% 0.39% 0.33% 0.27% 0.17%
Recoveries(5)...................................... $3,279 $4,856 $2,158 $1,068 $683
Net Charge-Offs(6)................................. $3,899 $4,455 $3,999 $3,063 $1,561
Net Charge-Offs as a % of Period End
Outstandings..................................... 0.24% 0.16% 0.19% 0.18% 0.11%
Net Charge-Offs as a % of Average Outstandings..... 0.26% 0.19% 0.21% 0.20% 0.12%
</TABLE>
- ------------
(1) The figures shown include information with respect to certain consumer loans
which are not Motor Vehicle Loans but for which the Bank does not maintain
separate records regarding loan loss experience. These other consumer loans
did not exceed 10% of outstandings for each of the periods shown in the
table. The Bank believes that the inclusion of these other consumer loans
has an immaterial effect on the data shown.
(2) Number of loans as of period end.
(3) Averages were computed by taking an average of daily outstandings for the
loans owned by the Bank combined with an average of month-end outstandings
for sold loans for each period presented.
(4) Prior to July 1997, the amount charged off is the remaining principal
balance less proceeds from the sale of repossessed vehicles or, in the case
of repossessed vehicles which have not yet been sold, the remaining
principal balance less estimated proceeds from the sale of such repossessed
vehicles. As of July 1997, amounts charged off represent the remaining
principal balance.
(5) Recoveries generally include amounts received with respect to loans
previously charged off, except for the proceeds realized in connection with
the sale of the Financed Vehicles.
(6) Net charge-offs means gross charge-offs minus recoveries of loans previously
charged off.
(7) Data for 1999 reflects annualized numbers.
------------------------
The data presented in the foregoing tables are for illustrative purposes
only. Delinquency and loan loss experience may be influenced by a variety of
economic, social and other factors. No assurance can be given that the
delinquency and loan loss information of the Bank, or of the Trust with respect
to the Receivables, in the future will be similar to that set forth above.
17
<PAGE>
DESCRIPTION OF THE TRUST
The Seller will establish the USAA Auto Loan Grantor Trust 1999-1 (the
'TRUST') by selling and assigning the Receivables to the Trust in exchange for
the 6.10% Automobile Loan Pass-Through Certificates, Class A (the 'CLASS A
CERTIFICATES') and the 6.67% Automobile Loan Pass-Through Certificates, Class B
(the 'CLASS B CERTIFICATES' and, together with the Class A Certificates, the
'CERTIFICATES'). Each Certificate will represent a fractional undivided interest
in the Trust. The Trust property will include a pool (the 'RECEIVABLES POOL') of
fixed rate simple interest motor vehicle installment loans for the purchase of
new and used automobiles and light-duty trucks (the 'RECEIVABLES'). The Trust
property will also include:
(1) all monies due under the Receivables on or after July 1, 1999 (the
'CUTOFF DATE');
(2) such amounts as from time to time may be held in the Certificate
Account, the Class A Distribution Account and the Class B Distribution
Account;
(3) security interests in the vehicles securing the Receivables (the
'FINANCED VEHICLES');
(4) the benefit of the right to payments from the reserve account (the
'RESERVE ACCOUNT') and pursuant to the Yield Supplement Agreement (if
applicable);
(5) an assignment of the rights of the Seller to receive proceeds from
claims on theft, physical damage, credit life and credit disability
insurance policies covering the Financed Vehicles or the Obligors, as
the case may be, to the extent that such insurance policies relate to
the Receivables; and
(6) the rights of the Trust against the Seller and the Servicer under the
Pooling and Servicing Agreement (the 'AGREEMENT').
The Trust will be formed for this transaction pursuant to the Agreement and
prior to formation will have had no assets or obligations. After formation, the
Trust will not engage in any activity other than acquiring and holding the
Receivables, issuing the Certificates, distributing payments thereon and as
otherwise described herein and as provided in the Agreement. The Trust will not
acquire any contracts or assets other than the Trust property described above
and will not have any need for additional capital resources. As the Trust does
not have any operating history and will not engage in any activity other than
issuing the Certificates and making distributions thereon, there has not been
included any historical or pro forma financial statements or ratio of earnings
to fixed charges with respect to the Trust. While management of the Bank
believes that the figures and statistics contained herein for recent periods are
representative of past performance of Motor Vehicle Loans owned and serviced by
the Bank, there is no assurance that such performance is indicative of the
future performance of the Receivables, since future performance is dependent,
among other things, on general economic conditions and economic conditions in
the geographical areas in which the Obligors reside including, for example,
unemployment rates.
DESCRIPTION OF THE RECEIVABLES POOL
The Receivables represent Motor Vehicle Loans from the portfolio of the
Bank that:
(1) were made to Obligors located in a state of the United States or the
District of Columbia;
(2) are each secured by a new or used automobile or light-duty truck;
(3) have a remaining maturity, as of the Cutoff Date, of at least 6 months
and not more than 72 months;
(4) with respect to loans secured by new Financed Vehicles, had an original
maturity of at least 12 months and not more than 72 months; with
respect to loans secured by used Financed Vehicles, had an original
maturity of at least 9 months and not more than 60 months;
(5) are fully-amortizing, fixed rate simple interest contracts which
provide for level scheduled monthly payments (except for the last
payment, which may be minimally different from the level payments) over
their respective remaining terms and have a simple interest contract
rate (a 'CONTRACT RATE') that equals or exceeds 7.50%, are not secured
by any
18
<PAGE>
interest in real estate, and have not been identified on the computer
files of the Bank as relating to Obligors who had requested a reduction
in the periodic finance charges, as of the Cutoff Date, by application
of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended;
(6) are secured by Financed Vehicles that, as of the Cutoff Date, had not
been repossessed without reinstatement;
(7) have not been identified on the computer files of the Bank as relating
to Obligors who were in bankruptcy proceedings as of the Cutoff Date;
(8) have no payment more than 30 days past due as of the Cutoff Date; and
(9) have remaining principal balances, as of the Cutoff Date, of at least
$500.00.
The Receivables were selected in an unbiased manner from the Motor Vehicle
Loans in the portfolio of the Bank that met the above criteria. No selection
procedures were used which were believed by the Bank to be adverse to the
holders of the Class A Certificates (the 'CLASS A CERTIFICATEHOLDERS') or the
holders of the Class B Certificates (the 'CLASS B CERTIFICATEHOLDERS' and,
together with the Class A Certificateholders, the 'CERTIFICATEHOLDERS').
Approximately 59.33% of the aggregate principal balance of the Receivables, as
of the Cutoff Date, were secured by new Financed Vehicles and approximately
40.67% of the aggregate principal balance of the Receivables, as of the Cutoff
Date, were secured by used Financed Vehicles. The Seller may not substitute
other Motor Vehicle Loans from the portfolio of the Bank, or any other motor
vehicle receivables, for the Receivables at any time during the term of the
Agreement.
All of the Receivables are simple interest contracts. As payments are
received under a simple interest contract, the finance charges accrued to the
date of payment are paid first, and then the remaining payment is applied to the
unpaid amount financed. See 'Description of the Certificates -- Servicing
Procedures'. Accordingly, if an Obligor pays the fixed monthly installment in
advance of the date on which a payment is due (the 'DUE DATE'), the portion of
the payment allocable to finance charges for the period since the preceding
payment will be less than it would be if the payment were made on the Due Date,
and the portion of the payment allocable to reduce the amount financed will be
correspondingly greater. Conversely, if an Obligor pays the fixed monthly
installment after its Due Date, the portion of the payment allocable to finance
charges for the period since the preceding payment will be greater than it would
be if the payment were made on the Due Date, and the portion of the payment
allocable to reduce the amount financed will be correspondingly smaller. When
necessary, an adjustment is made at the maturity of the loan to the scheduled
final payment to reflect the larger or smaller, as the case may be, allocations
of payments to the amount financed under the Receivable as a result of early or
late payments, as the case may be.
In the case of the liquidation of a Receivable or repossession of a
Financed Vehicle, amounts recovered will be applied first to the expenses of
liquidation or repossession, second, to unpaid interest and third to unpaid
principal. The Bank reserves the right to change its policy with respect to the
application of amounts recovered from a liquidated Receivable or a repossessed
Financed Vehicle.
The composition of the Receivables, distribution by Contract Rate of the
Receivables and geographic distribution of the Receivables as of the Cutoff Date
are set forth in the following tables.
19
<PAGE>
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $699,376,130
Number of Receivables....................................... 50,458
Average Principal Balance................................... $13,860.56
Average Original Amount Financed............................ $15,839.53
Original Amount Financed (Range)............................ $2,521.43 to $93,594.83
Weighted Average Contract Rate.............................. 8.305%
Contract Rate (Range)....................................... 7.5% to 14.2%
Weighted Average Original Term.............................. 57.80 months
Original Term (Range)....................................... 10 months to 72 months
Weighted Average Remaining Term............................. 51.01 months
Remaining Term (Range)...................................... 6 months to 72 months
</TABLE>
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL AGGREGATE POOL
RATE LOANS BALANCE(1) BALANCE(2)
---- ----- ---------- ----------
<S> <C> <C> <C>
7.50% to 8.00%......................................... 25,537 $395,909,485 56.61%
8.01% to 9.00%......................................... 13,326 185,644,573 26.54
9.01% to 10.00%......................................... 4,305 52,328,455 7.48
10.01% to 11.00%......................................... 5,753 50,948,134 7.28
11.01% to 12.00%......................................... 1,107 10,545,660 1.51
12.01% to 13.00%......................................... 243 2,208,278 0.32
13.01% to 14.00%......................................... 186 1,782,846 0.25
14.01% to 15.00%......................................... 1 8,698 0.00
------ ------------ ------
Totals.............................................. 50,458 $699,376,130 100.00%
------ ------------ ------
------ ------------ ------
</TABLE>
- ------------
(1) May not add due to rounding.
(2) May not add to 100.00% due to rounding.
GEOGRAPHIC DISTRIBUTION(1) OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PRINCIPAL AGGREGATE POOL
STATE RECEIVABLES BALANCE BALANCE(2)
----- ----------- --------- --------------
<S> <C> <C> <C>
Alabama............................................... 936 $13,099,463 1.87%
Alaska................................................ 329 4,797,294 0.69
Arizona............................................... 1,601 22,614,554 3.23
Arkansas.............................................. 458 6,110,030 0.87
California............................................ 4,567 65,873,088 9.42
Colorado.............................................. 1,408 19,703,122 2.82
Connecticut........................................... 604 7,957,025 1.14
Delaware.............................................. 178 2,360,466 0.34
District of Columbia.................................. 110 1,430,758 0.20
Florida............................................... 3,230 44,520,463 6.37
Georgia............................................... 2,417 34,169,373 4.89
Hawaii................................................ 508 7,139,335 1.02
Idaho................................................. 218 2,962,660 0.42
Illinois.............................................. 899 12,403,397 1.77
Indiana............................................... 371 5,139,737 0.73
Iowa.................................................. 146 1,965,046 0.28
Kansas................................................ 529 7,349,733 1.05
</TABLE>
(table continued on next page)
20
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PRINCIPAL AGGREGATE POOL
STATE RECEIVABLES BALANCE BALANCE(2)
- ----- ----------- ------- ----------
<S> <C> <C> <C>
Kentucky.............................................. 522 $ 7,230,904 1.03%
Louisiana............................................. 773 10,803,424 1.54
Maine................................................. 166 2,007,855 0.29
Maryland.............................................. 1,499 20,607,353 2.95
Massachusetts......................................... 637 8,029,708 1.15
Michigan.............................................. 514 6,885,056 0.98
Minnesota............................................. 476 6,138,543 0.88
Mississippi........................................... 425 5,867,235 0.84
Missouri.............................................. 718 9,455,571 1.35
Montana............................................... 167 2,320,774 0.33
Nebraska.............................................. 235 3,183,481 0.46
Nevada................................................ 588 8,450,555 1.21
New Hampshire......................................... 302 3,709,569 0.53
New Jersey............................................ 1,048 14,143,533 2.02
New Mexico............................................ 649 8,972,159 1.28
New York.............................................. 1,360 19,217,117 2.75
North Carolina........................................ 2,176 29,518,717 4.22
North Dakota.......................................... 111 1,374,787 0.20
Ohio.................................................. 698 8,879,424 1.27
Oklahoma.............................................. 871 12,058,727 1.72
Oregon................................................ 533 6,914,037 0.99
Pennsylvania.......................................... 954 12,304,836 1.76
Rhode Island.......................................... 172 2,152,640 0.31
South Carolina........................................ 821 10,918,147 1.56
South Dakota.......................................... 90 1,198,269 0.17
Tennessee............................................. 925 12,975,065 1.86
Texas................................................. 9,234 132,148,541 18.90
Utah.................................................. 267 3,312,293 0.47
Vermont............................................... 105 1,261,998 0.18
Virginia.............................................. 2,989 40,791,639 5.83
Washington............................................ 1,366 19,451,469 2.78
West Virginia......................................... 156 2,094,819 0.30
Wisconsin............................................. 306 4,027,963 0.58
Wyoming............................................... 96 1,410,378 0.20
------ ------------ ------
Totals........................................... 50,458 $699,376,130 100.00%
------ ------------ ------
------ ------------ ------
</TABLE>
- ------------
(1) Based on the location of the Obligor at the time each Motor Vehicle Loan was
advanced.
(2) May not add to 100.00% due to rounding.
MATURITY AND PREPAYMENT ASSUMPTIONS
The Receivables are prepayable by the Obligors at any time without penalty.
To the extent that prepayments are received on the Receivables, the actual
weighted average life of the Receivables will be shorter than a weighted average
life calculation based on the assumptions that payments will be made on schedule
and that no prepayments will be made. Weighted average life means the average
amount of time in which each dollar of principal on a Receivable is repaid.
Prepayments may also result from liquidations due to default; receipt of
proceeds from theft, physical damage, credit life and credit disability
insurance policies, repurchases by the Seller as a result of the failure of a
Receivable to meet certain criteria in the Agreement; purchases by the Servicer
as a result of a breach of certain of its covenants with respect to the
Receivables made
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by it in the Agreement; or as a result of an exercise by the Seller of its
option to purchase the Receivables Pool. Prepayments may also result from
payments from the Reserve Account with respect to Defaulted Receivables. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors, including the fact that an Obligor may not
sell or transfer the Financed Vehicle securing a Receivable without the Seller's
consent. These factors may also include unemployment, servicing decisions,
seasoning of loans, destruction of vehicles by accident, sales of vehicles and
market interest rates. A predominant factor affecting the prepayment of a large
group of loans is the difference between the interest rates on the loans and
prevailing market interest rates. If the prevailing market interest rates were
to fall significantly below the Contract Rates, the rate of prepayment and
refinancings would be expected to increase. Conversely, if prevailing market
interest rates were to increase significantly above the Contract Rates, the rate
of prepayments and refinancings would be expected to decrease.
The Bank maintains certain records of the historical prepayment experience
of its portfolio of Motor Vehicle Loans. The Bank does not believe that such
records are adequate to provide meaningful prepayment information with respect
to the Receivables. In any event, no assurance can be given that prepayments on
the Receivables would conform to any historical experience, and no prediction
can be made as to the actual prepayment experience to be expected with respect
to the Receivables. All reinvestment risks resulting from any prepayments of
Receivables will be borne by the Certificateholders.
YIELD CONSIDERATIONS
Interest on the Certificates will be distributed on the 15th day of each
month (or if such day is a Saturday, a Sunday or not a business day in New York,
New York (a 'BUSINESS DAY'), the next succeeding Business Day), beginning
August 16, 1999 (each, a 'DISTRIBUTION DATE'). Interest will be 6.10% per annum
with respect to the Class A Certificates (the 'CLASS A PASS-THROUGH RATE'), and
6.67% per annum with respect to the Class B Certificates (the 'CLASS B
PASS-THROUGH RATE'). The Class A Pass-Through Rate and the Class B Pass-Through
Rate are both sometimes referred to as the applicable 'PASS-THROUGH RATE'.
Interest will be distributed at the applicable Pass-Through Rate on the Class A
Certificate Balance and the Class B Certificate Balance, respectively, as of the
preceding Distribution Date, after giving effect to all distributions made on
such preceding Distribution Date, or in the case of the first Distribution Date,
as of the Closing Date, to all Certificateholders of record as of the day
immediately preceding such Distribution Date (the 'RECORD DATE'). In the event
of a principal prepayment on a Receivable during a Collection Period,
Certificateholders will receive their pro rata share of interest for the full
Collection Period with respect to the unpaid principal balance of such
Receivable as of the first day of such Collection Period to the extent that
amounts on deposit in the Certificate Account and in the Reserve Account are
available for such purpose. See 'Description of the Certificates --
Distributions on Certificates'.
In the event that any Receivable has a Contract Rate, as of the Cutoff
Date, below the sum of (i) the weighted average of the Class A Pass-Through Rate
and the Class B Pass-Through Rate and (ii) the Servicing Fee Rate, the Seller
will enter into the Yield Supplement Agreement with the Trust pursuant to which
the Seller will be obligated to pay to the Trust the difference between the
interest accrued with respect to each Receivable with a Contract Rate below the
sum of (i) and (ii) above and the interest which would accrue on such Receivable
at a rate at least equal to the sum of (i) and (ii). See 'Description of the
Certificates -- The Yield Supplement Agreement'. Therefore, disproportionate
rates of prepayments between Receivables with higher and lower Contract Rates
will not affect the yield to Certificateholders.
POOL FACTORS
The 'CLASS A POOL FACTOR' and the 'CLASS B POOL FACTOR' will each be a
seven-digit decimal that the Servicer will compute each month indicating the
remaining Class A Certificate Balance and Class B Certificate Balance,
respectively, as of the close of business on the Distribution Date, as a
fraction of the respective initial outstanding principal balance of the Class A
Certificates and
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the Class B Certificates. The Class A Pool Factor and the Class B Pool Factor
will each be 1.0000000 as of the date of the initial issuance of the
Certificates (the 'CLOSING DATE'), and thereafter will decline to reflect
reductions in the respective outstanding principal balances of the Class A
Certificates and the Class B Certificates.
A Class A Certificateholder's portion of the aggregate outstanding
principal balance of the Class A Certificates is the product of (a) the original
denomination of the holder's Class A Certificate and (b) the Class A Pool
Factor. A Certificate Owner's portion of the aggregate outstanding principal
balance of the Class A Certificates is the product of (a) the original principal
amount of the Certificate Owner's interest in the Class A Certificates and
(b) the Class A Pool Factor. A Class B Certificateholder's portion of the
aggregate outstanding principal balance of the Class B Certificates is the
product of (a) the original denomination of the holder's Class B Certificate and
(b) the Class B Pool Factor. A Certificate Owner's portion of the aggregate
outstanding principal balance of the Class B Certificates is the product of
(a) the original principal amount of the Certificate Owner's interest in the
Class B Certificates and (b) the Class B Pool Factor.
Pursuant to the Agreement, the Certificateholders will receive from the
Trustee monthly reports concerning the payments received on the Receivables, the
Pool Balance, the Class A Pool Factor and the Class B Pool Factor, and various
other items of information. Certificateholders of record during any calendar
year will be furnished information by the Trustee for tax reporting purposes not
later than the latest date permitted by law. Certificate Owners may obtain such
information from the Trustee, as described in 'Description of the
Certificates -- Statements to Certificateholders'.
Pursuant to the Agreement, Certificateholders will receive monthly reports
from the Paying Agent concerning payments received on the Receivables, the Pool
Balance, the Class A Pool Factor, the Class B Pool Factor, and various other
items of information. Certificateholders of record during any calendar year will
be furnished information for tax reporting purposes not later than the latest
date permitted by law. See 'Description of the Certificates -- General' and
' -- Statements to Certificateholders'.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Receivables to the Trust and the sale of the Certificates will be used for the
initial Reserve Account deposit and the remainder added to the Seller's general
funds.
USAA FEDERAL SAVINGS BANK
The Bank is a federally chartered savings association and a member of the
Federal Home Loan Bank System. The Bank is subject to the primary supervision of
the Office of Thrift Supervision. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation. The Bank is an indirect wholly-owned subsidiary
of USAA. The Bank is engaged in providing consumer banking products and services
primarily to the USAA membership, concentrating its efforts in marketing
consumer loan products as well as deposit products. As of December 31, 1998, the
total assets and total common and preferred stockholders' equity of the Bank
were $7.184 billion and $674 million, respectively.
The executive offices of the Bank are located at 10750 McDermott Freeway,
San Antonio, Texas 78288 and its telephone number is (210) 498-2265.
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UNITED SERVICES AUTOMOBILE ASSOCIATION
USAA is a reciprocal interinsurance exchange formed in 1922. As of
December 31, 1998, USAA and its various property and casualty insurance
subsidiaries had approximately 3.0 million policyholders. In addition,
approximately 326,000 customers of USAA's financial services subsidiaries are
eligible to become insured by the USAA group of property and casualty insurance
companies.
USAA and its various property and casualty insurance subsidiaries provide
personal lines insurance, which includes automobile, homeowners, and renters
insurance, to their policyholders. In addition, through its various wholly-owned
subsidiaries and affiliates, USAA offers personal financial service products,
including life insurance, mutual funds, banking services and financial planning
services. USAA is the sixth largest private passenger automobile and the sixth
largest homeowners insurer in the United States, based on 1998 direct written
premiums. USAA markets its products and services principally through a direct
mail and telecommunication program. USAA's insurance financial strength has been
rated 'Aaa' and 'AAA' by Moody's and Standard & Poor's, respectively. USAA is
headquartered in San Antonio, Texas and employs approximately 20,000 people.
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DESCRIPTION OF THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to the Agreement.
Copies of the Agreement, without exhibits, may be obtained by Certificateholders
upon request in writing to the Servicer at the address set forth above. The
following summary, while addressing all of the terms material to an investor,
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the Agreement.
GENERAL
The Class A Certificates will be issued in an initial principal amount
equal to $673,149,000 (the 'ORIGINAL CLASS A CERTIFICATE BALANCE'), and the
Class B Certificates will be issued in an initial principal amount equal to
$26,227,130 (the 'ORIGINAL CLASS B CERTIFICATE BALANCE' and, together with the
Original Class A Certificate Balance, the 'ORIGINAL CERTIFICATE BALANCE'). The
Original Class A Certificate Balance will equal approximately 96.25% of the
aggregate outstanding principal balance of the Receivables determined in
accordance with the Agreement (the 'POOL BALANCE') as of the Cutoff Date (the
'ORIGINAL POOL BALANCE'). The Original Class B Certificate Balance will equal
approximately 3.75% of the Original Pool Balance.
On each Distribution Date, the Trustee will distribute to
Certificateholders of record on the preceding Record Date all payments of
principal on the Receivables received by the Servicer during the preceding
Collection Period and, to the extent funds are available as described herein,
the amount of Realized Losses realized during such Collection Period, plus
interest in respect of such Collection Period at the applicable Pass-Through
Rate, calculated on the basis of a 360-day year consisting of twelve 30-day
months, on the Class A Certificate Balance and the Class B Certificate Balance,
respectively, in each case as of the preceding Distribution Date after giving
effect to any payments made on such preceding Distribution Date or, in the case
of the first Distribution Date, as of the Closing Date, to the extent that
sufficient funds are on deposit in the Certificate Account (including any Yield
Supplement Amounts) or available in the Reserve Account to make such
distributions. See ' -- Distributions on Certificates', ' -- The Reserve
Account' and ' -- The Yield Supplement Agreement'. Principal and interest to be
distributed to Certificateholders may be provided by payments made by or on
behalf of Obligors, Advances, the payment of Repurchase Amounts by the Seller or
the Servicer, withdrawals from the Reserve Account, repossession of, or other
enforcement measures taken with respect to, Financed Vehicles after default by
Obligors and the realization of net liquidation proceeds with respect thereto,
or recoveries, if any, of deficiencies from Obligors after the repossession and
sale of Financed Vehicles. See ' -- Sale and Assignment of the Receivables' and
' -- Servicing Procedures'. In the event that, on any Distribution Date, funds
available from the foregoing sources are insufficient to provide for such
distributions, any shortfall will be payable on the subsequent Distribution
Date, to the extent funds are available therefor.
BOOK-ENTRY REGISTRATION
The Certificates will be offered for purchase in denominations of $1,000
and integral multiples thereof and will initially be represented by Certificates
registered in the name of the nominee of The Depository Trust Company ('DTC'),
except as provided below. The Seller has been informed by DTC that DTC's nominee
will be Cede & Co. ('CEDE'). Certificateholders of any class of Certificates may
hold their Certificates through DTC (in the United States) or Cedel Bank,
societe anonyme ('CEDEL') or the Euroclear System operated by Morgan Guaranty
Trust Company of New York, Brussels, Belgium office (the 'EUROCLEAR OPERATOR' or
'EUROCLEAR') (in Europe) if they are participants of such systems, or indirectly
through organizations that are participants in such systems. No person acquiring
an interest in the Certificates through the facilities of DTC (a 'CERTIFICATE
OWNER') will be entitled to receive a certificate representing such person's
interest in the Certificates, except as set forth below under ' -- Definitive
Certificates'. Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its participating organizations ('DIRECT PARTICIPANTS'), and all references
herein to distributions,
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notices, reports and statements to Certificateholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Certificates, as the case may be, for distribution to Certificate
Owners in accordance with DTC procedures. See ' -- Definitive Certificates'.
Distributions of principal of and interest on the Certificates with respect
to each Collection Period will be made by, or on behalf of, the Paying Agent on
the Distribution Date immediately succeeding such Collection Period, commencing
August 16, 1999. Each Collection Period will be one calendar month, or in the
case of the initial Collection Period, the period from the Cutoff Date to July
31, 1999.
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 under the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its Direct Participants and
facilitate the clearance and settlement of securities transactions between
Direct Participants through electronic book-entry changes in accounts of its
Direct Participants, thereby eliminating the need for physical movement of
certificates. Direct Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies and clearing corporations
and may include certain other organizations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly (the 'INDIRECT PARTICIPANTS' and,
together with the Direct Participants, the 'DTC PARTICIPANTS').
Certificate Owners that are not Direct Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Certificates may do so only through Direct Participants and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC and its
Direct Participants. Under a book-entry format, Certificate Owners may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward such
payments to its Direct Participants which thereafter will forward them to
Indirect Participants or Certificate Owners. Certificate Owners will not be
recognized by the Trustee as Certificateholders, as such term is used in the
Agreement, and Certificate Owners will only be permitted to exercise the rights
of Certificateholders indirectly through DTC and its Direct Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Direct
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. DTC Participants with which Certificate Owners have accounts
with respect to the Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Certificate Owners.
Because DTC can only act on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants, the ability of a Certificate Owner to pledge
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Certificates, may be limited due to
the lack of physical certificates for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Direct Participants to whose accounts with DTC the Certificates are
credited. Additionally, DTC has advised the Seller that it will take such
actions with respect to specified percentages of the Pool Balance evidenced by
the Class A Certificates or the Class B Certificates only at the direction of
and on behalf of Direct Participants whose holdings include undivided interests
that satisfy such specified percentages. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Direct Participants whose holdings include such undivided
interests.
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Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries (each, a 'DEPOSITARY' and, together with DTC, the
'DEPOSITARIES') which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC.
Transfers between Direct Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel or Euroclear, on the other, will be effected through DTC in
accordance with DTC rules through the relevant European international clearing
system through its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
through DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel Participants
and Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing day will be reported to the
relevant Cedel Participant or Euroclear Participant on such business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or through
a Cedel Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlement through DTC.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ('CEDEL
PARTICIPANTS') and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 36
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriter. Indirect access to Cedel is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel Participant,
either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ('EUROCLEAR PARTICIPANTS') and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 34
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office, under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the
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'COOPERATIVE'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriter. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'TERMS AND CONDITIONS'). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Payments on Offered Certificates held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such payments will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See 'Certain
Federal Income Tax Considerations' and Annex A. Cedel or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by
Certificateholders of any class of Certificates under the related agreement on
behalf of a Cedel Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
The information in this section concerning DTC, Cedel and Euroclear and
their respective book-entry systems has been obtained from sources that the
Transferor believes to be reliable, but the Transferor takes no responsibility
for the accuracy thereof.
DTC'S YEAR 2000 EFFORTS
DTC's management is aware that some computer applications, systems and the
like for processing data ('SYSTEMS') that are dependent upon calendar dates,
including dates before, on and after January 1, 2000, may encounter 'Year 2000
problems.' DTC has informed the Participants and other members of the financial
community (the 'INDUSTRY') that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information and the provision of
services, including telecommunication and electrical utility service
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providers, among others. DTC has informed the Industry that it is contacting
(and will continue to contact) third party vendors from whom DTC acquires
services to: (a) impress upon them the importance of such services being Year
2000 compliant and (b) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purpose only and is not intended to
serve as a representation, warranty or contract modification of any kind.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form (the
'DEFINITIVE CERTIFICATES') to Certificate Owners or their nominees, rather than
to DTC or its nominee only if:
(1) the Servicer advises the Trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
Depository with respect to the Certificates and the Trustee or the
Servicer is unable to locate a qualified successor;
(2) the Servicer, at its option, elects to terminate the book-entry system
through DTC; or
(3) after the occurrence of an Event of Servicing Termination, Certificate
Owners representing in the aggregate not less than 50% of the Pool
Balance advise DTC through Participants in writing that the
continuation of a book-entry system through DTC, or a successor
thereto, is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the Definitive Certificates representing the Certificates and instructions for
re-registrations, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Agreement (the
'HOLDERS').
Distributions of principal of and interest on the Definitive Certificates
will be made by the Paying Agent directly to Holders in accordance with the
procedures set forth herein and in the Agreement. Distributions of principal and
interest on each Distribution Date will be made to Holders in whose names the
Definitive Certificates were registered at the close of business on the last day
of the related Collection Period, which date shall thereafter be the new Record
Date. Such distributions will be made by check mailed to the address of such
Holder as it appears on the register maintained by the Trustee. The final
payment on any Certificate, whether a Definitive Certificate or the Certificates
registered in the name of Cede representing the Certificates, however, will be
made only upon presentation and surrender of such Certificate at the office or
agency specified in the notice of final distribution to Certificateholders.
Definitive Certificates will be transferable and exchangeable at the
offices of the transfer agent and registrar, which initially shall be the
Trustee (in such capacity, the 'TRANSFER AGENT AND REGISTRAR'). No service
charge will be imposed for any registration of transfer or exchange, but the
Trustee or Transfer Agent and Registrar may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
SALE AND ASSIGNMENT OF THE RECEIVABLES
At the time of issuance of the Certificates, the Seller will sell and
assign to the Trust, without recourse, the Seller's entire interest in the
Receivables and the proceeds thereof, including its security interests in the
Financed Vehicles. Each Receivable will be identified in a schedule appearing as
an exhibit to the Agreement. The Trustee will, concurrently with such sale and
assignment, execute, authenticate and deliver the Definitive Certificates
representing the Certificates to the Underwriters against payment to the Seller
of the net purchase price of the sale of the Certificates.
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The Agreement sets forth criteria that must be satisfied by each
Receivable. The criteria in the Agreement include, among others, the following:
(1) each Receivable (a) has been originated for the retail financing of a
Financed Vehicle by an Obligor located in one of the states of the
United States or the District of Columbia and (b) contains customary
and enforceable provisions such that the rights and remedies of the
holder thereof shall be adequate for realization against the collateral
of the benefits of the security;
(2) each Receivable and the sale of the related Financed Vehicle complies
in all material respects with all requirements of applicable federal,
state, and local laws, and regulations thereunder, including usury
laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Reporting Act, the Federal Trade Commission Act,
the Magnuson-Moss Warranty Act, Federal Reserve Board Regulations B and
Z, state adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, and any other consumer credit, equal opportunity
and disclosure laws applicable to such Receivable and sale;
(3) each Receivable constitutes the legal, valid, and binding payment
obligation in writing of the Obligor, enforceable by the holder thereof
in all material respects in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization,
liquidation and other similar laws and equitable principles relating to
or affecting the enforcement of creditors' rights;
(4) immediately prior to the sale and assignment thereof to the Trust, each
Receivable was secured by a validly perfected first priority security
interest in the Financed Vehicle in favor of the Seller as secured
party or all necessary action with respect to such Receivable has been
taken to perfect a first priority security interest in the related
Financed Vehicle in favor of the Seller as secured party, which
security interest is assignable and has been so assigned by the Seller
to the Trust;
(5) as of the Cutoff Date, there are no rights of rescission, setoff,
counterclaim, or defense, and the Seller has no knowledge of the same
being asserted or threatened, with respect to any Receivable;
(6) as of the Cutoff Date, the Seller had no knowledge of any liens or
claims that have been filed, including liens for work, labor, materials
or unpaid taxes relating to a Financed Vehicle, that would be liens
prior to, or equal or coordinate with, the lien granted by the
Receivable;
(7) except for payment defaults continuing for a period of not more than 30
days as of the Cutoff Date, the Seller has no knowledge that a default,
breach, violation, or event permitting acceleration under the terms of
any Receivable exists; the Seller has no knowledge that a continuing
condition that with notice or lapse of time would constitute a default,
breach, violation or event permitting acceleration under the terms of
any Receivable exists, and the Seller has not waived any of the
foregoing;
(8) each Receivable requires that the Obligor thereunder obtain
comprehensive and collision insurance covering the Financed Vehicle;
and
(9) each Receivable satisfies the criteria specified above under 'The
Receivables Pool'.
As of the last day of the Collection Period following the Collection
Period, or, if the Seller elects, the last day of such Collection Period, during
which the Seller becomes aware or receives written notice from the Trustee or
the Servicer that a Receivable did not meet any of such criteria in the
Agreement as of the date sold to the Trustee and such failure materially and
adversely affects the interests of the Certificateholders in a Receivable, the
Seller, unless it cures the failed criterion, will repurchase the Receivable
from the Trustee at a price equal to the unpaid principal balance thereof plus
accrued interest thereon at the weighted average Certificate rate through the
date of the repurchase (the 'REPURCHASE AMOUNT'). The repurchase obligation will
constitute the sole remedy available to the Certificateholders or the Trustee
for the failure of a Receivable to
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meet any of the criteria set forth in the Agreement. In the event that the Bank,
as Seller, fails to satisfy its regulatory capital requirements in the future,
it may be prohibited from repurchasing any of the Receivables.
To ensure uniform quality in the servicing of the Receivables and to reduce
administrative costs, the Trustee will appoint the Servicer as initial custodian
of the Receivables. The Receivables will not be stamped or otherwise marked to
reflect the transfer of the Receivables to the Trust and will not be segregated
from the other motor vehicle installment loans of the Servicer. The Obligors
under the Receivables will not be notified of the transfer of the Receivables to
the Trust, but the Seller's accounting records and computer systems will reflect
the sale and assignment of the Receivables to the Trust. See 'Certain Legal
Aspects of the Receivables'.
DESCRIPTION OF THE TRUST'S ACCOUNTS
The Servicer will establish and maintain a segregated account (the
'CERTIFICATE ACCOUNT'), in the name of the Trustee on behalf of the
Certificateholders, into which all payments made on or with respect to the
Receivables will be deposited. The Trustee will establish a segregated account
in the name of the Trustee on behalf of the Trust and for the benefit of the
Class A Certificateholders (the 'CLASS A DISTRIBUTION ACCOUNT'), and a
segregated account in the name of the Trustee on behalf of the Trust and for the
benefit of the Class B Certificateholders (the 'CLASS B DISTRIBUTION ACCOUNT'),
from which all distributions with respect to the Class A Certificates and the
Class B Certificates, respectively, will be made. The Certificate Account, the
Class A Distribution Account and the Class B Distribution Account are
collectively referred to as the 'ACCOUNTS'.
Each Account will be maintained at all times:
(a) with a depository institution organized under the laws of the United
States or any state thereof or incorporated under the laws of a foreign
jurisdiction with a branch or agency located in the United States and
subject to supervision and examination by federal or state banking
authorities, having a short-term certificate of deposit rating of
'A-1+' and 'P-1' or a long-term unsecured debt rating of not less than
'AA' and 'Aa2' assigned by Standard & Poor's and Moody's, respectively,
and in the case of an institution organized under the laws of the
United States, the deposits of which are insured by the Federal Deposit
Insurance Corporation (the 'FDIC'), (a 'QUALIFIED INSTITUTION'); or
(b) in the trust department of an institution organized under the laws of
the United States or any state thereof or incorporated under the laws
of a foreign jurisdiction with a branch or agency located in the United
States and subject to supervision and examination by federal or state
banking authorities with authority to act under such laws as trustee or
in any other fiduciary capacity, having not less than $1 billion in
assets under fiduciary management, a minimum net worth of $50,000,000
and a long-term deposit rating of not less than 'BBB - ' and 'Baa3'
assigned by Standard & Poor's and Moody's, respectively (a 'QUALIFIED
TRUST COMPANY').
The Certificate Account and the Reserve Account discussed below will be
maintained with a Qualified Trust Company. Should any depository of an Account
cease to be a Qualified Institution or Qualified Trust Company, as applicable,
such Account shall be transferred to a Qualified Institution or Qualified Trust
Company, as applicable, provided that such Account may remain at such depository
if the Rating Agency Condition is satisfied. The Bank of New York, in its
capacity as the initial paying agent (the 'PAYING AGENT'), will have the
revocable right to withdraw funds from the Accounts for the purpose of making
distributions to Certificateholders in the manner provided in the Agreement.
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables made by or on behalf
of Obligors into the Certificate Account on a daily basis within forty-eight
hours of receipt.
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In the event that, subsequent to the Closing Date, (a) the Bank obtains a
short-term certificate of deposit rating of the Bank from Standard & Poor's
Ratings Services ('STANDARD & POOR'S') and Moody's Investors Service, Inc.
('MOODY'S' and, together with Standard & Poor's each, a 'RATING AGENCY') of
'A-1' and 'P-1', respectively, or certain conditions satisfactory to Standard &
Poor's and Moody's are satisfied, and (b) the Bank is the Servicer, the Servicer
will no longer be required to make such deposits on a daily basis, but instead
will be permitted to make such deposits into the Certificate Account on the
Business Day preceding each Distribution Date (each, a 'DEPOSIT DATE'). Pending
deposit into the Certificate Account in such case, collections may be invested
by the Servicer at its own risk and for its own benefit and will not be
segregated from other funds of the Bank.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and, in a manner consistent with the Agreement and
with the terms of the Receivables, will continue such collection procedures as
it follows with respect to comparable new or used automobile and light-duty
truck receivables that it services for itself or others and that is consistent
with prudent industry standards. The Agreement will provide that the Servicer
may not change the amount of or reschedule the Due Date of any scheduled payment
to a date more than 30 days from the original Due Date, change the Contract Rate
of, or extend any Receivable or change any material term of a Receivable, except
as provided by the terms of the Receivable or of the Agreement or as required by
law or court order; provided, however, that the Servicer may extend any
Receivable for credit-related reasons that would be acceptable to the Servicer
with respect to comparable new or used automobile and light-duty truck
receivables that it services for itself or others if:
(a) the amount on deposit in the Reserve Account is greater than zero at
the time of such extension;
(b) the total credit-related extensions granted on the Receivable will not
exceed four months in the aggregate;
(c) the total number of credit-related extensions granted on the Receivable
will not exceed two;
(d) the maturity of such Receivable would not be extended beyond the
Collection Period immediately preceding the February 15, 2006
Distribution Date (the 'FINAL SCHEDULED DISTRIBUTION DATE'); and
(e) the rescheduling or extension would not modify the terms of such
Receivable in such a manner as to constitute a cancellation of such
Receivable and the creation of a new receivable.
The Servicer also considers other criteria when making credit-related extensions
as described under 'The Bank's Portfolio of Motor Vehicle Loans -- Collection
Procedures'. In the event that the Servicer fails to comply with the foregoing
terms of the Agreement, it will be required to purchase the affected Receivable
for the Repurchase Amount as of the last day of the Collection Period following
the Collection Period or, if the Servicer elects, the last day of the Collection
Period during which it became aware, or receives written notice from the
Trustee, of such failure. The purchase obligation will constitute the sole
remedy available to the Certificateholders or the Trustee for any such uncured
breach. In the event that the Bank, as Servicer, fails to satisfy its regulatory
capital requirements in the future, it may be prohibited from purchasing any of
the Receivables.
Under the Agreement, the Servicer, in accordance with its customary
servicing procedures and underwriting standards, will require the Obligors to
obtain comprehensive and collision insurance on the Financed Vehicles in
accordance with the policies and procedures employed by the Servicer with
respect to comparable new or used automobile and light-duty truck receivables
that it services for itself or others. See 'The Bank's Portfolio of Motor
Vehicle Loans Insurance'.
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The Agreement provides that the Servicer, based upon its collection
practices and procedures for comparable new or used automobile and light-duty
truck receivables that it services for itself or others, may repossess a
Financed Vehicle relating to a Receivable that is delinquent prior to such
Receivable being designated a Defaulted Receivable. The Agreement will also
require the Servicer to follow such normal collection practices and procedures
as it deems necessary or advisable to realize upon any Receivable with respect
to which:
(1) the Servicer determines based upon its normal collection practices and
procedures, during any Collection Period, that eventual payment in full
of the amount financed is unlikely; or
(2) more than 10 percent of a scheduled payment is 120 or more days
delinquent as of the last day of such Collection Period (each such
Receivable, a 'DEFAULTED RECEIVABLE').
See 'The Bank's Portfolio of Motor Vehicle Loans Collection Procedures'. The
Servicer may sell the repossessed Financed Vehicle securing a Receivable at
judicial sale, or take any other action permitted by applicable law. See
'Certain Legal Aspects of the Receivables'. The net proceeds of such realization
will be deposited in the Certificate Account.
ADVANCES
The Servicer may, in its sole discretion, make a payment with respect to
each Receivable (other than a Defaulted Receivable) equal to the excess, if any,
of (a) the product of the principal balance of such Receivable as of the first
day of the related Collection Period and one-twelfth of its Contract Rate, over
(b) the interest actually received by the Servicer with respect to such
Receivable from the Obligor or the Seller pursuant to the Yield Supplement
Agreement (if applicable) or from the payment of the Repurchase Amount during or
with respect to such Collection Period (any such payment, an 'ADVANCE'). The
Servicer may elect not to make any Advance with respect to a Receivable to the
extent that the Servicer, in its sole discretion, determines that such Advance
is not recoverable from subsequent payments on such Receivable or from funds on
deposit in the Reserve Account. In the event that the Servicer does not make an
Advance, any payment deficiency resulting therefrom will be funded by the
application of available amounts in the Reserve Account.
To the extent that the amount set forth in clause (b) above with respect to
a Receivable is greater than the amount set forth in clause (a) above with
respect thereto, such amount shall be distributed by the Paying Agent to the
Servicer on the related Distribution Date to reimburse the Servicer for previous
unreimbursed Advances (the 'OUTSTANDING ADVANCES') with respect to such
Receivable. Any such reimbursement will only be from accrued interest due from
the Obligor under such Receivable.
The Servicer will deposit all Advances into the Certificate Account on the
Business Day immediately preceding the related Distribution Date.
SERVICING COMPENSATION
The Servicer will be entitled to receive a monthly fee (the 'SERVICING
FEE') for each Collection Period, in an amount equal to the product of
one-twelfth of 1.00% (the 'SERVICING FEE RATE') and the Pool Balance as of the
first day of the related Collection Period. In addition, the Servicer will
receive as additional compensation investment earnings on amounts on deposit and
to be deposited in the Certificate Account, except that beginning with the
Collection Period for which the Servicer fails to deposit an Advance with
respect to a Receivable other than because such Receivable is a Defaulted
Receivable and thereafter, such investment earnings will not be paid to the
Servicer, but will be treated as Available Interest pursuant to the Agreement.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of motor vehicle receivables as an agent for the
Trust, including collecting and posting all payments, responding to inquiries of
Obligors, investigating delinquencies, reporting tax information to Obligors,
advancing costs of disposition of defaults, and monitoring the collateral in
cases of Obligor default. The Servicing Fee also will compensate the Servicer
for administering the
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Receivables, including accounting for collections and furnishing monthly and
annual statements to the Trustee with respect to distributions, and generating
federal income tax information. The Servicing Fee also will compensate the
Servicer for certain taxes, accounting fees, outside auditor fees, the fees of
the Paying Agent and the Transfer Agent and Registrar, data processing costs,
and other costs incurred in connection with administering and servicing the
Receivables. The amount of the Servicing Fee was determined in light of the
foregoing duties of the Servicer as well as with a view toward providing the
Servicer with a reasonable profit. The Servicing Fee, together with the
additional compensation consisting of investment earnings described above, is
comparable to fees that would be paid to parties unaffiliated with the Bank. The
Bank expects that the Receivables will provide the Trust with funds in an amount
sufficient to pay the Servicing Fee to the Servicer and interest each month at
the Pass-Through Rate on the Pool Balance to the Certificateholders.
THE RESERVE ACCOUNT
The Reserve Account will be created with an initial deposit of cash of
$5,245,321 (the 'RESERVE ACCOUNT INITIAL DEPOSIT') from the proceeds of the sale
of the Certificates. In addition, on each Distribution Date, any amounts on
deposit in the Certificate Account with respect to the preceding Collection
Period after payments to the Certificateholders and the Servicer have been made
will be deposited into the Reserve Account until the amount on deposit in the
Reserve Account is equal to the Specified Reserve Account Balance.
The Reserve Account will be maintained at a Qualified Trust Company and
shall be established and maintained in the name of, and under the control of,
The Bank of New York as collateral agent (the 'COLLATERAL AGENT'). Funds on
deposit in the Reserve Account will be invested in certain permitted
investments. The Reserve Account and any amounts therein will not be property of
the Trust, but will be pledged to the Collateral Agent, for the benefit of
Certificateholders.
On each Distribution Date, the amount available in the Reserve Account (the
'AVAILABLE RESERVE AMOUNT') will equal the lesser of (a) the amount on deposit
in the Reserve Account (exclusive of investment earnings) and (b) the Specified
Reserve Account Balance. On each Deposit Date, the Collateral Agent will
withdraw funds from the Reserve Account to make available to Certificateholders
the excess, if any, of (a) the sum of the amounts required to be distributed to
Certificateholders, any accrued and unpaid Servicing Fees payable to the
Servicer on such Distribution Date and any amounts required to reimburse any
Outstanding Advances (excluding Advances made as a result of prepayments by
Obligors) over (b) the amounts to be deposited in the Certificate Account with
respect to the preceding Collection Period exclusive of investment earnings.
Such deficiencies in the Certificate Account may result from, among other
things, Receivables becoming Defaulted Receivables or the failure by the
Servicer to make any remittance required to be made under the Agreement. The
aggregate amount to be withdrawn from the Reserve Account on any Distribution
Date will not exceed the Available Reserve Amount with respect to the related
Distribution Date. The Collateral Agent will deposit the proceeds of such
withdrawal from the Reserve Account into the Class A Distribution Account or the
Class B Distribution Account or pay such proceeds to the Servicer, as
applicable, on the Distribution Date with respect to which such withdrawal was
made.
The 'SPECIFIED RESERVE ACCOUNT BALANCE' on any Distribution Date will equal
the greater of (a) 1.25% of the Pool Balance as of the last day of the preceding
Collection Period and (b) 0.50% of the initial Pool Balance (such amount not to
exceed the outstanding Pool Balance as of the last day of the preceding
Collection Period). The Specified Reserve Account Balance will be calculated
using a percentage of 2.50%, instead of 1.25%, for any Distribution Date on
which the Average Net Loss Ratio exceeds 0.85% or the Average Delinquency Ratio
exceeds 0.85%; provided that such higher percentage would remain in effect until
the Average Net Loss Ratio and the Average Delinquency Ratio are equal to or
less than 0.85% for at least six consecutive Collection Periods. The Specified
Reserve Account Balance may be reduced to a lesser amount as determined by the
Seller, provided that each Rating Agency shall have confirmed in writing to the
Trustee that such
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action will not result in a withdrawal or reduction in its rating of the
Certificates (the 'RATING AGENCY CONDITION').
'AVERAGE DELINQUENCY RATIO' means, as of any Distribution Date, the average
of the Delinquency Ratios for the preceding three Collection Periods.
'AVERAGE NET LOSS RATIO' means, as of any Distribution Date, the average of
the Net Loss Ratios for the preceding three Collection Periods.
'DELINQUENCY RATIO' means, for any Collection Period, the ratio, expressed
as a percentage, of (a) the principal amount of all outstanding Receivables
other than Purchased Receivables and Defaulted Receivables which are 60 or more
days delinquent as of the end of such Collection Period, determined in
accordance with the Servicer's customary practices, or Receivables as to which
the related Financed Vehicle has been repossessed but not sold, divided by (b)
the Pool Balance as of the last day of such Collection Period.
'LIQUIDATION PROCEEDS' means with respect to any Receivable (a) insurance
proceeds received by the Servicer and (b) the monies collected by the Servicer
from whatever source, including but not limited to proceeds of a Financed
Vehicle sold after repossession, on a Defaulted Receivable net of any payments
required by law to be remitted to the Obligor.
'NET LOSS RATIO' means, for any Collection Period, an amount, expressed as
an annualized percentage, equal to (a) Realized Losses minus Recoveries for such
Collection Period, divided by (b) the average of the Pool Balances on the first
day of such Collection Period and the last day of such Collection Period.
'RECOVERIES' mean, with respect to any Collection Period, all monies
received by the Servicer with respect to any Defaulted Receivable during any
Collection Period following the Collection Period in which such Receivable
became a Defaulted Receivable, net of any fees, costs and expenses incurred by
the Servicer in connection with the collection of such Receivable and any
payments required by law to be remitted to the Obligor.
Amounts on deposit in the Reserve Account will be released to the Seller on
each Distribution Date to the extent that the amount on deposit in the Reserve
Account would exceed the Specified Reserve Account Balance. The Collateral Agent
will cause all investment earnings attributable to the Reserve Account to be
distributed on each Distribution Date to the Seller. Upon any distribution to
the Seller of amounts from the Reserve Account, the Certificateholders will not
have any rights in, or claims to, such amounts.
In the event that the funds in the Reserve Account are reduced to zero, the
Certificateholders will bear directly the credit and other risks associated with
ownership of the Receivables. In such a case, the amount available for
distribution may be less than that described below, and the Certificateholders
may experience delays or suffer losses as a result of, among other things,
defaults or delinquencies by the Obligors or previous extensions made by the
Servicer.
THE YIELD SUPPLEMENT AGREEMENT
If any Receivable has, as of the Cutoff Date, a Contract Rate below the sum
of (i) the weighted average of the Class A Pass-Through Rate and the Class B
Pass-Through Rate and (ii) the Servicing Fee Rate, the Seller, the Servicer and
the Trust will, simultaneously with the sale and assignment of the Receivables,
enter in a Yield Supplement Agreement (the 'YIELD SUPPLEMENT AGREEMENT'). The
Yield Supplement Agreement will, with respect to each Receivable subject
thereto, provide for the payment into the Certificate Account on or prior to the
Deposit Date of an amount calculated by the Servicer which will be equal to
one-twelfth of the excess, if any, of (i) interest on such Receivable's
principal balance as of the first day of the preceding Collection Period
calculated at a rate equal to the sum of the weighted average of the Class A
Pass-Through Rate and the Class B Pass-Through Rate and the Servicing Fee Rate
over (ii) interest accrued at the Contract Rate on such Receivable's principal
balance as of the first day of such Collection Period (in the aggregate for all
Receivables with respect to any Deposit Date, the 'YIELD SUPPLEMENT AMOUNT').
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Payments due under the Yield Supplement Agreement will be secured by funds
in the initial amount of $0.00 deposited by the Seller on the Closing Date in a
segregated account (the 'YIELD SUPPLEMENT ACCOUNT') to be maintained by The Bank
of New York, as the Collateral Agent for the benefit of the holders of the
Certificates. The amount required to be retained (to the extent of funds
available therefor) in the Yield Supplement Account on any Distribution Date
will be equal to, as of any date of determination, the sum of the projected
Yield Supplement Amounts for all future Distribution Dates, assuming that future
scheduled payments on the Receivables are made on their scheduled due dates (the
'SPECIFIED YIELD SUPPLEMENT BALANCE').
Funds on deposit in the Yield Supplement Account will be invested in
certain permitted investments selected by the Seller; provided, however, that,
subject to satisfaction of the Rating Agency Condition, funds on deposit in the
Yield Supplement Account may be invested in such permitted investments that
mature later than the next Deposit Date. The Collateral Agent shall cause all
investment earnings attributable to the Yield Supplement Account to be
distributed on each Distribution Date to the Servicer.
Amounts on deposit in the Yield Supplement Account will be released from
the Trust to the Seller on each Distribution Date to the extent that the amount
on deposit in the Yield Supplement Account exceeds the Specified Yield
Supplement Balance. The Yield Supplement Account and any amounts on deposit
therein shall not be the property of the Trust, but will be pledged to the
Collateral Agent for the benefit of the Certificateholders. Upon any release of
amounts from the Yield Supplement Account, the Certificateholders will cease to
have any rights in, or claims to, such amounts.
Due to the fact that no Receivable had, as of the Cutoff Date, a Contract
Rate below the sum of the weighted average of the Pass-Through Rates and the
Servicing Fee Rate, there will be no Yield Supplement Agreement and no payment
at any time of any Yield Supplement Amount.
DISTRIBUTIONS ON CERTIFICATES
Deposits to Certificate Account. On or before the 15th day of each month
or, if such 15th day is not a Business Day, the preceding Business Day, the
Servicer will inform the Trustee and the Paying Agent of the following amounts
with respect to the preceding Collection Period:
(1) the amount of aggregate collections on the Receivables;
(2) the aggregate amount of Advances to be remitted by the Servicer;
(3) the aggregate Repurchase Amount of Receivables to be repurchased by the
Seller or purchased by the Servicer;
(4) the aggregate amount to be withdrawn from the Reserve Account;
(5) the aggregate amount to be distributed as principal and interest
(including any Yield Supplement Amount included therein, if applicable)
on the Certificates; and
(6) the Servicing Fee.
On or before each Deposit Date:
(1) the Servicer will cause all Collections and Liquidation Proceeds and
Recoveries to be deposited into the Certificate Account and will
deposit into the Certificate Account all Repurchase Amounts of
Receivables to be purchased by the Servicer on such Deposit Date;
(2) the Seller will deposit into the Certificate Account all Repurchase
Amounts of Receivables to be repurchased by the Seller on such Deposit
Date;
(3) the Servicer will deposit all Advances for the related Distribution
Date into the Certificate Account; and
(4) the Collateral Agent will deposit the Yield Supplement Amount for such
Distribution Date (if applicable) into the Certificate Account.
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'AVAILABLE INTEREST' means, with respect to any Distribution Date, the
excess of (a) the sum of:
(1) Interest Collections for such Distribution Date;
(2) the Yield Supplement Amount for such Distribution Date (if applicable);
(3) all Advances made by the Servicer with respect to such Distribution
Date; and
(4) beginning with the Collection Period for which the Servicer shall not
have made an Advance with respect to a Receivable other than because
such Receivable was a Defaulted Receivable, investment earnings on
amounts on deposit in the Certificate Account as of the last day of the
related Collection Period,
over (b) the amount of Outstanding Advances to be reimbursed on or with respect
to such Distribution Date.
'AVAILABLE PRINCIPAL' means, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period:
(1) that portion of all Collections on the Receivables allocable to
principal in accordance with the terms of the Receivables and the
Servicer's customary servicing procedures;
(2) to the extent attributable to principal, the Repurchase Amount received
with respect to each Receivable repurchased by the Seller or purchased
by the Servicer under an obligation which arose during the related
Collection Period; and
(3) all Liquidation Proceeds, to the extent allocable to principal,
received during such Collection Period.
Available Principal on any Distribution Date shall exclude all payments and
proceeds of any Receivables the Repurchase Amount of which has been distributed
on a prior Distribution Date.
'COLLECTION PERIOD' means the calendar month preceding each Distribution
Date, or in the case of the initial Collection Period, the period from the
Cutoff Date to July 31, 1999.
'COLLECTIONS' mean, with respect to any Distribution Date, all collections
on the Receivables.
'INTEREST COLLECTIONS' mean, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period:
(1) that portion of all Collections on the Receivables allocable to
interest in accordance with the terms of the Receivables and the
Servicer's customary servicing procedures;
(2) all Liquidation Proceeds, to the extent allocable to interest, received
during such Collection Period;
(3) all Recoveries on Receivables which became Defaulted Receivables
received during any Collection Period following the Collection Period
in which such Receivable became a Defaulted Receivable; and
(4) to the extent attributable to accrued interest, the Repurchase Amount
with respect to each Receivable repurchased by the Seller or purchased
by the Servicer under an obligation which arose during such Collection
Period.
Interest Collections for any Distribution Date shall exclude all payments and
proceeds of any Receivables the Repurchase Amount of which has been distributed
on a prior Distribution Date.
'PURCHASED RECEIVABLE' means, at any time, a simple interest motor vehicle
installment loan included in the schedule of Receivables appearing as an exhibit
to the Agreement as to which payment of the Repurchase Amount has previously
been made by the Seller or the Servicer pursuant to the Agreement.
Deposits to the Distribution Accounts. On each Distribution Date, after
making reimbursements of Outstanding Advances to the Servicer from Available
Interest and/or the Available Reserve Amount to the extent then reimbursable
pursuant to the Agreement, the Trustee will make the following deposits and
distributions, to the extent of Available Interest and any Available Reserve
Amount remaining after such reimbursements (and, in the case of shortfalls
occurring under clause
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(2) below in the Class A Interest Distribution, the Class B Percentage of
Available Principal to the extent of such shortfalls), in the following
priority:
(1) to the Servicer, first from Available Interest, and then, if necessary,
from the Available Reserve Amount, any unpaid Servicing Fee for the
related Collection Period and all unpaid Servicing Fees from prior
Collection Periods;
(2) to the Class A Distribution Account, first from Available Interest,
then, if necessary, from the Available Reserve Amount, and finally, if
necessary, from the Class B Percentage of Available Principal, the
Class A Interest Distribution for such Distribution Date; and
(3) to the Class B Distribution Account, first from Available Interest and
then, if necessary, from the Available Reserve Amount, the Class B
Interest Distribution for such Distribution Date.
On each Distribution Date, the Trustee will make the following deposits and
distributions, to the extent of the portion of Available Principal, Available
Interest and the Available Reserve Amount (to be applied in that order of
priority) remaining after the application of clauses (1), (2) and (3) above, in
the following priority:
(4) to the Class A Distribution Account, the Class A Principal Distribution
for such Distribution Date;
(5) to the Class B Distribution Account, the Class B Principal Distribution
for such Distribution Date;
(6) to the Reserve Account, any amounts remaining, until the amount on
deposit in the Reserve Account equals the Specified Reserve Account
Balance; and
(7) to the Seller, any amounts remaining.
On each Distribution Date, all amounts on deposit in the Class A
Distribution Account will be distributed to the Class A Certificateholders and
all amounts on deposit in the Class B Distribution Account will be distributed
to the Class B Certificateholders by the Trustee.
'CLASS A CERTIFICATE BALANCE', at any time, equals the Original Class A
Certificate Balance, as reduced by all principal amounts distributed to Class A
Certificateholders prior to such time.
'CLASS A INTEREST CARRYOVER SHORTFALL' means, (a) with respect to the
initial Distribution Date, zero, and (b) with respect to any other Distribution
Date, the excess of Class A Monthly Interest for the preceding Distribution Date
and any outstanding Class A Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that was actually
deposited in the Class A Distribution Account on such preceding Distribution
Date, plus 30 days of interest on such excess, to the extent permitted by law,
at the Class A Pass-Through Rate.
'CLASS A INTEREST DISTRIBUTION' means, with respect to any Distribution
Date, the sum of Class A Monthly Interest for such Distribution Date and the
Class A Interest Carryover Shortfall for such Distribution Date.
'CLASS A MONTHLY INTEREST' means, with respect to any Distribution Date,
one-twelfth of the Class A Pass-Through Rate multiplied by the Class A
Certificate Balance as of the preceding Distribution Date, after giving effect
to all payments of principal made on such Distribution Date or, in the case of
the first Distribution Date, as of the Closing Date.
'CLASS A MONTHLY PRINCIPAL' means, with respect to any Distribution Date,
the Class A Percentage of Available Principal for such Distribution Date plus
the Class A Percentage of Realized Losses with respect to the related Collection
Period.
'CLASS A PERCENTAGE' means 96.25%.
'CLASS A PRINCIPAL CARRYOVER SHORTFALL' means, (a) with respect to the
initial Distribution Date, zero, and (b) with respect to any other Distribution
Date, the excess of Class A Monthly Principal for such Distribution Date and any
outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Class A Distribution Account on such Distribution Date.
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'CLASS A PRINCIPAL DISTRIBUTION' means, with respect to any Distribution
Date, the sum of Class A Monthly Principal for such Distribution Date and, in
the case of any Distribution Date other than the initial Distribution Date, the
Class A Principal Carryover Shortfall as of the preceding Distribution Date. In
addition, on the Final Scheduled Distribution Date, the Class A Principal
Distribution shall include any additional amount required to reduce the
outstanding principal balance of the Class A Certificates to zero.
'CLASS B CERTIFICATE BALANCE', at any time, equals the Original Class B
Certificate Balance, as reduced by all principal amounts distributed to Class B
Certificateholders prior to such time.
'CLASS B INTEREST CARRYOVER SHORTFALL' means, (a) with respect to the
initial Distribution Date, zero, and (b) with respect to any other Distribution
Date, the excess of Class B Monthly Interest for the preceding Distribution Date
and any outstanding Class B Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that was actually
deposited in the Class B Distribution Account on such preceding Distribution
Date, plus 30 days of interest on such excess, to the extent permitted by law,
at the Class B Pass-Through Rate.
'CLASS B INTEREST DISTRIBUTION' means, with respect to any Distribution
Date, the sum of Class B Monthly Interest for such Distribution Date and the
Class B Interest Carryover Shortfall for such Distribution Date.
'CLASS B MONTHLY INTEREST' means, with respect to any Distribution Date,
one-twelfth of the Class B Pass-Through Rate multiplied by the Class B
Certificate Balance as of the preceding Distribution Date after giving effect to
all payments of principal made on such Distribution Date or, in the case of the
first Distribution Date, as of the Closing Date.
'CLASS B MONTHLY PRINCIPAL' means, with respect to any Distribution Date,
the Class B Percentage of Available Principal for such Distribution Date plus
the Class B Percentage of Realized Losses with respect to the related Collection
Period.
'CLASS B PERCENTAGE' means 3.75%.
'CLASS B PRINCIPAL CARRYOVER SHORTFALL' means, (a) with respect to the
initial Distribution Date, zero and (b) with respect to any other Distribution
Date, the excess of Class B Monthly Principal for such Distribution Date and any
outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Class B Distribution Account on such Distribution Date.
'CLASS B PRINCIPAL DISTRIBUTION' means, with respect to any Distribution
Date, the sum of Class B Monthly Principal for such Distribution Date and, in
the case of any Distribution Date other than the initial Distribution Date, the
Class B Principal Carryover Shortfall as of the preceding Distribution Date. In
addition, on the Final Scheduled Distribution Date, the Class B Principal
Distribution will include any additional amount required to reduce the
outstanding principal balance of the Class B Certificates to zero.
'REALIZED LOSSES' mean, for any Collection Period and for each Receivable
that became a Defaulted Receivable during such Collection Period, the excess of
the aggregate principal balance of such Receivable over Liquidation Proceeds
received with respect to such Receivable during such Collection Period, to the
extent allocable to principal.
As an administrative convenience, the Servicer will be permitted under
certain circumstances to make deposits of Advances and Repurchase Amounts for,
or with respect to, a Collection Period net of distributions to be made to the
Servicer with respect to such Collection Period. The Servicer, however, will
account to the Trustee and to the Certificateholders as if all such deposits and
distributions were made on an aggregate basis for each type of payment or
deposit.
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Paying Agent will include with each
distribution to each Certificateholder a statement, setting forth the following
information for the related Collection Period:
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(1) the amount of the distribution allocable to principal on the Class A
Certificates and the Class B Certificates;
(2) the amount of the distribution allocable to interest (including any
Yield Supplement Amount, if applicable) on the Class A Certificates and
the Class B Certificates;
(3) the amount of the Servicing Fee paid to the Servicer with respect to
the related Collection Period;
(4) the Class A Certificate Balance, the Class A Pool Factor, the Class B
Certificate Balance and the Class B Pool Factor as of such Distribution
Date, after giving effect to payments allocated to principal reported
under clause (1) above;
(5) the Pool Balance as of the close of business on the last day of the
related Collection Period;
(6) the amount of the aggregate Realized Losses, if any, for the related
Collection Period;
(7) the aggregate Repurchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer;
(8) the balance of the Reserve Account on such Distribution Date, after
giving effect to changes therein on such Distribution Date; and
(9) the Specified Reserve Account Balance as of the close of business on
such Distribution Date.
Each amount in clauses (1), (2) and (3) above will be expressed in the
aggregate and as a dollar amount per $1,000 of the original principal balance of
a Certificate.
The statements for each Collection Period will be delivered to DTC for
further distribution to beneficial owners of the Certificates in accordance with
DTC procedures. See ' -- General' and ' -- Book-Entry Registration' above.
Copies of such statements may be obtained by Certificate Owners by a request in
writing addressed to the Trustee at its corporate trust office. See ' -- The
Trustee' below.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Agreement, the Paying Agent
will furnish to each person who at any time during such calendar year was a
Certificateholder, a statement containing the sum of the monthly amounts
described in clauses (1) through (3) above for the purposes of such
Certificateholder's preparation of federal income tax returns. See 'Certain
Federal Income Tax Consequences'.
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent certified public
accountants will furnish to the Trustee on or before March 31 of each year,
beginning March 31, 2000, a statement as to compliance by the Servicer during
the twelve months or shorter period in the case of the first such report ended
the preceding December 31, with certain standards relating to the servicing of
the Receivables.
The Agreement will also provide for delivery to the Trustee, on or before
March 31 of each year, commencing March 31, 2000, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
in all material respects under the Agreement throughout the twelve months or
shorter period in the case of the first such certificate ended the preceding
December 31 or, if there has been a default in the fulfillment of any such
obligation, describing each such default.
Copies of such statements and certificates may be obtained by a
Certificateholder by a request in writing addressed to the Trustee.
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CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder, except (a) upon determination
that the Servicer's performance of such duties is no longer permissible under
applicable law or (b) in the event of the appointment of a successor servicer,
upon satisfaction of the Rating Agency Condition. Such resignation will not
become effective until the Trustee or a successor servicer has assumed the
Servicer's servicing obligations and duties under the Agreement.
The Agreement will also provide that neither the Seller nor the Servicer
may transfer or assign all, or a portion of, its rights, obligations and duties
under the Agreement, unless such transfer or assignment (1) (A) will not result
in a reduction or withdrawal by each of Standard & Poor's or Moody's of the
rating then assigned to the Certificates and (B) the Trustee has consented to
such transfer or assignment or (2) the Trustee and holders of Certificates
evidencing not less than 51% of the Pool Balance consent thereto. Any transfer
or assignment with respect to the Servicer of all of its rights, obligations and
duties will not become effective until a successor servicer has assumed the
Servicer's rights, obligations and duties under the Agreement.
The Agreement will also provide that so long as the Bank is the Servicer,
in the ordinary course of its business, the Servicer will have the right to
delegate any of its duties under the Agreement to a third party. Any
compensation payable to such third party will be paid by the Servicer from its
own funds, and none of the Trust, the Trustee or the Certificateholders will be
liable for such compensation. Notwithstanding any delegation of duties by the
Servicer, the Servicer will not be relieved of its liability and responsibility
with respect to such duties.
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees, and agents shall be under any liability to the
Trust, the Trustee or the Certificateholders for taking any action or for
refraining from taking any action pursuant to the Agreement, or for errors in
judgment; provided, however, that neither the Servicer nor any such person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith, or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder, except that
employees of either the Servicer or its affiliates will be protected against any
liability that would otherwise be imposed by reason of negligence. The Agreement
will further provide that the Servicer, and its directors, officers, employees
and agents are entitled to indemnification by the Trust for, and will be held
harmless against, any loss, liability or expense incurred in connection with any
legal action relating to their performance of servicing duties under the
Agreement, other than any loss, liability, or expense incurred by reason of the
Servicer's willful misfeasance, bad faith, or negligence in the performance of
duties or by reason of the Servicer's reckless disregard of obligations and
duties thereunder; provided, however, that such indemnification will be paid on
a Distribution Date only after all payments required to be made to
Certificateholders and the Servicer have been made, certain payments required to
be made to the Trustee have been made and deposits of any amount required to be
deposited into the Reserve Account to maintain the amount on deposit therein at
the Specified Reserve Account Balance have been made. In addition, the Agreement
will provide that the Servicer is under no obligation to appear in, prosecute,
or defend any legal action that is not incidental to the Servicer's servicing
responsibilities under the Agreement and that, in its opinion, may cause it to
incur any expense or liability. The Servicer may, however, undertake any
reasonable action that it may deem necessary or desirable in respect to the
Agreement and the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust, and the Servicer will be entitled to be reimbursed
therefor out of the Certificate Account as such expenses are incurred; provided,
however, that such reimbursement will be paid on a Distribution Date only after
all payments required to be made to Certificateholders and the Servicer have
been made, certain payments required to be made to the Trustee have been made
and deposits of any amount required to be deposited into the Reserve Account to
maintain the amount on deposit therein at the Specified Reserve Account Balance
have been made.
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EVENTS OF SERVICING TERMINATION
'EVENTS OF SERVICING TERMINATION' under the Agreement will consist of:
(1) any failure by the Servicer to deliver to the Trustee the Servicer's
certificate for the related Collection Period or any failure by the
Servicer (or, so long as the Seller is the Servicer, the Seller) to
deliver to the Trustee for distribution to the Certificateholders any
proceeds or payments required to be delivered under the terms of the
Certificates or the Agreement (or, in the case of a payment or deposit
to be made not later than the Deposit Date, the failure to make such
payment or deposit on such Deposit Date), which failure continues
unremedied for five Business Days after discovery by the Servicer (or,
so long as the Seller is the Servicer, the Seller) or written notice to
the Servicer (or, so long as the Seller is the Servicer, the Seller) by
the Trustee or to the Trustee and the Servicer (or, so long as the
Seller is the Servicer, the Seller) by holders of Certificates
evidencing not less than 25% of the Pool Balance;
(2) any failure by the Servicer (or, so long as the Seller is the Servicer,
the Seller) duly to observe or perform in any material respect any
other covenant or agreement of the Servicer (or, so long as the Seller
is the Servicer, the Seller) set forth in the Certificates or in the
Agreement, which failure materially and adversely affects the rights of
the Trust or the Certificateholders (which determination shall be made
without regard to whether funds on deposit in the Reserve Account are
available to the Certificateholders) and which continues unremedied for
60 days after the date of written notice of such failure to the
Servicer (or, so long as the Seller is the Servicer, the Seller) by the
Trustee or to the Trustee and the Servicer (or, so long as the Seller
is the Servicer, the Seller) by holders of Certificates evidencing not
less than 25% of the Pool Balance;
(3) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities, or similar proceedings and certain actions by
the Servicer indicating its insolvency, reorganization pursuant to
bankruptcy proceedings or inability to pay its obligations;
(4) any assignment or delegation by the Servicer of its duties or rights
under the Agreement, except as specifically permitted under the
Agreement, or any attempt to make such an assignment or delegation; and
(5) failure by the Servicer (other than the Bank) to be a servicer that
complies with certain criteria set forth in the Agreement. The holders
of Certificates evidencing not less than 51% of the Pool Balance may
waive certain defaults by the Servicer in the performance of its
obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination under the Agreement remains
unremedied, the Trustee or holders of Certificates evidencing not less than 25%
of the Pool Balance, by notice given in writing to the Servicer (and to the
Trustee if given by Certificateholders), may terminate all the rights and
obligations of the Servicer under the Agreement, whereupon all authority and
power of the Servicer under the Agreement shall pass to and be vested in the
Trustee, the Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Agreement and will be entitled to the
compensation otherwise payable to the Servicer. 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, a successor servicer to act as successor to
the outgoing Servicer under the Agreement. The Trustee shall not be relieved of
its duties as successor servicer until a newly appointed successor servicer
shall have assumed the responsibilities and obligations of the Servicer under
the Agreement. The Trustee may make such arrangements for compensation to be
paid to the successor servicer, which in no event may be greater than the
Servicing Fee (plus the investment earnings on amounts on deposit and to be
deposited in the Certificate Account) paid to the Servicer under the Agreement.
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AMENDMENT
The Agreement may be amended by the Seller, the Servicer and the Trustee,
without prior notice to or the consent of the Certificateholders, to cure any
ambiguity, correct or supplement any provision therein which may be inconsistent
with any other provision therein, or make any other provisions with respect to
matters or questions arising under such Agreement which are not inconsistent
with the provisions of the Agreement; provided that such action will not, on the
basis of an officer's certificate and/or in the opinion of counsel (which may be
internal counsel to the Seller or the Servicer) reasonably satisfactory to the
Trustee, materially and adversely affect the interests of the Trust or the
Certificateholders, and the Rating Agency Condition shall have been satisfied.
The Agreement may also be amended by the Seller, the Servicer and the Trustee
with the consent of the holders of Certificates evidencing not less than 51% of
the Pool Balance for the purpose of adding any provision to or changing in any
manner or eliminating any of the provisions of the Agreement or of modifying in
any manner the rights of Certificateholders; provided, however, that no such
amendment, except with the consent of the holders of all Certificates, may:
(1) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on Receivables or distributions
that are required to be made on any Certificate;
(2) reduce the aforesaid percentage of the Pool Balance, the
Certificateholders of which are required to consent to any such
amendment; or
(3) reduce the shortfalls for which the Trustee may withdraw funds from the
Reserve Account or change the formula for determining the Specified
Reserve Account Balance.
LIST OF CERTIFICATEHOLDERS
At such time as Definitive Certificates have been issued, the Trustee, upon
written request by three or more Certificateholders or by holders of
Certificates evidencing not less than 25% of the Pool Balance, will afford or
cause the Transfer Agent and Registrar to afford such Certificateholders access
during business hours to the current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the Agreement provided such Certificateholders:
(1) state that they wish to communicate with other Certificateholders with
respect to their rights under the Agreement or under the Certificates;
and
(2) provide the Trustee with a copy of the proposed communication.
Definitive Certificates will be issued only in the circumstances described above
in ' -- Definitive Certificates'.
The Agreement will not provide for the holding of any annual or other
meeting of Certificateholders.
TERMINATION
The obligations of the Seller, the Servicer and the Trustee pursuant to the
Agreement will terminate upon the earlier of:
(1) the Distribution Date next succeeding the month which is six months
after the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any property
remaining in the Trust; and
(2) payment to Certificateholders of all amounts required to be paid to
them pursuant to the Agreement.
In order to avoid excessive administrative expense, the Servicer will be
permitted, at its option, to purchase from the Trust, as of the last Business
Day in any Collection Period in which the Pool Balance is 5% or less of the
initial Pool Balance, all remaining Receivables in the Trust at a price equal to
the sum of the aggregate of the Repurchase Amounts thereof as of such date.
Exercise of such right will effect early retirement of the Certificates.
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The Trustee will give written notice of termination to each
Certificateholder of record, which notice will specify the Distribution Date
upon which Certificateholders may surrender their Certificates to the Trustee or
the Transfer Agent and Registrar, as the case may be, for final payment. The
final distribution to any Certificateholder will be made only upon surrender and
cancellation of such holder's Certificate (whether a Definitive Certificate or
the certificates registered in the name of Cede representing the Certificates)
at the office or agency of the Trustee or the Transfer Agent and Registrar, as
the case may be, specified in the notice of termination. Any funds remaining in
the Trust, after the Trustee has taken certain measures to locate a
Certificateholder and such measures have failed, will be distributed to the
Seller or as otherwise provided in the Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Agreement, the Certificates (other than the execution and authentication of
the Certificates), or the Receivables or any related documents, and is not
accountable for the use or application by the Seller or the Servicer of any
funds paid to the Seller or the Servicer in respect of the Certificates or the
Receivables, or any monies prior to the time such monies are deposited into the
Certificate Account. The Trustee has not independently verified the Receivables.
If no Event of Servicing Termination has occurred and is continuing, the Trustee
is required to perform only those duties specifically required of it under the
Agreement. Generally, those duties are limited to the receipt of the various
certificates, reports, or other instruments required to be furnished to the
Trustee under the Agreement, in which case it is only required to examine them
to determine whether they conform to the requirements of the Agreement.
The Trustee is under no obligation to exercise any of the rights or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct, or defend any litigation thereunder or in
relation thereto at the request, order, or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses, and liabilities
which may be incurred therein or thereby, prior to the occurrence of an Event of
Servicing Termination. No Certificateholder will have any right under the
Agreement to institute any proceeding with respect to the Agreement, unless such
holder previously has given to the Trustee written notice of default and unless,
with respect to the Class A Certificates, the holders of Class A Certificates
evidencing not less than a majority of the aggregate outstanding principal
balance of the Class A Certificates or with respect to the Class B Certificates,
the holders of Class B Certificates evidencing not less than a majority of the
aggregate outstanding principal balance of the Class B Certificates, have made
written request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity and the
Trustee for 30 days has neglected or refused to institute any such proceedings.
THE TRUSTEE
The Bank of New York is the Trustee (the 'TRUSTEE') under the Agreement.
The Trustee, in its individual capacity or otherwise, and any of its affiliates
may hold Certificates in their own names or as pledgee. In addition, for the
purpose of meeting the legal requirements of certain jurisdictions, the Servicer
and the Trustee, acting jointly (or in some instances, the Trustee, acting
alone), shall have the power to appoint co-trustees or separate trustees of all
or any part of the Trust. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the Trustee by the Agreement
shall be conferred or imposed upon the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee.
The Trustee may resign at any time by giving written notice thereof to the
Servicer, in which event the Trustee will be obligated promptly to appoint a
successor trustee. The Trustee will be
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obligated to resign if the Trustee ceases to be eligible to continue as such
under the Agreement, becomes legally unable to act, or becomes insolvent. In
such circumstances, the Trustee will be obligated promptly 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.
The Agreement will provide that the Servicer will pay the Trustee's fees.
The Agreement will further provide that the Trustee will be entitled to
indemnification by the Servicer for, and will be held harmless against, any
loss, liability, or expense incurred by the Trustee not resulting from the
Trustee's own willful misfeasance, bad faith, or negligence (other than by
reason of a breach of any of its representations or warranties set forth in the
Agreement) except in the event the Servicer fails to indemnify the Trustee, in
which case the Trustee would be entitled to be indemnified by the Trust;
provided, however, that any such indemnification will be paid on a Distribution
Date only after all amounts required to be paid to the Certificateholders have
been paid and certain other distributions have been made and, with respect to a
successor servicer, if any, after the Servicing Fee has been paid.
The Trustee's corporate trust office is located at 101 Barclay Street, New
York, NY 10286, telephone: (212) 815-5738. The Seller, the Servicer and their
respective affiliates may have normal banking relationships with the Trustee and
its affiliates.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Receivables are 'chattel paper' as defined in the Uniform Commercial
Code in effect in the States of Texas and New York (the 'UCC'). Pursuant to the
UCC, the sale of chattel paper is treated in a manner similar to perfection of a
security interest in chattel paper. In order to protect the Trust's ownership
interest in the Receivables, the Bank will file UCC-1 financing statements with
the appropriate governmental authorities in the State of Texas to give notice of
the Trust's ownership of the Receivables and their proceeds. Under the
Agreement, the Bank will be obligated to maintain the perfection of the Trust's
ownership interest in the Receivables. It should be noted, however, that a
purchaser of chattel paper who gives new value and takes possession of it in the
ordinary course of such purchaser's business has priority over a security
interest in the chattel paper which is perfected by filing UCC-1 financing
statements, and not by possession by the original secured party, if such
purchaser acts in good faith without knowledge that the specific chattel paper
is subject to a security interest. Any such purchaser would not be deemed to
have such knowledge by virtue of the UCC filings and would not learn of the sale
of the Receivables from a review of the Receivables since they would not be
marked to show such sale, although the Bank's master computer records will
evidence such sale.
SECURITY INTERESTS IN THE FINANCED VEHICLES
The Receivables consist of motor vehicle installment loans made pursuant to
contracts with Obligors for the purchase of automobiles and light-duty trucks
and also constitute personal property security agreements that include grants of
security interests in the Financed Vehicles under the UCC in the applicable
jurisdiction. Perfection of security interests in the Financed Vehicles
generally is governed by the motor vehicle registration laws of the state in
which the Financed Vehicle is located. In all states in which the Receivables
have been originated, a security interest in a vehicle is perfected by notation
of the secured party's lien on the vehicle's certificate of title or actual
possession by the secured party of such certificate of title, depending upon
applicable state law. The practice of the Bank is to effect such notation or to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which a vehicle securing a motor vehicle installment loan
originated by the Bank is registered. The Receivables prohibit the sale or
transfer of the Financed Vehicle without the Bank's consent.
The Bank will assign its security interest in the individual Financed
Vehicles to the Trust. However, because of the administrative burden and expense
and since the Bank remains as Servicer of the Receivables, neither the Bank nor
the Trustee will amend the certificates of title to identify the Trust as the
new secured party and, accordingly, the Bank will continue to be named as the
secured party on the certificates of title relating to the Financed Vehicles. In
most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificates of
title and the new secured party succeeds to the Bank's rights as the secured
party as against creditors of the Obligor. In some states, in the absence of
such endorsement and delivery, the Trustee may not have a perfected security
interest in the Financed Vehicle. In such event or in the event that the Bank
did not have a perfected first priority security interest in the Financed
Vehicle, the only recourse of the Trust vis-a-vis third parties would be against
an Obligor on an unsecured basis or against the Bank pursuant to the Bank's
repurchase obligation. See ' -- Repurchase Obligation'.
In the absence of fraud or forgery by a vehicle owner or administrative
error by state recording officials, the notation of the lien of the Bank on the
certificate of title will be sufficient to protect the Trust against the rights
of subsequent purchasers of a Financed Vehicle or subsequent lenders who take a
security interest in the Financed Vehicle. If there are any Financed Vehicles as
to which the Bank has failed to perfect the security interest assigned to the
Trust (a) such security interest would be subordinate to, among others, holders
of perfected security interests and (b) subsequent purchasers of such Financed
Vehicles would take possession free and clear of such security interest. There
also exists a risk in not identifying the Trust as the new secured party
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on the certificate of title that, through fraud or negligence, the security
interest of the Trust could be released.
In the event that the owner of a Financed Vehicle moves to a state other
than the state in which such Financed Vehicle initially is registered, under the
laws of most states the perfected security interest in the Financed Vehicle
would continue for four months after such relocation and thereafter until the
owner re-registers the Financed Vehicle in such state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, the Bank must surrender possession if it holds the certificate of
title to such Financed Vehicle or, in the case of Financed Vehicles originally
registered in a state which provides for notation of lien but not possession of
the certificate of title by the holder of the security interest in the related
motor vehicle, the Bank would receive notice of surrender if the security
interest in the Financed Vehicle is noted on the certificate of title.
Accordingly, the Bank would have the opportunity to re-perfect its security
interest in the Financed Vehicle in the state of relocation. In states which do
not require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection. In the ordinary course of servicing its
portfolio of motor vehicle installment loans, the Bank takes steps to effect
such re-perfection upon receipt of notice of re-registration or information from
the Obligor as to relocation. Similarly, when an Obligor under a Receivable
sells a Financed Vehicle, the Bank must surrender possession of the certificate
of title or will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
Receivable before release of the lien. Under the Agreement, the Servicer is
obligated to take such steps, at the Servicer's expense, as are necessary to
maintain perfection of security interests in the Financed Vehicles.
Under the laws of many states, certain possessory liens for repairs
performed on a motor vehicle and storage, as well as certain rights arising from
the use of a motor vehicle in connection with illegal activities, may take
priority even over a perfected security interest. Certain federal tax liens may
have priority over the lien of a secured party. The Bank will represent in the
Agreement that it has no knowledge of any such liens with respect to any
Financed Vehicle. However, such liens could arise at any time during the term of
a Receivable. No notice will be given to the Trustee in the event such a lien
arises.
ENFORCEMENT OF SECURITY INTERESTS IN VEHICLES
The Servicer on behalf of the Trust may take action to enforce its security
interest by repossession and resale of the Financed Vehicles securing the
Receivables. The actual repossession may be contracted out to third party
contractors. Under the UCC and laws applicable in most states, a creditor can
repossess a motor vehicle securing a loan by voluntary surrender, 'self-help'
repossession that is 'peaceful' or, in the absence of voluntary surrender and
the ability to repossess without breach of the peace, by judicial process. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. In the event of such
repossession and resale of a Financed Vehicle, the Trust would be entitled to be
paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the defaulting Obligor.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments. Moreover, a
defaulting Obligor may not have sufficient assets to make the pursuit of a
deficiency judgment worthwhile.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws, and general equitable principles may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
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OTHER MATTERS
Numerous federal and state consumer protection laws may impose requirements
applicable to the origination and lending pursuant to the contracts, including
the Truth-in-Lending Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Magnuson-Moss Warranty Act, and the Federal Trade
Commission Act.
The so-called 'Holder-in-Due-Course' Rule of the Federal Trade Commission
(the 'FTC RULE'), other state statutes or the common law in certain states have
the effect of subjecting a seller (and certain related lenders and their
assignees) in a consumer credit transaction and any assignee of the seller
(which would include the Trust) to all claims and defenses which an obligor in
the transaction could assert against the seller of the goods. Liability of a
subsequent holder under the FTC Rule is limited to the amounts paid by the
obligor under the contract, and a subsequent holder of the contract may also be
unable to collect any balance remaining due thereunder from such obligor. The
Uniform Consumer Credit Code applicable in certain states contains provisions
which generally duplicate this rule.
The Agreement will set forth criteria that must be satisfied by each
Receivable, and such criteria will provide, among other things, that each
Receivable complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim against the Trust for violation of any
law and such claim materially and adversely affects the Trust's interest in a
Receivable, such violation would result in the failure to satisfy a criterion in
the Agreement and would create an obligation of the Bank to repurchase the
Receivable unless such failed criterion is cured.
REPURCHASE OBLIGATION
Under the Agreement, each Receivable must satisfy certain criteria, and
such criteria relate to, among other things, the validity, subsistence,
perfection, and priority of the security interest in each Financed Vehicle.
Accordingly, if any defect exists in the perfection of the security interest in
any Financed Vehicle and such defect materially and adversely affects the
Trust's interest in a Receivable, such defect would result in the failure to
satisfy a criterion in the Agreement and would create an obligation of the Bank
to repurchase such Receivable unless such failed criterion is cured.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership, and disposition of Certificates. This
summary is based upon laws, regulations, rulings, and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Consequences to individual investors of
investment in the Certificates will vary according to circumstances. In
addition, this summary is generally limited to investors who will hold the
Certificates as 'capital assets' (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the 'CODE'). Prospective investors should note that no rulings have
been or will be sought from the IRS with respect to any of the federal income
tax consequences discussed below, and no assurance can be given that the IRS
will not take contrary positions.
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THEIR
PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUST; SCOPE OF TAX OPINION
In the opinion of Jones, Day, Reavis & Pogue, special tax counsel to the
Seller ('SPECIAL TAX COUNSEL'), the Trust will not be classified as an
association taxable as a corporation for federal income tax purposes, but will
be classified as a grantor trust, and each Certificate Owner will be subject to
federal income taxation as if it owned directly its interest in each asset owned
by the
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Trust for federal income tax purposes and paid directly its share of reasonable
expenses paid by the Trust. In addition, Special Tax Counsel has prepared or
reviewed the statements in this Prospectus under the headings 'Summary of
Terms -- Tax Status' and 'Certain Federal Income Tax Consequences,' and is of
the opinion that such statements to the extent that they reflect conclusions of
law are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of the
Trust as a grantor trust for federal income tax purposes on investors generally
and of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
own tax advisor. Accordingly, each investor is advised to consult its own tax
advisors with regard to the tax consequences to it of investing in the
Certificates.
TREATMENT OF CERTIFICATE OWNERS' INTEREST IN TRUST ASSETS
Each Certificate Owner could be considered to own either:
(a) an undivided interest in a single debt obligation having a principal
amount equal to the total stated principal amount of the Receivables;
or
(b) an interest in each of the Receivables, in the Yield Supplement
Agreement and any other assets of the Trust.
The Agreement will express the intent of the Seller to sell, and the
Certificateholders to purchase, the Receivables (other than the Retained Yield)
and the Seller, the Certificateholders, and each Certificate Owner, by accepting
a beneficial interest in a Certificate, will agree to treat the Certificates as
ownership interests in the Receivables, and reports to Certificateholders will
be prepared on that basis.
Treatment as Debt Obligation. If a Certificate Owner were considered to own
an undivided interest in a debt obligation of the Seller, rather than reporting
its share of the interest accrued on each Receivable it would, in general, be
required to include in income a pro rata share of interest accrued or received
on such debt obligation in accordance with its usual method of accounting.
The Certificates would be subject to the original issue discount (the
'OID') rules, generally in the manner discussed below with respect to Stripped
Receivables (as defined below). Thus, while the manner in which a
Certificateholder would calculate OID is unclear in some respects, each
Certificateholder would report as OID the difference between its proportionate
interest in the stated redemption price of such debt obligation and the issue
price of the Certificate. However, in determining whether such OID is de
minimis, the weighted average life of the Certificates would be determined using
a reasonable assumption regarding anticipated prepayments (a 'PREPAYMENT
ASSUMPTION'). Original issue discount includible in income for any accrual
period (generally, the period between payment dates) would generally be
calculated using a Prepayment Assumption and an anticipated yield established as
of the date of initial sale of the Certificates, and would increase or decrease
to reflect prepayments at a faster or slower rate than anticipated. Purchasers
of the Certificates would also be subject to the market discount provisions of
the Code to the extent that they purchase such Certificates at a discount from
the initial issue price (as adjusted to reflect prior accruals of original issue
discount).
Income on Receivables. The remainder of the discussion herein assumes that
a Certificate Owner will be treated as owning an interest in each Receivable
(and the proceeds thereof) and an interest in the Yield Supplement Agreement.
For federal income tax purposes, the Seller will be treated as having
retained a fixed portion of the interest due on each Receivable (each, a
'STRIPPED RECEIVABLE') equal to the difference between (a) the Contract Rate of
the Receivable and (b) the sum of the weighted average of the Class A
Pass-Through Rate and the Class B Pass-Through Rate and the Servicing Fee Rate
(such difference referred to as the 'RETAINED YIELD'). The Retained Yield will
be treated as 'stripped coupons' within the meaning of Section 1286 of the Code.
Accordingly, each Class A Certificate Owner will be treated as owning its pro
rata percentage interest in (i) payments received under the Yield Supplement
Agreement, and (ii) the principal of each Receivable, plus a share of the
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interest payable on each Receivable (minus the portion of the interest payable
on such Receivable that is treated as Retained Yield on the Stripped
Receivables) and such interest in each Receivable will be treated as a 'stripped
bond' within the meaning of Section 1286 of the Code. Similarly, each Class B
Certificate Owner will be treated as owning its pro rata percentage in
(i) payments received under the Yield Supplement Agreement and (ii) the
principal of each Receivable, plus a share which, if the Class B Pass-Through
Rate exceeds the Class A Pass-Through Rate, will be disproportionate, of the
interest payable on each Receivable (minus the Retained Yield on the Stripped
Receivable).
Those Receivables, if any, that bear interest at a rate which is less than
or equal to the sum of the applicable Pass-Through Rate and the Servicing Fee
Rate (the 'SUPPLEMENTED RECEIVABLES') will not be treated as Stripped
Receivables. Instead, Yield Supplement Amounts will be payable to eliminate the
difference between the actual yield on each Supplemented Receivable and the
yield such Receivable would have had if its interest rate had equaled the sum of
the applicable Pass-Through Rate and the Basic Servicing Fee Rate. See
' -- Yield Supplement Amounts'.
Each Certificate Owner would be required to report on its federal income
tax return its share of the gross income of the Trust, including interest and
certain other charges accrued on the Receivables and any gain upon collection or
disposition of the Receivables (but not including any portion of the Retained
Yield). Such gross income attributable to interest on the Receivables would
exceed the applicable Pass-Through Rate by an amount equal to the Certificate
Owner's share of the reasonable expenses of the Trust for the period during
which it owns a Certificate. The Certificate Owner would be entitled to deduct
its share of the reasonable expenses of the Trust to the extent described below.
Any amounts received by a Certificate Owner from the Reserve Account or by a
Class A Certificate Owner on account of the subordination of the Class B
Certificates will be treated for federal income tax purposes as having the same
characteristics as the payments they replace.
A Certificate Owner would generally report its share of the income of the
Trust, including interest and certain other charges accrued on the Receivables
(but see discussion below in ' -- Discount and Premium'), payments received
under the Yield Supplement Agreement, if applicable (to the extent treated as
income), and investment earnings on funds held pending distribution, under its
usual method of accounting. Accordingly, interest, excluding OID or market
discount, would be includible in a Certificate Owner's gross income when it
accrues on the Receivables, or, in the case of Certificate Owners who are cash
basis taxpayers, when received by the Servicer on behalf of Certificate Owners.
Because (a) interest accrues on the Receivables over differing monthly periods
and is paid in arrears and (b) interest collected on a receivable generally is
paid to Certificateholders in the following month, the amount of interest
accruing to a Certificate Owner that is an accrual basis taxpayer or deemed to
have been received by a Certificate Owner that is a cash basis taxpayer during
any calendar month will not equal the interest distributed in that month. Thus,
both cash basis and accrual basis taxpayers may be required to recognize some
income in advance of the receipt of the related cash distribution. For
administrative convenience, the amount of accrued and collected interest will be
estimated rather than being calculated precisely for each Receivable.
If the Class B Pass-Through Rate exceeds the Class A Pass-Through Rate, the
amounts received by the Class A Certificate Owners (calculated at the Class A
Pass-Through Rate) and the amounts received by the Class B Certificate Owners
(calculated at the Class B Pass-Through Rate) will be disproportionate to the
face amounts of their Certificates. The proper treatment of the amount of the
difference, if any, in the amounts received is unclear. The Agreement will
express the intent of the Seller that the Class B Certificate Owners be treated
as having acquired a 'stripped coupon' integrated for federal income tax
purposes with the Class B Certificate Owners' interest in the Stripped
Receivables and reports to Certificate Owners will be prepared on that basis. It
is possible, however, that the IRS could recharacterize a portion of the
Class B Pass-Through Rate as constituting income other than interest (e.g.,
compensation for the Class B Certificate Owners' assumption of a limited
guaranty by the Seller of the Class A Certificate Owners' receipt of principal
and interest), in which case the federal income tax consequences to
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the Class B Certificate Owners, and possibly individual Class A Certificate
Owners, could be adversely affected. For example, a Class A Certificateholder
might be deemed to have received additional interest income and as having paid a
portion thereof as a guaranty fee (which may be subject to limitations on
deduction) to the Class B Certificateholders.
For administrative convenience, the Servicer intends to report the total
amount of income with respect to the Certificates on an aggregate basis at the
applicable Pass-Through Rate (as though all of the Receivables and the Yield
Supplement Agreement, if applicable, were a single obligation), rather than on
an asset-by-asset basis. The amount and, in some instances, character, of the
income reported to a Certificate Owner may differ under this method for a
particular period from that which would be reported if income were reported on a
precise asset-by-asset basis. Accordingly, the IRS could require that a
Certificate Owner calculate its income either (a) on an asset-by-asset basis,
accounting separately for each Receivable and the Yield Supplement Agreement, if
applicable, or (b) aggregating all Stripped Receivables under the aggregation
rule described below. See ' -- Discount and Premium -- Original Issue Discount
on Stripped Receivables'. In computing its income on an asset-by-asset basis, a
Certificate Owner would allocate its tax basis among the Receivables and its
interest in the Yield Supplement Agreement, if applicable, in proportion to
their fair market values.
The remainder of the disclosure generally describes the Code provisions
governing reporting of income on the Receivables and the Yield Supplement
Agreement, if applicable, on a separate asset basis.
TREATMENT OF CERTIFICATE OWNERS' SHARE OF TRUST EXPENSES
A Certificate Owner will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust as provided in Section 162 or 212 of the Code. The
Trustee intends to take the position that the Servicing Fee constitutes
reasonable compensation for services, although there is no authority on this
point in the context of receivables such as the Receivables. If a Certificate
Owner is an individual, estate or trust, the deduction for such holder's share
of such fees will be allowed only to the extent that all of such holder's
miscellaneous itemized deductions, including such holder's share of such fees,
exceed 2% of such holder's adjusted gross income. In addition, in the case of
Certificate Owners who are individuals, certain otherwise allowable itemized
deductions will be reduced, but not by more than 80%, by an amount equal to 3%
of such holder's adjusted gross income in excess of a statutorily defined
threshold of $126,600 in the case of a married couple filing jointly for the
taxable year beginning in 1999. While not a Trust expense, the same limitations
would apply to individual Class A Certificate Owners' deduction of any
compensation deemed to have been paid by them for a limited guarantee provided
by the Class B Certificate Owners. Because the Servicer will not report to the
Certificate Owners the amount of income or deductions attributable to interest
earned on Collections, such a holder may effectively underreport its net taxable
income.
DISCOUNT AND PREMIUM
In determining whether a Certificate Owner has purchased its interest in
the Receivables (or any Receivable) at a discount and whether such Receivables
(or any Receivable) have OID, a portion of the purchase price of a Certificate
should be allocated to the Certificate Owner's undivided interest in accrued but
unpaid interest and amounts collected at the time of purchase but not
distributed and rights to receive Yield Supplement Amounts, if applicable. As a
result, the portion of the purchase price allocable to a Certificate Owner's
undivided interest in the Receivables (or any Receivable) (the 'PURCHASE PRICE')
will be decreased and the potential OID on the Receivables (or any Receivable)
could be increased.
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ORIGINAL ISSUE DISCOUNT ON STRIPPED RECEIVABLES
Because the Stripped Receivables represent stripped bonds, they will be
subject to the original issue discount rules of the Code. Accordingly, the tax
treatment of a Certificate Owner will depend in part upon whether the amount of
OID on a Stripped Receivable is less than a statutorily defined de minimis
amount.
In general, under Treasury regulations (the 'TREASURY REGULATIONS') issued
under Section 1286 of the Code (the 'SECTION 1286 REGULATIONS'), the amount of
OID on a receivable treated as a 'stripped bond' will be de minimis if it is
less than 1/4 of one percent for each full year of weighted average life
remaining after the purchase date until the maturity of the Receivable, although
it is not clear whether expected prepayments are taken into account. Under the
Section 1286 Regulations, it appears that the portion of the interest on each
Receivable payable to the Certificate Owners may be treated as 'qualified stated
interest.' As a result, the amount of OID on a Stripped Receivable will equal
the amount by which the Purchase Price of a Stripped Receivable is less than the
portion of the remaining principal balance of the Receivable allocable to the
interest acquired.
If the amount of OID is de minimis under the rule set forth above, a
Stripped Receivable would not be treated as having OID. The actual amount of
discount on a Stripped Receivable would be includible in income as principal
payments are received on the Receivable, in the proportion that each principal
payment bears to the total principal amount of the Receivable.
If the OID on a Receivable is not treated as being de minimis, in addition
to the amounts described above, a Certificate Owner will be required to include
in income any OID as it accrues on a daily basis, regardless of when cash
payments are received, using a method reflecting a constant yield on the
Receivable (or Receivables). It is possible that the IRS could require use of a
Prepayment Assumption in computing the yield of a Receivable. Accrued OID would
increase a Certificate Owner's tax basis in the Certificate (and the applicable
Receivables). Distributions of principal and other items attributable to accrued
OID (other than payments of interest on the Receivables at the sum of the
applicable Pass-Through Rate and the Servicing Fee Rate) would reduce a
Certificate Owner's tax basis. If a Receivable is deemed to be acquired by a
Certificate Owner at a significant discount, such treatment could accelerate the
accrual of income by a Certificate Owner.
The Trustee intends to account for OID, if any, reportable by holders of
Certificates by reference to the price paid for a Certificate by an initial
purchaser, although the amount of OID will differ for subsequent purchasers.
Such subsequent purchasers should consult their tax advisors regarding the
proper calculation of OID on the interest in Receivables represented by a
Certificate.
In addition, for administrative convenience, the Trustee intends to
calculate OID, if any, on all of the Receivables on an aggregate basis and
without the use of a Prepayment Assumption. Treasury Regulations issued under
the OID provisions of the Code (the 'OID REGULATIONS') suggest, although the
matter is not entirely clear, that all payments on the Stripped Receivables
allocable to the Certificates may be aggregated in determining whether the
Stripped Receivables will be treated as having OID. It is not clear whether use
of a Prepayment Assumption is required in computing OID. If the IRS were to
require that OID be computed on a Receivable-by-Receivable basis, or that a
Prepayment Assumption be used, the character and timing of a Certificate Owner's
income could be adversely affected. Because under the stripped bond rules, each
sale of a Certificate results in a recalculation of OID, a Certificate Owner
technically will not be subject to the market discount provisions of the Code
with respect to Stripped Receivables.
PURCHASES AT PREMIUM
In the event that a Receivable is treated as purchased at a premium (i.e.,
its Purchase Price exceeds the portion of the remaining principal balance of
such Receivable allocable to the Certificate Owner), such premium will be
amortizable by the Certificate Owner as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant
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yield method over the term of the Receivable if an election under Section 171 of
the Code is made with respect to the interests in the Receivables represented by
the Certificates or was previously in effect with respect to such taxpayer. Any
such election will also apply to all debt instruments held by the Certificate
Owner during the year in which the election is made and all debt instruments
acquired thereafter.
EFFECT OF SUBORDINATION
If the Class B Certificate Owners received distributions of less than their
share of the Trust's receipts of principal or interest (the 'SHORTFALL AMOUNT')
because of the subordination of the Class B Certificates, holders of Class B
Certificates would probably be treated for federal income tax purposes as if
they had:
(1) received as distributions their full share of such receipts;
(2) paid over to the Class A Certificate Owners an amount equal to such
Shortfall Amount; and
(3) retained the right to reimbursement of such amounts to the extent of
future Collections otherwise available for deposit in the Reserve
Account.
There is, however, no authority addressing this point and the IRS could
assert that a different treatment could apply.
Under this analysis:
(1) Class B Certificate Owners would be required to recognize as current
income any interest or OID income of the Trust that was a component of
the Shortfall Amount, even though such amount was in fact paid to the
Class A Certificate Owners;
(2) a loss would only be allowed to the Class B Certificate Owners when
their right to receive reimbursement of such Shortfall Amount became
worthless (i.e., when it becomes clear that amount will not be
available from any source to reimburse such loss and then as such loss
may be limited by Sections 67 and 68 of the Code); and
(3) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Class B Certificate Owners
because such amount was previously included in income.
Those results should not significantly affect the inclusion of income for
Class B Certificate Owners on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificate Owners on the cash method
of accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
YIELD SUPPLEMENT AMOUNTS
The proper Federal income tax characterization of the Yield Supplement
Amounts is not clear. Moreover, the sum of the income and deductions properly
reportable by a Certificate Owner in any taxable year may not equal the amounts
that would be reportable if a Certificate Owner held instead of an interest in
the Receivables and in the Yield Supplement Agreement either (i) a debt
instrument bearing interest at the applicable Pass-Through Rate or (ii) an
interest in a trust holding the Receivables each of which bears interest at a
rate at least equal to the applicable Pass-Through Rate plus the Servicing Fee
Rate.
It is likely that the right to receive Yield Supplement Amounts will be
treated as a separate asset purchased by each Certificate Owner, in which case a
portion of each Certificate Owner's purchaser price or other tax basis in its
Certificate equal to the fair market value of the right to receive Yield
Supplement Amounts should be allocated to the right to receive payments of Yield
Supplement Amounts. The right to receive Yield Supplement Amounts may be treated
as a loan made by a Certificate Owner to the Seller in an amount equal to the
present value, discounted at a rate equal to the sum of the applicable
Pass-Through Rate and the Servicing Fee Rate, of the projected Yield Supplement
Amounts. In that event, a portion of the Yield Supplement Amounts
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generally representing a yield equal to the applicable Pass-Through Rate plus
the Servicing Fee Rate on such discounted value should be treated as interest
includible in income as accrued or received, and the remainder should be treated
as a return of the principal amount of the deemed loan. Alternately, it is
possible that the entire amount of each Yield Supplement Amount should be
included in income as accrued or received, in which event a Certificate Owner
should also be entitled to amortize the portion of its purchase price allocable
to its right to receive Yield Supplement Amounts. The method of calculating such
amortization is unclear and could result in the inclusion of greater amounts of
income than a Certificate Owner's actual yield on a Receivable.
Alternately, it is possible that the Yield Supplement Amounts could be
treated as payments adjusting the purchase price of the Supplemented
Receivables, rather than as a separate asset. In that event, a Certificate Owner
could be treated as having purchased each such Supplemented Receivable at a
discount (consisting of imputed interest and/or market discount) that, combined
with the actual coupon rate of such Supplemented Receivable, produces a yield
equal to the sum of the applicable Pass-Through Rate and the Servicing Fee Rate.
It is not clear whether and to what extent the amounts includible in income
or amortizable under any of these methods would be adjusted to take account of
prepayments on the Receivables. Moreover, it is possible that the IRS might
contend that none of the above methods is appropriate and that income with
respect to the Yield Supplement Agreement should be reported by a Certificate
Owner in some other manner. In addition, to the extent that the amounts payable
pursuant to the Yield Supplement Agreement decline during any period by reason
of prepayments on the related Receivables, it is possible that a portion of the
amount amortizable by the Certificate Owner during such period would be treated
as a capital loss (which would not offset ordinary income), rather than as an
ordinary deduction. It is expected that the annual statement furnished to the
Certificateholders will report the net income derived from the Yield Supplement
Agreement using a method that causes the total income attributable to a
Certificate to equal income at the applicable Pass-Through Rate on the
applicable class of Certificates. Certificate Owners are advised to consult
their tax advisors regarding the appropriate method of accounting for income
attributable to the Yield Supplement Agreement.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificate Owner's
adjusted basis in the Receivables and any other assets held by the Trust. A
Certificate Owner's adjusted basis will equal the Certificate Owner's cost for
the Certificate, increased by any discount previously included in income, and
decreased by any deduction previously allowed for accrued premium and by the
amount of principal payments previously received on the Receivables. Any gain or
loss not attributable to accrued interest will be capital gain or loss if the
Certificate was held as a capital asset.
FOREIGN CERTIFICATE OWNERS
Interest attributable to Receivables which is payable to a foreign
Certificate Owner will generally not be subject to the normal 30% withholding
tax imposed with respect to such payments, provided that such Certificate Owner
is not engaged in a trade or business in the United States and that such
Certificate Owner fulfills certain certification requirements (however, the
withholding tax may apply to any portion of the interest received by the
Class B Certificate Owners that is recharacterized as compensation for a
guarantee). Under such certification requirements, the Certificate Owner must
certify, under penalties of perjury, that it is not a 'United States person' and
it is the beneficial owner of the Certificates, and must provide its name and
address. For this purpose, 'UNITED STATES PERSON' means a citizen or resident of
the United States, a corporation, partnership, or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, or a trust (if a court within the United States is able to exercise
primary supervision over its administration and one or more United States
fiduciaries have the authority to control all of its substantial decisions) or
an estate, the
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income of which is includible in gross income for United States Federal income
tax purposes, regardless of its source. Final Treasury Regulations have been
issued, generally with a January 1, 2000 effective date, that will affect the
certification requirements with respect to payments to foreign Certificate
Holders.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of
Certificates will not be subject to a 'back-up' withholding tax of 31% unless,
in general, the Certificate Owner fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
CERTAIN STATE TAX CONSEQUENCES
Because of the variation in each state's and locality's tax laws, it is
impossible to predict the tax consequences to the Trust or to holders of
Certificates in all of the state and local taxing jurisdictions in which they
may be subject to tax. Prospective investors are urged to consult with their own
tax advisors regarding the state and local tax treatment of the Trust as well as
any state and local tax consequences to them of purchasing, holding and
disposing of the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested that are
subject to ERISA or the Code (all of which are hereinafter referred to as a
'PLAN') and on those persons who are 'fiduciaries' with respect to Plans.
Moreover, based on the reasoning of the United States Supreme Court in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a fiduciary with
respect to such Plans by virtue of such investment. In accordance with ERISA's
general fiduciary standards, before investing in a Certificate, a Plan fiduciary
should determine whether such an investment is permitted under the governing
Plan instruments and is appropriate for the Plan in view of its overall
investment policy and the composition and diversification of its portfolio.
Other provisions of ERISA and the Code prohibit certain transactions involving
the assets of a Plan and persons who have certain specified relationships to the
Plan ('parties in interest' within the meaning of ERISA or 'disqualified
persons' within the meaning of the Code). Thus, a Plan fiduciary considering an
investment in Certificates should also consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of the
Trust being deemed to constitute Plan assets, which in turn might mean that
certain aspects of such investment, including the operation of the Trust, might
be prohibited transactions under ERISA and Section 4975 of the Code. There may
also be an improper delegation of the responsibility to manage Plan assets if
Plans that purchase the Certificates are deemed to own an interest in the
underlying assets of the Trust. Accordingly, under Section 2510.3-101 of the
United States Department of Labor (the 'DOL') regulations (the 'REGULATION'), a
Plan's assets may include an interest in the underlying assets of an entity
(such as a trust) for certain purposes, including the prohibited transaction
provisions of ERISA and Section 4975 of the Code, if the Plan acquires an
'equity interest' in such entity.
PROHIBITED TRANSACTION EXEMPTION FOR CLASS A CERTIFICATES
The DOL has issued an individual exemption, Prohibited Transaction
Exemption ('PTE') 90-23, as amended by PTE 97-34, to J.P. Morgan Securities Inc.
(the 'EXEMPTION'). The
55
<PAGE>
Exemption generally exempts from the application of the prohibited transaction
provisions of Section 406 of ERISA and the excise taxes imposed on such
prohibited transactions pursuant to Sections 4975(a) and (b) of the Code and
Section 502(i) of ERISA certain transactions relating to the initial purchase,
holding and subsequent resale by Plans of certificates in pass-through trusts
that consist of certain receivables, loans and other obligations that meet the
conditions and requirements set forth in the Exemption. The receivables covered
by the Exemption include fixed rate simple interest retail motor vehicle
installment sales contracts and retail motor vehicle installment loans such as
the Receivables.
In addition, the Exemption provides that the trust's assets may include:
(a) yield supplement agreements or similar yield maintenance arrangements,
provided such arrangements do not involve swap agreements or certain
other principal contracts; and
(b) certain pre-funding arrangements.
The Exemption will apply to the acquisition, holding and resale of the
Class A Certificates by a Plan from the Underwriters, provided that specified
conditions (certain of which are described below) are met. The Seller believes
that the Exemption will apply to the acquisition and holding of the Class A
Certificates by a Plan provided that all conditions of the Exemption within the
control of the Plan have been met.
The Exemption sets forth six general conditions that must be satisfied for
a transaction involving the acquisition of the Class A Certificates by a Plan to
be eligible for the exemptive relief thereunder:
(1) the acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A 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 Certificates acquired
by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust;
(3) the Class A 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 of Standard & Poor's, Moody's, Duff & Phelps
Credit Rating Co. or Fitch IBCA, Inc.;
(4) the Trustee is not an affiliate of any other member of the 'RESTRICTED
GROUP,' which consists of the Underwriters, the Seller, the Servicer,
the Trustee and any Obligor with respect to the Receivables included in
the Trust constituting more than 5% of the aggregate unamortized
principal balance of the assets of the Trust as of the date of initial
issuance of the Class A Certificates, and any affiliate of such
parties;
(5) the sum of all payments made to and retained by the Underwriters in
connection with the distribution or placement of the Class A
Certificates represents not more than reasonable compensation for
underwriting or placing the Class A Certificates. The sum of all
payments made to and retained by the Seller pursuant to the sale of the
Receivables to the Trust represents not more than the fair market value
of such Receivables. 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 Agreement and reimbursement of the
Servicer's reasonable expenses in connection therewith; and
(6) the Plan investing in the Class A Certificates must be an 'accredited
investor' as defined in Rule 501(a)(1) of Regulation D of the SEC under
the Securities Act.
Because the rights and interests evidenced by the Class A Certificates
acquired by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Class A Certificates that
they be rated in the highest rating category by a Rating Agency. A fiduciary of
a Plan contemplating purchasing a Class A Certificate must make its own
determination that at the time of such acquisition, the Class A Certificates
continue to satisfy the third general condition set forth above. The Seller and
the Servicer expect that the fourth general condition set forth above will be
satisfied with respect to the Class A Certificates. A fiduciary of a Plan
contemplating
56
<PAGE>
purchasing a Class A Certificate must make its own determination that the first,
fifth and sixth general conditions set forth above will be satisfied with
respect to the Class A Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide relief from the restrictions imposed by Sections 406(a) and 407(a) of
ERISA as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection
with the direct or indirect sale, exchange, transfer or holding of the Class A
Certificates by a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of a Class A Certificate on behalf of an 'Excluded Plan' by any person
who has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates, an
'EXCLUDED PLAN' is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide relief from the restrictions imposed by
Sections 406(b)(1) and (b)(2) and 407(a) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the
Code in connection with the direct or indirect sale, exchange, transfer or
holding of Class A Certificates in the initial issuance of Class A Certificates
between the Seller or Underwriters and a Plan other than an Excluded Plan when
the person who has discretionary authority or renders investment advice with
respect to the investment of Plan assets in the Class A Certificates is (a) an
Obligor with respect to 5% or less of the fair market value of the Receivables
or (b) an affiliate of such person.
The Exemption also applies to transactions in connection with the
servicing, management and operation of the Trust, provided that, in addition to
the general requirements described above, (a) such transactions are carried out
in accordance with the terms of a binding Pooling and Servicing Agreement and
(b) the Pooling and Servicing Agreement is provided to, or described in all
material respects in the prospectus provided to, investing Plans before their
purchase of Class A Certificates issued by the Trust. The Agreement is a Pooling
and Servicing Agreement as defined in the Exemption. All transactions relating
to the servicing, management and operation of the Trust will be carried out in
accordance with the Agreement. See 'Description of the Certificates'.
The Exemption also may provide relief from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA and the taxes imposed by
Sections 4975(c)(1)(A) through (D) of the Code if such restrictions are deemed
to otherwise apply merely because a person is deemed to be a party in interest
or a disqualified person with respect to an investing Plan by virtue of
providing services to a Plan (or by virtue of having certain specified
relationships to such a person) solely as a result of such Plan's ownership of
Class A Certificates.
Any Plan fiduciary considering whether to purchase a Class A Certificate on
behalf of a Plan should consult with experienced legal counsel regarding the
applicability of the Exemption and other applicable issues and whether the
Class A Certificates are an appropriate investment for a Plan under ERISA and
the Code.
PROHIBITED TRANSACTION EXEMPTIONS FOR CLASS B CERTIFICATES
Because the Class B Certificates are subordinate interests, the Exemption
will not apply to exempt the purchase and subsequent holding of the Class B
Certificates by or on behalf of a Plan from the prohibited transaction
provisions of ERISA and the Code. However, certain other administrative
exemptions may be available with respect to the purchase and subsequent holding
of the Class B Certificates by or on behalf of a Plan. These exemptions include
Prohibited Transaction Class Exemption ('PTCE') 95-60, which applies to certain
transactions involving insurance company general accounts, PTCE 90-1, which
applies to certain transactions involving insurance company pooled separate
accounts, PTCE 91-38, which applies to certain transactions involving bank
collective investment funds, PTCE 84-14, which applies to certain transactions
entered into on behalf of a Plan by qualified professional asset managers, and
PTCE 96-23, which applies to certain transactions entered into on behalf of a
Plan by an in-house asset manager.
57
<PAGE>
PTCE 95-60 in particular, among other things, provides an exemption for
transactions in connection with the servicing, management, and operation of a
trust in which an insurance company general account has an interest as a result
of its acquisition of certificates issued by the trust. PTCE 95-60 would apply
to the acquisition of the Class B Certificates issued by the Trust provided that
certain conditions are met, including the requirement that the Trust is
described in and otherwise meets the requirements of an 'underwriter exemption,'
such as PTE 90-23, other than the requirements relating to the nonsubordination
and rating of the Class B Certificates. Accordingly, the acquisition by an
insurance company of the Class B Certificates on behalf of its general account
will not constitute a prohibited transaction if the conditions of PTCE 95-60 are
otherwise satisfied.
Any Plan fiduciary considering the purchase of a Class B Certificate on
behalf of a Plan should consult with experienced legal counsel regarding the
applicability of any such exemption from the prohibited transaction rules, other
relevant issues, and whether the Class B Certificates would be an appropriate
investment for the Plan under ERISA and the Code.
Each investor purchasing the Class B Certificates by or on behalf of a Plan
will be deemed to have represented that an exemption from the prohibited
transaction rules applies such that the acquisition and subsequent holding of
the Class B Certificates by or on behalf of such Plan will not constitute a
non-exempt prohibited transaction in violation of ERISA or the Code by reason of
the application of one or more statutory or administrative exemptions from the
prohibited transaction rules.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that the Small Business Job Protection Act of 1996 added
new Section 401(c) to ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the DOL is required to issue final regulations (the 'GENERAL
ACCOUNT REGULATIONS') with respect to insurance policies issued on or before
December 31, 1998 that are supported by an insurer's general account. The
General Account Regulations are to provide guidance on which assets held by the
insurer constitute 'plan assets' for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code. Section 401(c) also provides
that, except in the case of avoidance of the General Account Regulations, and
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or federal criminal law,
until the date that is 18 months after the General Account Regulations become
final, no liability under the fiduciary responsibility and prohibited
transaction provisions of ERISA and Section 4975 of the Code may result on the
basis of a claim that the assets of the general account of an insurance company
constitute the assets of any Plan. The plan asset status of insurance company
separate accounts is unaffected by new Section 401(c) of ERISA, and separate
account assets continue to be treated as the assets of any Plan invested in the
separate account. Insurance companies should consult with their counsel
regarding the potential impact of Section 401(c) on their purchase of
Certificates.
As of the date hereof, the DOL has issued proposed regulations under
Section 401(c). It should be noted that the final form of the General Account
Regulations cannot be certain, the General Account Regulations may not exempt
the assets of insurance company general accounts from treatment as 'plan assets'
after December 31, 1998. If the General Account Regulations are adopted
substantially in the form in which proposed, they should not, however, adversely
affect the applicability of PTCE 95-60 to purchases of Certificates.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the 'UNDERWRITING AGREEMENT'), the Seller has agreed to sell to each of the
underwriters named below (the 'UNDERWRITERS') and each of the Underwriters has
severally agreed to purchase the principal amount of Class A Certificates set
forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A CERTIFICATES
------------ --------------------
<S> <C>
J.P. Morgan Securities Inc.................................. $168,549,000
Chase Securities Inc........................................ 168,200,000
Credit Suisse First Boston Corporation...................... 168,200,000
Salomon Smith Barney Inc.................................... 168,200,000
------------
Total.................................................. $673,149,000
------------
------------
</TABLE>
The Seller has been advised by the Underwriters that they propose initially
to offer the Class A Certificates to the public at the price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of 0.12% of the principal amount of the Class A
Certificates. The Underwriters may allow and such dealers may reallow to other
dealers a discount not in excess of 0.10% of such principal amount. After the
initial public offering, such public offering price, concession and reallowance
may be changed.
The Class B Certificates will be purchased by an affiliate of the Seller.
Such affiliate may subsequently use this Prospectus in connection with offers
and sales of the Class B Certificates to third parties at market prices
prevailing at the time of such offers and sales. In order to facilitate the
book-entry registration of the Class B Certificates, J.P. Morgan Securities Inc.
will act as agent for the Seller in connection with such purchase. J.P. Morgan
Securities Inc. will receive no compensation in connection therewith.
In connection with the offering of the Class A Certificates, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Certificates. Specifically, the Underwriters may
overallot the offering, creating a syndicate short position. The Underwriters
may bid for and purchase Class A Certificates in the open market to cover
syndicate short positions. In addition, the Underwriters may bid for and
purchase Class A Certificates in the open market to stabilize the price of the
Class A Certificates. These activities may stabilize or maintain the market
price of the Class A Certificates above independent market levels. The
Underwriters are not required to engage in these activities and may end these
activities at any time.
In the ordinary course of business, certain of the Underwriters and their
affiliates have engaged and may engage in investment banking and commercial
banking transactions with the Seller and its affiliates.
The Seller has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
VALIDITY OF THE CERTIFICATES
The validity of the Certificates will be passed upon for the Seller by
Jones, Day, Reavis & Pogue, and certain other legal matters will be passed upon
for the Seller by Michael J. Broker, Esq., Vice-President and Banking Counsel
for the Bank and for the Underwriters by Skadden, Arps, Slate, Meagher & Flom
LLP. Certain federal income tax and other matters will be passed upon for the
Seller by Jones, Day, Reavis & Pogue.
59
<PAGE>
GLOSSARY OF TERMS
<TABLE>
<S> <C>
Accounts.................................................... 31
Advance..................................................... 33
Agreement................................................... 18
Applicant................................................... 13
Available Interest.......................................... 37
Available Principal......................................... 37
Available Reserve Amount.................................... 34
Average Delinquency Ratio................................... 35
Average Net Loss Ratio...................................... 35
Bank........................................................ 13
Business Day................................................ 22
Cede........................................................ 24
Cedel....................................................... 25
Cedel Participants.......................................... 27
Certificate Account......................................... 31
Certificate Owner........................................... 25
Certificateholders.......................................... 19
Certificates................................................ 18
Class A Certificate Balance................................. 38
Class A Certificateholders.................................. 19
Class A Certificates........................................ 18
Class A Distribution Account................................ 31
Class A Interest Carryover Shortfall........................ 38
Class A Interest Distribution............................... 38
Class A Monthly Interest.................................... 38
Class A Monthly Principal................................... 38
Class A Pass-Through Rate................................... 22
Class A Percentage.......................................... 38
Class A Pool Factor......................................... 22
Class A Principal Carryover Shortfall....................... 38
Class A Principal Distribution.............................. 39
Class B Certificate Balance................................. 39
Class B Certificateholders.................................. 19
Class B Certificates........................................ 18
Class B Distribution Account................................ 31
Class B Interest Carryover Shortfall........................ 39
Class B Interest Distribution............................... 39
Class B Monthly Interest.................................... 39
Class B Monthly Principal................................... 39
Class B Pass-Through Rate................................... 22
Class B Percentage.......................................... 39
Class B Pool Factor......................................... 22
Class B Principal Carryover Shortfall....................... 39
Class B Principal Distribution.............................. 39
Closing Date................................................ 23
Code........................................................ 48
Collateral Agent............................................ 34
Collection Period........................................... 37
Collections................................................. 37
Contract Rate............................................... 18
Cooperative................................................. 28
Cutoff Date................................................. 18
Defaulted Receivable........................................ 33
</TABLE>
60
<PAGE>
<TABLE>
<S> <C>
Definitive Certificates..................................... 29
Delinquency Ratio........................................... 35
Depositaries................................................ 27
Depositary.................................................. 27
Deposit Date................................................ 32
Direct Participants......................................... 25
Distribution Date........................................... 22
DOL......................................................... 55
DTC......................................................... 25
DTC Participants............................................ 26
Due Date.................................................... 19
ERISA....................................................... 55
Euroclear................................................... 25
Euroclear Operator.......................................... 25
Euroclear Participants...................................... 27
Events of Servicing Termination............................. 40
Excluded Plan............................................... 57
Exemption................................................... 56
FDIC........................................................ 31
Final Scheduled Distribution Date........................... 32
Financed Vehicles........................................... 18
Force Placed Insurance...................................... 15
FTC Rule.................................................... 48
General Account Regulations................................. 58
Holders..................................................... 29
Indirect Participants....................................... 26
Industry.................................................... 28
Interest Collections........................................ 37
Liquidation Proceeds........................................ 35
Moody's..................................................... 32
Motor Vehicle Loans......................................... 13
Net Loss Ratio.............................................. 35
Obligor..................................................... 15
OID......................................................... 49
OID Regulations............................................. 52
Original Certificate Balance................................ 25
Original Class A Certificate Balance........................ 25
Original Class B Certificate Balance........................ 25
Original Pool Balance....................................... 25
Outstanding Advances........................................ 33
Pass-Through Rate........................................... 22
Paying Agent................................................ 31
Plan........................................................ 55
Pool Balance................................................ 24
Prepayment Assumption....................................... 49
PTCE........................................................ 57
PTE......................................................... 55
Purchase Price.............................................. 51
Purchased Receivable........................................ 37
Qualified Institution....................................... 31
Qualified Trust Company..................................... 31
Rating Agency............................................... 32
Rating Agency Condition..................................... 35
Realized Losses............................................. 39
Receivables................................................. 18
</TABLE>
61
<PAGE>
<TABLE>
<S> <C>
Receivables Pool............................................ 18
Record Date................................................. 22
Recoveries.................................................. 35
Regulation.................................................. 55
Repurchase Amount........................................... 30
Reserve Account............................................. 18
Reserve Account Initial Deposit............................. 34
Restricted Group............................................ 56
Retained Yield.............................................. 49
Section 1286 Regulations.................................... 52
Seller...................................................... 13
Servicer.................................................... 13
Servicing Fee............................................... 33
Servicing Fee Rate.......................................... 33
Shortfall Amount............................................ 53
Specified Reserve Account Balance........................... 34
Specified Yield Supplement Balance.......................... 36
Special Tax Counsel......................................... 48
Standard & Poor's........................................... 32
Stripped Receivable......................................... 49
Supplemented Receivables.................................... 50
Systems..................................................... 28
Terms and Conditions........................................ 28
Transfer Agent and Registrar................................ 29
Treasury Regulations........................................ 52
Trust....................................................... 18
Trustee..................................................... 44
UCC......................................................... 46
Underwriters................................................ 58
Underwriting Agreement...................................... 58
United States person........................................ 54
USAA........................................................ 14
Yield Supplement Account.................................... 36
Yield Supplement Agreement.................................. 35
Yield Supplement Amount..................................... 35
</TABLE>
62
<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class A
Certificates and Class B Certificates will be available only in book-entry form.
Investors in the Offered Certificates may hold such Offered Certificates through
any of DTC, Cedel or Euroclear. The Offered Certificates will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Offered Certificates
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Offered Certificates
directly through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Offered Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Offered Certificates will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Offered Certificates will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Offered
Certificates will be represented through financial institutions acting on their
behalf as DTC Participants. As a result, Cedel and Euroclear will hold positions
on behalf of their participants through their respective Depositaries, which in
turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Offered Certificates through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Offered Certificates through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Offered Certificates will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Offered
Certificates are to be transferred from the account of a DTC Participant to the
accounts of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel
A-1
<PAGE>
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear, as the case may be, will instruct the respective
Depositary to receive the Offered Certificates against payment. Payment will
include interest accrued on the Offered Certificates from and including the last
coupon payment date to and excluding the settlement date, which will be on the
basis of a 360-day year and the actual number of days elapsed. Payment will then
be made by the Depositary to the DTC Participant's account against delivery of
the Offered Certificates. After settlement has been completed, the Offered
Certificates will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The Offered Certificates
credit will appear the next day (European time) and the cash debit will be
back-valued to, and the interest on the Offered Certificates will accrue from,
the value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debit will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Offered
Certificates are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Offered
Certificates would incur overdraft charges for one day, assuming they cleared
the overdraft when the Offered Certificates were credited to their accounts.
However, interest on the Offered Certificates would accrue from the value date.
Therefore, in many cases the investment income on the Offered Certificates
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Offered Certificates
to the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Offered
Certificates are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the Offered Certificates to the DTC Participant's account against payment.
Payment will include interest accrued on the Offered Certificates from and
including the last coupon payment date to and excluding the settlement date,
which will be on the basis of a 360-day year and the actual number of days
elapsed. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
A-2
<PAGE>
Finally, day traders that use Cedel or Euroclear and that purchase Offered
Certificates from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Offered Certificates in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Offered Certificates sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Offered Certificates holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (a) each clearing system, bank, or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(b) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Offered
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owner or
his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal income tax reporting procedure. The Certificate Owner or, in
the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the
appropriate form to the person through whom it holds (the clearing agency, in
the case of persons holding directly on the books of the clearing agency). Form
W-8 and Form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
The term 'U.S. PERSON' means (a) a citizen or resident of the United
States, (b) a corporation or partnership (including an entity treated as a
corporation or partnership) organized in or under the laws of the United States
or any state or the District of Columbia (unless, in the case of a partnership,
Treasury regulations provide otherwise), (c) an estate the income of which is
A-3
<PAGE>
includible in gross income for United States tax purposes, regardless of its
source, or (d) a trust if a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons has the
authority to control all substantial decisions of the trust. This summary does
not deal with all aspects of U.S. Federal income tax withholding that may be
relevant to foreign holders of the Offered Certificates. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Offered Certificates.
Recent Treasury regulations could affect the procedures to be followed by a
non-U.S. Person in complying with the United States federal withholding, backup
withholding and information reporting rules. The regulations generally will be
effective for payments made after December 31, 1999. Prospective investors are
advised to consult their own tax advisors regarding the effect, if any, of the
regulations on the purchase, ownership and disposition of the Offered
Certificates.
A-4
<PAGE>
USAA AUTO LOAN GRANTOR TRUST 1999-1
$673,149,000 6.10%
Automobile Loan Pass-Through Certificates, Class A
$26,227,130 6.67%
Automobile Loan Pass-Through Certificates, Class B
[Logo]
USAA FEDERAL SAVINGS BANK
SELLER AND SERVICER
------------------------
PROSPECTUS
------------------------
J.P. MORGAN & CO.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information.
We are not offering these certificates in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus as of
any date other than the date stated on the cover of this prospectus.
Dealers will deliver a prospectus when acting as underwriters on these
certificates and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling these certificates will deliver a prospectus until
October 20, 1999.
JULY 22, 1999
