<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated August 17, 2000)
$483,406,781
USAA AUTO OWNER TRUST 2000-1
[USAA LOGO]
USAA FEDERAL SAVINGS BANK
SELLER AND SERVICER
-----------------------------------
BEFORE YOU PURCHASE ANY OF
THESE SECURITIES, BE SURE
YOU READ THIS PROSPECTUS
SUPPLEMENT AND THE ATTACHED
PROSPECTUS, ESPECIALLY THE
RISK FACTORS BEGINNING ON
PAGE S-9 OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 8 OF
THE PROSPECTUS.
A security is not a deposit
and neither the securities
nor the underlying motor
vehicle loans are insured or
guaranteed by the FDIC or
any other governmental
authority.
These securities are issued
by the trust. The securities
are not obligations of USAA
Federal Savings Bank or any
of its affiliates.
No one may use this
prospectus supplement to
offer and sell these
securities unless it is
accompanied by the
prospectus.
-----------------------------------
THE TRUST WILL ISSUE THE FOLLOWING SECURITIES:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B
NOTES NOTES NOTES NOTES CERTIFICATES(2)
----- ----- ----- ----- ---------------
<S> <C> <C> <C> <C> <C>
Principal Amount.... $118,000,000 $128,000,000 $136,000,000 $83,279,000 $18,127,781
Per Annum Interest
Rate............... 6.734% 6.90% 6.95% 6.98% 7.72%
Final Scheduled
Payment Date....... Sept. 2001 April 2003 June 2004 June 2005 Feb. 2007
Initial Public
Offering
Price.............. 100.000000% 99.983064% 99.986843% 99.983152% 99.971166%
Underwriting
Discount........... 0.120% 0.170% 0.240% 0.295% N/A
Proceeds to
Seller(1).......... 99.880000% 99.813064% 99.746843% 99.688152% 99.971166%
</TABLE>
-------------------------------
(1) Before deducting expenses payable by the seller
estimated to be $520,000.
(2) An affiliate of the seller will purchase all of the
Class B certificates from the seller.
The total initial public offering price is
$465,225,397.55, the total underwriting discount is
$931,273.05 and the total proceeds to seller is
$464,294,124.50.
The trust will pay interest and principal on the
securities on the 15th day of each month. The first
payment date will be October 16, 2000.
The trust will pay principal sequentially to the earliest
maturing class of securities then outstanding until paid
in full.
The Class B certificates are subordinated to the notes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriters of the Notes
CHASE SECURITIES INC.
DEUTSCHE BANC ALEX. BROWN
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
The date of this prospectus supplement is August 23, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
READING THESE DOCUMENTS............... S-3
SUMMARY OF TERMS OF THE SECURITIES.... S-4
RISK FACTORS.......................... S-9
THE TRUST............................. S-11
Limited Purpose and Limited
Assets.......................... S-11
Capitalization of the Trust....... S-11
The Owner Trustee................. S-12
THE RECEIVABLES POOL.................. S-12
The Bank's Delinquency, Loan Loss
and Recovery Information........ S-16
HOW YOU CAN COMPUTE YOUR PORTION OF
THE AMOUNT OUTSTANDING ON THE NOTES
OR CERTIFICATES..................... S-17
Notes............................. S-17
Certificates...................... S-17
The Factors Described Above Will
Decline as the Trust Makes
Payments on the Securities...... S-18
MATURITY AND PREPAYMENT
CONSIDERATIONS...................... S-18
Weighted Average Life of the
Securities...................... S-19
DESCRIPTION OF THE NOTES.............. S-26
Payments of Interest.............. S-26
Payments of Principal............. S-26
Optional Prepayment............... S-27
DESCRIPTION OF THE CERTIFICATES....... S-27
Distributions..................... S-27
Subordination of Certificates..... S-28
Optional Prepayment............... S-28
APPLICATION OF AVAILABLE FUNDS........ S-28
Sources of Funds of
Distributions................... S-28
Priority of Distributions......... S-28
DESCRIPTION OF THE SALE AND SERVICING
AGREEMENT........................... S-29
Accounts.......................... S-30
Servicing Compensation and
Expenses........................ S-30
Rights Upon Event of Servicing
Termination..................... S-30
Waiver of Past Events of Servicing
Termination..................... S-30
Deposits to the Collection
Account......................... S-30
Reserve Account................... S-32
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ S-32
CERTAIN STATE TAX CONSEQUENCES........ S-32
ERISA CONSIDERATIONS.................. S-33
The Notes......................... S-33
The Certificates.................. S-33
UNDERWRITING.......................... S-34
LEGAL OPINIONS........................ S-35
GLOSSARY OF TERMS..................... S-36
</TABLE>
S-2
<PAGE>
READING THESE DOCUMENTS
We provide information on the securities in two documents that offer varying
levels of detail:
1. Prospectus -- provides general information, some of which may not
apply to the securities.
2. Prospectus Supplement -- provides a summary of the specific terms of
the securities.
We suggest you read this prospectus supplement and the prospectus in their
entirety. The prospectus supplement pages begin with 'S'. If the terms of the
offered securities described in this prospectus supplement vary with the
accompanying prospectus, you should rely on the information in this prospectus
supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the table of contents on page S-2 in
this document and on page 2 in the prospectus to locate the referenced sections.
The Glossary of Terms on page S-36 of this prospectus supplement and the
Glossary of Terms on page 71 in the prospectus list definitions of certain terms
used in this prospectus supplement or the prospectus.
You should rely only on information on the securities provided in this
prospectus supplement and the prospectus. We have not authorized anyone to
provide you with different information.
In this prospectus supplement, the terms 'we,' 'us' and 'our' refer to USAA
Federal Savings Bank.
S-3
<PAGE>
--------------------------------------------------------------------------------
SUMMARY OF TERMS OF THE SECURITIES
The following summary is a short description of the main terms of the
offering of the securities. For that reason, this summary does not contain all
of the information that may be important to you. To fully understand the terms
of the offering of the securities, you will need to read both this prospectus
supplement and the attached prospectus in their entirety.
ISSUER
USAA Auto Owner Trust 2000-1, a Delaware statutory business trust, will use the
proceeds from the issuance and sale of the securities to purchase from the
seller a pool of motor vehicle installment loans which constitute the
receivables. The trust will rely upon collections on the receivables and the
funds on deposit in certain accounts to make payments on the securities. The
trust will be solely liable for the payments on the securities.
OFFERED SECURITIES
The following securities are being offered by this prospectus supplement:
$118,000,000 Class A-1 6.734% Asset Backed Notes
$128,000,000 Class A-2 6.90% Asset Backed Notes
$136,000,000 Class A-3 6.95% Asset Backed Notes
$83,279,000 Class A-4 6.98% Asset Backed Notes
$18,127,781 Class B 7.72% Asset Backed Certificates
An affiliate of the seller will purchase all of the certificates from the
seller.
CLOSING DATE
The trust expects to issue the securities on August 31, 2000.
CUT-OFF DATE
The seller will transfer the receivables to the trust as of August 1, 2000.
SELLER AND SERVICER
USAA Federal Savings Bank.
OWNER TRUSTEE
First Union Trust Company, National Association.
INDENTURE TRUSTEE
The Chase Manhattan Bank.
PAYMENT DATES
On the 15th day of each month (or if the 15th day is not a Business Day, the
next Business Day), the trust will pay interest and principal on the securities.
FIRST PAYMENT DATE
The first payment date will be October 16, 2000.
RECORD DATES
On each payment date, the trust will pay interest and principal to the holders
of the securities as of the related record date. The record dates for the
securities will be the day immediately preceding the payment date. If definitive
securities are issued for the securities, the record date will be the last day
of the month immediately preceding the payment date.
INTEREST RATES
On each payment date, the trust will pay interest on each class of securities at
the rates specified on the cover of this prospectus supplement.
INTEREST ACCRUAL
Class A-1 Notes
"Actual/360", accrued from the prior payment date (or the closing date, in the
case of the first
--------------------------------------------------------------------------------
S-4
<PAGE>
--------------------------------------------------------------------------------
payment date) to and excluding the current payment date.
Class A-2 Notes, Class A-3 Notes, Class A-4 Notes and Certificates
'30/360', accrued from the 15th day of the previous month (or the closing date,
in the case of the first payment date) to and excluding the 15th day of the
current month.
This means that, if there are no outstanding shortfalls in the payment of
interest, the interest due on each payment date will be the product of:
1. the outstanding principal balance;
2. the interest rate; and
3. (i) in the case of the Class A-1 Notes:
the actual number of days in the accrual period divided by 360; and
(ii) in the case of the other classes of notes and the certificates:
30 (or in the case of the first payment date, 45) divided by 360.
For a more detailed description of the payment of interest, refer to the
sections of this prospectus supplement entitled 'Description of the Notes --
Payments of Interest' and 'Description of the Certificates -- Distributions.'
PRIORITY OF DISTRIBUTIONS
From collections on the receivables received during the prior calendar month and
amounts withdrawn from the reserve account, the trust will pay the following
amounts on each payment date in the following order of priority, after
reimbursement of advances made in prior months by the servicer for interest
payments due from obligors but not received:
(1) Servicing Fee -- the servicing fee payable to the servicer;
(2) Note Interest -- interest due on all the notes ratably to the holders of
each class of notes;
(3) Certificate Interest -- interest distributable to the holders of the
certificates; however, if the notes have been accelerated because of a
failure to pay an amount due on the notes or certain insolvency events in
respect of the trust, this distribution will instead be made only after the
notes have been paid in full;
(4) Regular Principal Payment
An amount generally equal to the sum of the principal collections on the
receivables during the prior calendar month and the aggregate principal
balance (net of liquidation proceeds applied to principal) of all
receivables designated as 'defaulted receivables' in that month will be
applied to pay principal on the securities in the following amounts in the
following order of priority:
(i) on the Class A-1 Notes until they are paid in full;
(ii) on the Class A-2 Notes until they are paid in full;
(iii) on the Class A-3 Notes until they are paid in full;
(iv) on the Class A-4 Notes until they are paid in full; and
(v) on the certificates until they are paid in full.
If payment of the notes is accelerated after an event of default due to a
breach of a material covenant or agreement by the trust, all of the funds
remaining after clause (3) will be paid as principal pro rata on all classes
of the notes until they are paid in full and then any remaining amounts will
be distributed to the holders of the certificates until the certificates are
paid in full. If payment of the notes is accelerated because of a failure to
pay an amount due on the notes or certain insolvency events in respect of the
trust, all of the funds remaining after clause (2) will be paid as principal
pro rata on all classes of notes until they are paid in full and then any
remaining amounts will be distributed to the holders of the certificates,
first to pay interest distributable to the holders of the certificates, and
second to pay principal on the certificates until they are paid in full;
(5) Final Scheduled Payment Date -- if the payment date is a final scheduled
payment date for a class of securities, the amount, if any, necessary to pay
that class in full after giving effect to the payment pursuant to clause (4)
will be paid on that class;
--------------------------------------------------------------------------------
S-5
<PAGE>
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(6) Reserve Account Deposit -- to the reserve account, the amount, if any,
necessary to reinstate the balance of the reserve account up to its required
amount;
(7) Indenture Trustee and Owner Trustee Fees and Expenses -- to pay any unpaid
fees and expenses of the indenture trustee and owner trustee; however, if
the notes are accelerated after an event of default, these fees and expenses
will be paid after clause (1); and
(8) any amounts remaining after the above distributions will be distributed to
the seller.
For a more detailed description of the priority of distributions and the
allocation of funds on each payment date, you should refer to 'Application of
Available Funds' in this prospectus supplement.
CREDIT ENHANCEMENT
The credit enhancement for the securities will be as follows:
Subordination of Principal and Interest
Payments of interest on the certificates will be subordinated to payments of
interest on the notes, and no payments of principal will be made on the
certificates until the notes have been paid in full. If an event of default
occurs because of a failure to pay an amount due on the notes or certain
insolvency events in respect of the trust and the notes are accelerated, no
payments will be made on the certificates until the notes are paid in full.
Reserve Account
On the closing date, the trust will deposit $3,625,550.86 to the reserve
account.
On each payment date, if collections on the receivables are insufficient to pay
the first five items listed in 'Priority of Distributions' above, the indenture
trustee will withdraw funds from the reserve account to pay such amounts.
Generally, the balance required to be on deposit in the reserve account will be
the greater of (a) 1.25% of the outstanding principal balance of the receivables
and (b) 0.50% of the principal balance of the receivables as of the cut-off
date. If the average delinquency ratio or the average net loss ratio exceeds its
specified trigger level, then those percentages will be 2.50% and 0.75%,
respectively, until the average delinquency ratio and the average net loss ratio
are equal to or less than its specified trigger level for at least six
consecutive payment dates.
On each payment date, the trust will deposit into the reserve account, to the
extent necessary to reinstate the required balance of the reserve account, any
collections on the receivables remaining after the first five items listed in
'Priority of Distributions' above are satisfied.
On each payment date, the trust will distribute to the seller funds on deposit
in the reserve account in excess of the required balance.
For a more detailed description of the deposits to and withdrawals from the
reserve account, you should refer to 'Description of the Sale and Servicing
Agreement -- Reserve Account' in this prospectus supplement.
OPTIONAL PREPAYMENT
The servicer has the option to purchase the receivables on any payment date on
which the aggregate principal balance of the receivables is 5% or less of the
aggregate principal balance of the receivables as of the cut-off date. The
purchase price will equal the outstanding principal balance of the receivables
plus interest accrued thereon at the weighted average interest rate borne by the
securities. The trust will apply such payment to the payment of the securities
in full.
It is expected that at the time this purchase option becomes available to the
servicer, only the Class A-4 Notes and the certificates will be outstanding.
FINAL SCHEDULED PAYMENT DATES
The trust is required to pay the entire principal amount of each class of
securities, to the extent not previously paid, on the respective final scheduled
payment dates specified on the cover page of this prospectus supplement.
--------------------------------------------------------------------------------
S-6
<PAGE>
--------------------------------------------------------------------------------
PROPERTY OF THE TRUST
The property of the trust will include the following:
the receivables and the collections on the receivables on or after the
cut-off date;
security interests in the vehicles financed by the receivables;
certain bank accounts; and
rights to proceeds under insurance policies that cover the obligors under the
receivables or the vehicles financed by the receivables.
COMPOSITION OF THE RECEIVABLES
The composition of the receivables as of the cut-off date is as follows:
<TABLE>
<S> <C>
Aggregate Principal Balance...... $483,406,781
Number of Receivables............ 34,015
Current Principal Balance
Average....................... $14,211.58
Range......................... $506.19 to $83,664.31
Original Amount Financed
Average....................... $15,838.49
Range......................... $3,000.00 to $88,000.00
Weighted Average Contract Rate... 8.931%
Range......................... 7.775% to 18.000%
Weighted Average Original Term... 58.59 months
Range......................... 15 months to 72 months
Weighted Average Remaining
Term............................ 52.35 months
Range......................... 12 months to 71 months
</TABLE>
SERVICER OF THE RECEIVABLES
The trust will pay the servicer a servicing fee on each payment date for the
previous month equal to 1/12 of 0.50% of the principal balance of the
receivables at the beginning of the previous month (except the servicing fee on
the first payment date will be adjusted to reflect the long initial collection
period). In addition to the servicing fee, the trust will also pay the servicer
a supplemental servicing fee equal to any late fees and other administrative
fees and expenses, if any, collected during each month and any reinvestment
earnings on any payments received on the receivables and deposited into the
collection account.
RATINGS
It is a condition to the issuance of the securities that:
the Class A-1 Notes be rated in the highest short-term rating category by
Moody's and Standard & Poor's;
the Class A-2 Notes, Class A-3 Notes, and Class A-4 Notes be rated in the
highest long-term rating category by Moody's and Standard & Poor's; and
the certificates be rated at least 'BBB' (or its equivalent) by Moody's and
Standard & Poor's.
A rating is not a recommendation to purchase, hold or sell the offered notes and
certificates, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The ratings of the securities address the
likelihood of the payment of principal and interest on the securities according
to their terms. A rating agency rating the securities may lower or withdraw its
rating in the future, in its discretion, as to any class of securities.
MINIMUM DENOMINATIONS
<TABLE>
<S> <C>
Notes.......... $1,000 and integral multiples
thereof
Certificates... $1,000 and integral multiples
thereof
</TABLE>
REGISTRATION, CLEARANCE AND SETTLEMENT
<TABLE>
<S> <C>
Notes.......... book-entry through
DTC/Clearstream/Euroclear
Certificates... book-entry through DTC
</TABLE>
TAX STATUS
Opinions of Counsel
Brown & Wood LLP will deliver its opinion that for federal income tax purposes:
the notes will be characterized as debt; and
the trust will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation.
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S-7
<PAGE>
--------------------------------------------------------------------------------
Investor Representations
<TABLE>
<S> <C>
Notes.......... If you purchase the notes, you
agree by your purchase that
you will treat the notes as
indebtedness for federal
income tax purposes.
Certificates... If you purchase the
certificates, you agree by
your purchase that you will
treat the trust as a
partnership in which the
certificateholders are
partners for federal income
tax purposes.
</TABLE>
Tax-Related Investment Restrictions on Certificates
<TABLE>
<S> <C>
Certificates... The certificates may not be
purchased by persons who are
not U.S. Persons for federal
income tax purposes.
</TABLE>
If you are considering purchasing the certificates, you should refer to 'Certain
Federal Income Tax Consequences' in this prospectus supplement and in the
prospectus and 'Certain State Tax Consequences' in this prospectus supplement
for more details.
ERISA CONSIDERATIONS
<TABLE>
<S> <C>
Notes.......... The notes are generally
eligible for purchase by or on
behalf of employee benefit
plans and other similar
retirement plans and
arrangements that are subject
to ERISA or to Section 4975 of
the Code, subject to the
considerations discussed under
'ERISA Considerations' in this
prospectus supplement and the
prospectus.
Certificates... The certificates may not be
acquired by an employee
benefit plan or by an
individual retirement account.
However, an insurance company
using its general account may
acquire the certificates
subject to the considerations
discussed under 'ERISA
Considerations' in this
prospectus supplement and the
prospectus.
</TABLE>
MONEY MARKET ELIGIBILITY
The Class A-1 Notes will be eligible securities for purchase by money market
funds under paragraph (a)(10) of Rule 2a-7 under the Investment Company Act of
1940, as amended.
INVESTOR INFORMATION -- MAILING ADDRESS AND TELEPHONE NUMBER
The mailing address of the principal executive offices of USAA Federal Savings
Bank is 10750 McDermott Freeway, San Antonio, Texas 78288. Its telephone number
is (210) 498-2265.
--------------------------------------------------------------------------------
S-8
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of these securities.
<TABLE>
<S> <C>
CERTIFICATES ARE SUBJECT TO GREATER CREDIT The certificates bear greater credit risk than the notes
RISK BECAUSE THE CERTIFICATES ARE because payments of interest and principal on the
SUBORDINATE TO THE NOTES certificates are subordinated to payments of interest
and principal on the notes.
Interest payments on the certificates on each payment
date will be subordinated to interest payments on the
notes and, if the notes have been accelerated because of
a failure to pay an amount due on the notes or certain
events of insolvency in respect of the trust, to
principal payments on the notes.
Principal payments on the certificates will be fully
subordinated to principal payments on the notes since no
principal will be paid on the certificates until the
notes have been paid in full.
PREPAYMENTS AND LOSSES ON YOUR SECURITIES An event of default under the indenture may result in
MAY RESULT FROM AN EVENT OF DEFAULT UNDER losses on your notes or certificates if the receivables
THE INDENTURE are sold and the sale proceeds, together with any other
assets of the trust, are insufficient to pay the
amounts owed on the notes and the certificates; and
your notes or certificates being repaid earlier than
scheduled, which may require you to reinvest your
principal at a lower rate of return.
See 'The Indenture' in the prospectus.
YOU MAY SUFFER LOSSES BECAUSE YOU HAVE Because the trust has pledged its property to the
LIMITED CONTROL OVER ACTIONS OF THE TRUST indenture trustee to secure payment on the notes, the
AND CONFLICTS BETWEEN THE NOTEHOLDERS AND indenture trustee may, and at the direction of the
THE CERTIFICATEHOLDERS MAY OCCUR holders of the specified percentage of the notes will,
take one or more of the actions specified in the
indenture relating to the property of the trust,
including a sale of the receivables. Furthermore, the
holders of a majority of the notes, or the indenture
trustee acting on behalf of the holders of the notes,
under certain circumstances, has the right to waive
Events of Servicing Termination or to terminate the
servicer as the servicer of the receivables without
consideration of the effect such waiver or termination
would have on the holders of the certificates. The
holders of certificates will not have the ability to
waive Events of Servicing Termination or to remove the
servicer until the notes have been paid in full.
See 'Description of the Receivables Transfer and
Servicing Agreements -- Events of Servicing
Termination', ' -- Rights Upon Event of Servicing
Termination' and ' -- Waiver of Past Events of Servicing
Termination' in the prospectus.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
GEOGRAPHIC CONCENTRATION MAY RESULT IN The servicer's records indicate that the billing
MORE RISK TO YOU addresses of the obligors of the receivables as of the
Cut-off Date, were in the following states:
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
PRINCIPAL
BALANCE
-------
<S> <C>
Texas...................................... 19.36%
California................................. 9.64%
Florida.................................... 6.54%
Virginia................................... 5.21%
No other state, by those billing addresses, constituted
more than 5% of the balance of the receivables as of the
Cut-off Date. Economic conditions or other factors
affecting these states in particular could adversely
affect the delinquency, credit loss or repossession
experience of the trust.
</TABLE>
S-10
<PAGE>
THE TRUST
LIMITED PURPOSE AND LIMITED ASSETS
USAA Auto Owner Trust 2000-1 is a statutory business trust formed under the
laws of the State of Delaware by a trust agreement, as amended and restated as
of the Cut-off Date, between USAA Federal Savings Bank and First Union Trust
Company, National Association, as the owner trustee. The trust will not engage
in any activity other than:
acquiring, holding and managing the assets of the trust, including the
receivables, and the proceeds of those assets;
issuing the securities;
making payments on the securities; and
engaging in other activities that are necessary, suitable or convenient to
accomplish any of the other purposes listed above or are in any way
connected with those activities.
The trust will be capitalized by the issuance of the securities. The trust
will issue the securities to the order of the seller in exchange for the
seller's transfer of the receivables and an initial deposit of $3,625,550.86
into the Reserve Account.
The trust property will also include:
all monies received on the receivables on or after the Cut-off Date;
security interests in the financed vehicles;
the rights to proceeds, if any, from claims on certain theft, physical
damage, credit life or credit disability insurance policies, if any,
covering the financed vehicles or the obligors;
the seller's rights to certain documents and instruments relating to the
receivables;
such amounts as from time to time may be held in the accounts maintained
for the trust;
certain payments and proceeds with respect to the receivables held by the
servicer;
certain rebates of premiums and other amounts relating to certain insurance
policies and other items financed under the receivables; and
any proceeds of the above items.
If the protection provided to the noteholders by the subordination of the
certificates and to the noteholders and the certificateholders by the Reserve
Account is insufficient, the trust will have to look solely to the obligors on
the receivables and the proceeds from the repossession and sale of the financed
vehicles which secure defaulted receivables. In that event, various factors,
such as the trust not having perfected security interests in the financed
vehicles securing the receivables in all states, may affect the servicer's
ability to repossess and sell the collateral securing the receivables, and thus
may reduce the proceeds which the trust can distribute to the noteholders and
the certificateholders. See 'Application of Available Funds -- Priority of
Distributions' and 'Description of the Sale and Servicing Agreement -- Reserve
Account' in this prospectus supplement and 'Some Important Legal Issues Relating
to the Receivables' in the prospectus.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the trust as of the
closing date, as if the issuance and sale of the notes and the certificates had
taken place on such date:
<TABLE>
<S> <C>
Class A-1 Notes....................................... $118,000,000
Class A-2 Notes....................................... 128,000,000
Class A-3 Notes....................................... 136,000,000
Class A-4 Notes....................................... 83,279,000
Class B Certificates.................................. 18,127,781
------------
Total............................................. $483,406,781
============
</TABLE>
S-11
<PAGE>
THE OWNER TRUSTEE
First Union Trust Company, National Association will be the owner trustee
under the trust agreement. First Union Trust Company, National Association is a
national banking association and its principal offices are located at One Rodney
Square, 920 King Street, Wilmington, DE 19801. The seller and its affiliates may
maintain normal commercial banking relations with the owner trustee and its
affiliates.
THE RECEIVABLES POOL
The trust will own a pool of receivables consisting of motor vehicle
installment loans secured by security interests in the motor vehicles financed
by those loans. The pool will consist of the receivables which the seller
transfers to the trust on the closing date. The receivables will include
payments on the receivables which are made on or after the Cut-off Date.
CRITERIA APPLICABLE TO SELECTION OF RECEIVABLES
The receivables were selected from the seller's portfolio for inclusion in
the pool by several criteria, some of which are set forth in the prospectus
under 'The Receivables Pools.' These criteria include the requirement that each
receivable:
has a remaining maturity, as of the Cut-off Date, of not less than six
months and not more than 72 months;
with respect to loans secured by new financed vehicles, had an original
maturity of not less than 12 months and not more than 72 months; with
respect to loans secured by used financed vehicles, had an original
maturity of not less than nine months and not more than 60 months;
is a fully-amortizing, fixed rate simple interest loan which provides for
level scheduled monthly payments (except for the last payment, which may be
minimally different from the level payments) over its remaining term and
has a simple interest contract rate (a 'Contract Rate') that equals or
exceeds 7.775% per annum, is not secured by any interest in real estate,
and has not been identified on the computer files of the seller as relating
to an obligor who had requested a reduction in the periodic finance
charges, as of the Cut-off Date, by application of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended;
is secured by a financed vehicle that, as of the Cut-off Date, had not been
repossessed without reinstatement;
has not been identified on the computer files of the seller as relating to
an obligor who was in bankruptcy proceedings as of the Cut-off Date;
has no payment more than 30 days past due as of the Cut-off Date; and
has a remaining principal balance, as of the Cut-off Date, of not less than
$500.
The receivables were selected from the seller's portfolio of installment
loans for new and used vehicles, in each case meeting the criteria described
above and in the prospectus. No selection procedures believed by the seller to
be adverse to the securityholders were utilized in selecting the receivables. No
receivable has a scheduled maturity later than July 22, 2006.
S-12
<PAGE>
The composition of the receivables as of the Cut-off Date is as follows:
<TABLE>
<S> <C>
Aggregate Principal Balance................ $483,406,781
Number of Receivables...................... 34,015
Current Principal Balance
Average................................ $14,211.58
Range.................................. $506.19 to $83,664.31
Original Amount Financed
Average................................ $15,838.49
Range.................................. $3,000.00 to $88,000.00
Weighted Average
Contract Rate.......................... 8.931%
Range................................ 7.775% to 18.000%
Weighted Average
Original Term.......................... 58.59 months
Range................................ 15 months to 72 months
Weighted Average
Remaining Term......................... 52.35 months
Range................................ 12 months to 71 months
Percentage of Aggregate Principal Balance
of Receivables for New/Used Vehicles..... 53.46%/46.54%
</TABLE>
The geographical distribution and distribution by Contract Rate of the
receivables as of the Cut-off Date are set forth in the following tables.
S-13
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
STATE(1) RECEIVABLES BALANCE BALANCE(2)
-------- ----------- ------- ----------
<S> <C> <C> <C>
Alabama................................................ 618 $ 8,768,040 1.81%
Alaska................................................. 223 3,368,630 0.70
Arizona................................................ 1,050 15,429,004 3.19
Arkansas............................................... 297 4,206,192 0.87
California............................................. 3,084 46,609,898 9.64
Colorado............................................... 948 13,643,733 2.82
Connecticut............................................ 361 4,858,589 1.01
Delaware............................................... 106 1,457,186 0.30
District of Columbia................................... 370 5,302,339 1.10
Florida................................................ 2,242 31,609,273 6.54
Georgia................................................ 1,657 23,453,198 4.85
Hawaii................................................. 370 5,336,934 1.10
Idaho.................................................. 150 2,034,775 0.42
Illinois............................................... 610 8,705,485 1.80
Indiana................................................ 269 3,579,604 0.74
Iowa................................................... 91 1,268,700 0.26
Kansas................................................. 368 4,951,117 1.02
Kentucky............................................... 312 4,333,395 0.90
Louisiana.............................................. 490 6,635,497 1.37
Maine.................................................. 117 1,616,477 0.33
Maryland............................................... 932 13,415,131 2.78
Massachusetts.......................................... 427 5,674,124 1.17
Michigan............................................... 428 5,568,828 1.15
Minnesota.............................................. 303 4,141,474 0.86
Mississippi............................................ 252 3,711,570 0.77
Missouri............................................... 484 6,580,736 1.36
Montana................................................ 98 1,381,936 0.29
Nebraska............................................... 138 1,926,873 0.40
Nevada................................................. 314 4,741,701 0.98
New Hampshire.......................................... 212 2,658,127 0.55
New Jersey............................................. 710 9,590,099 1.98
New Mexico............................................. 389 5,454,300 1.13
New York............................................... 1,167 16,060,269 3.32
North Carolina......................................... 1,396 19,618,157 4.06
North Dakota........................................... 71 945,030 0.20
Ohio................................................... 506 6,616,068 1.37
Oklahoma............................................... 502 6,904,036 1.43
Oregon................................................. 331 4,526,979 0.94
Pennsylvania........................................... 611 8,103,735 1.68
Rhode Island........................................... 103 1,193,296 0.25
South Carolina......................................... 515 7,047,570 1.46
South Dakota........................................... 64 923,431 0.19
Tennessee.............................................. 616 8,700,191 1.80
Texas.................................................. 6,394 93,575,462 19.36
Utah................................................... 152 2,244,232 0.46
Vermont................................................ 76 907,890 0.19
Virginia............................................... 1,783 25,166,604 5.21
Washington............................................. 957 14,293,862 2.96
West Virginia.......................................... 93 1,238,458 0.26
Wisconsin.............................................. 199 2,446,675 0.51
Wyoming................................................ 59 881,871 0.18
------ ------------ ------
Total.............................................. 34,015 $483,406,781 100.00%
====== ============ ======
</TABLE>
---------
(1) Based on the billing addresses of the obligors as of the Cut-off Date.
(2) May not add to 100% due to rounding.
S-14
<PAGE>
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
CONTRACT RATE RECEIVABLES BALANCE(1) BALANCE(2)
------------- ----------- ---------- ----------
<S> <C> <C> <C>
7.51% to 8.00%....................................... 6,231 $116,374,570 24.07%
8.01% to 8.50%....................................... 9,569 148,624,786 30.75
8.51% to 9.00%....................................... 5,921 85,515,106 17.69
9.01% to 9.50%....................................... 2,472 34,544,675 7.15
9.51% to 10.00%....................................... 1,417 19,045,193 3.94
10.01% to 10.50%....................................... 2,987 27,117,750 5.61
10.51% to 11.00%....................................... 2,175 19,969,012 4.13
11.01% to 11.50%....................................... 1,291 12,559,842 2.60
11.51% to 12.00%....................................... 866 9,005,470 1.86
12.01% to 12.50%....................................... 407 4,238,850 0.88
12.51% to 13.00%....................................... 274 2,684,851 0.56
13.01% to 13.50%....................................... 166 1,506,887 0.31
13.51% to 14.00%....................................... 81 677,533 0.14
14.01% to 14.50%....................................... 83 806,096 0.17
14.51% to 15.00%....................................... 50 512,165 0.11
15.01% to 15.50%....................................... 13 124,704 0.03
15.51% to 16.00%....................................... 6 49,596 0.01
16.01% to 16.50%....................................... 1 5,590 0.00
16.51% to 17.00%....................................... 2 21,822 0.00
17.01% to 17.50%....................................... 1 6,412 0.00
17.51% to 18.00%....................................... 2 15,872 0.00
------ ------------ ------
Total.............................................. 34,015 $483,406,781 100.00%
====== ============ ======
</TABLE>
---------
(1) May not add up to $483,406,781 due to rounding.
(2) May not add to 100.00% due to rounding.
S-15
<PAGE>
THE BANK'S DELINQUENCY, 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
sold to the trust include only fixed rate motor vehicle loans. The following
tables also include information with respect to certain consumer loans which are
not motor vehicle loans. These other consumer loans did not exceed 15% of
outstandings as of each of the dates shown in the following tables. The Bank
believes that the inclusion of variable rate motor vehicle loans and these other
consumer 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 on its fixed rate motor vehicle loans.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------------------------------------------- -----------------------------------------------
2000 1999 1999 1998
---------------------- ---------------------- ---------------------- ----------------------
DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER
(IN 000s) OF LOANS (IN 000s) OF LOANS (IN 000s) OF LOANS (IN 000s) OF LOANS
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstandings.......... $3,966,528 303,367 $3,250,316 260,455 $3,661,825 283,810 $2,802,144 234,281
Delinquencies over
30 days(1)(2)........ $ 13,501 1,375 $ 11,676 1,215 $ 16,927 1,689 $ 12,297 1,366
Delinquencies over
30 days(%)(3)........ 0.34% 0.45% 0.36% 0.47% 0.46% 0.60% 0.44% 0.58%
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER
(IN 000s) OF LOANS (IN 000s) OF LOANS (IN 000s) OF LOANS
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstandings.......... $2,076,318 186,560 $1,687,922 159,812 $1,454,843 145,246
Delinquencies over
30 days(1)(2)........ $ 7,028 871 $ 8,634 1,082 $ 4,910 580
Delinquencies over
30 days(%)(3)........ 0.34% 0.47% 0.51% 0.68% 0.34% 0.40%
</TABLE>
---------
(1) Delinquencies include principal amounts only.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) As a percent of outstandings.
LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN 000s)
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Loans(1)............ 303,367 260,455 283,810 234,281 186,560 159,812 145,246
Period Ending Outstandings.... $3,966,528 $3,250,316 $3,661,825 $2,802,144 $2,076,318 $1,687,922 $1,454,843
Average Outstandings(2)....... $3,771,355 $3,009,524 $3,281,001 $2,375,294 $1,867,280 $1,527,686 $1,298,116
Number of Gross Charge-Offs... 758 659 1,438 874 797 805 422
Gross Charge-Offs(3).......... $ 9,094 $ 7,178 $ 16,066 $ 9,311 $ 6,157 $ 4,131 $ 2,244
Gross Charge-Offs as a % of
Period End Outstandings(4)... 0.46% 0.44% 0.44% 0.33% 0.30% 0.24% 0.15%
Gross Charge-Offs as a % of
Average Outstandings(4)...... 0.48% 0.48% 0.49% 0.39% 0.33% 0.27% 0.17%
Recoveries(5)................. $ 4,725 $ 3,279 $ 7,296 $ 4,856 $ 2,158 $ 1,068 $ 683
Net Charge-Offs(6)............ $ 4,370 $ 3,899 $ 8,770 $ 4,455 $ 3,999 $ 3,063 $ 1,561
Net Charge-Offs as a % of
Period End Outstandings(4)... 0.22% 0.24% 0.24% 0.16% 0.19% 0.18% 0.11%
Net Charge-Offs as a % of
Average Outstandings(4)...... 0.23% 0.26% 0.27% 0.19% 0.21% 0.20% 0.12%
</TABLE>
---------
(1) Number of loans as of period end.
(2) 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 the loans sold and serviced by the Bank for each period presented.
(3) 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.
(4) Percentages have been annualized for the six months ended June 30 and are
not necessarily indicative of the experience for the entire year.
(footnotes continued on next page)
S-16
<PAGE>
(footnotes continued from previous page)
(5) Recoveries are not net of expenses and generally include amounts received
with respect to loans previously charged off. Prior to July 1997, the
proceeds realized in connection with the sale of the financed vehicles are
not included in recoveries.
(6) Net charge-offs means gross charge-offs minus recoveries of loans previously
charged off.
-------------------
The data presented in the foregoing tables are for illustrative purposes
only. 'Outstandings' as used in the foregoing tables means the principal balance
of all consumer loans (including motor vehicle loans) serviced by the Bank as of
the specified date. Delinquency and loan loss experience may be influenced by a
variety of economic, social and other factors. The mix of the credit quality of
the obligors will vary from time to time and will affect losses and
delinquencies. In order to increase the number of potential applicants for its
motor vehicle loans, the Bank broadened its underwriting standards in 1997.
Consequently, the Bank expects that its future loan loss and delinquency
experience will be less favorable than the results shown in the two preceding
tables. We cannot assure you that the loan loss and delinquency experience of
the trust will be similar to the loan loss and delinquency levels for the Bank's
entire portfolio as shown in the two preceding tables or even the higher level
expected by the Bank for its entire portfolio in the future.
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE NOTES OR CERTIFICATES
The servicer will provide to you in each report which it will deliver to you
a factor which you can use to compute your portion of the principal amount
outstanding on the notes or certificates.
NOTES
HOW THE SERVICER COMPUTES THE FACTOR FOR YOUR CLASS OF NOTES. The servicer
will compute a separate factor for each class of notes. The factor for each
class of notes will be a seven-digit decimal which the servicer will compute
prior to each distribution with respect to such class of notes indicating the
remaining outstanding principal amount of such class of notes, as of the
applicable payment date. The servicer will compute the factor after giving
effect to payments to be made on such payment date, as a fraction of the initial
outstanding principal amount of such class of notes.
YOUR PORTION OF THE OUTSTANDING AMOUNT OF THE NOTES. For each note you own,
your portion of that class of notes is the product of:
the original denomination of your note; and
the factor relating to your class of notes computed by the servicer in the
manner described above.
CERTIFICATES
HOW THE SERVICER COMPUTES THE FACTOR FOR THE CERTIFICATES. The servicer will
compute a separate factor for the certificates. The factor for the certificates
will be a seven-digit decimal which the servicer will compute prior to each
distribution with respect to the certificates indicating the remaining
certificate balance of the certificates, as of the applicable payment date. The
factor will be calculated after giving effect to distributions to be made on
such payment date, as a fraction of the initial certificate balance of the
certificates.
YOUR PORTION OF THE OUTSTANDING AMOUNT OF THE CERTIFICATES. For each
certificate you own, your portion of the certificates is the product of:
the original denomination of your certificate; and
the factor relating to the certificates computed by the servicer in the
manner described above.
S-17
<PAGE>
THE FACTORS DESCRIBED ABOVE WILL DECLINE AS THE TRUST MAKES PAYMENTS ON THE
SECURITIES
Each of the factors described above will initially be 1.0000000. They will
then decline to reflect reductions, as applicable, in:
the outstanding principal amount of the applicable class of notes; or
the outstanding certificate balance of the certificates.
These amounts will be reduced over time as a result of scheduled payments,
prepayments, purchases of the receivables by the seller or the servicer and
liquidations of the receivables.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the securities is set forth under 'Maturity and Prepayment
Considerations' in the prospectus. In addition, no principal payments will be
made:
on the Class A-2 Notes until the Class A-1 Notes have been paid in full;
on the Class A-3 Notes until the Class A-2 Notes have been paid in full;
on the Class A-4 Notes until the Class A-3 Notes have been paid in full; or
on the certificates until the Class A-4 have been paid in full.
However, if the notes are accelerated after an Event of Default, principal
payments will be paid pro rata to all classes of the notes.
Since the rate of payment of principal of each class of notes and the
certificates depends on the rate of payment (including prepayments) of the
principal balance of the receivables, final payment of any class of notes and
the final distribution in respect of the certificates could occur significantly
earlier than the respective Final Scheduled Payment Dates.
WE CANNOT ASSURE YOU THAT YOUR SECURITIES WILL BE REPAID ON THE RELATED
FINAL SCHEDULED PAYMENT DATE. It is expected that final payment of each class of
notes and the final distribution in respect of the certificates will occur on or
prior to the respective Final Scheduled Payment Dates. Failure to make final
payment of any class of notes by the respective Final Scheduled Payment Dates
would constitute an Event of Default under the indenture. See 'The
Indenture -- Rights upon Event of Default' in the prospectus. In addition, the
remaining certificate balance of the certificates is required to be paid in full
on or prior to its Final Scheduled Payment Date. However, we cannot assure you
that sufficient funds will be available to pay each class of notes and the
certificates in full on or prior to the respective Final Scheduled Payment
Dates. If sufficient funds are not available, final payment of any class of
notes and the final distribution in respect of the certificates could occur
later than such dates.
THE LEVEL OF PREPAYMENTS OF THE RECEIVABLES AND REQUIRED PURCHASES BY THE
SELLER AND THE SERVICER ARE UNPREDICTABLE AND MAY AFFECT PAYMENTS ON THE
SECURITIES. The rate of prepayments of the receivables may be influenced by a
variety of economic, social and other factors. In addition, under circumstances
relating to breaches of representations, warranties or covenants, the seller
and/or the servicer may be obligated to purchase receivables from the trust. See
'The Receivables Pool' in this prospectus supplement and 'Description of the
Receivables Transfer and Servicing Agreements -- Sale and Assignment of
Receivables' in the prospectus. A higher than anticipated rate of prepayments
will reduce the aggregate principal balance of the receivables faster than
expected and thereby reduce the outstanding amounts of the securities and the
anticipated aggregate interest payments on the securities. The noteholders and
the certificateholders alone will bear any reinvestment risks resulting from a
faster or slower incidence of prepayment of receivables as set forth in the
priority of distributions in this prospectus supplement. Such reinvestment risks
include the risk that interest rates may be lower at the time such holders
received payments from the trust than interest rates would otherwise have been
had such prepayments not been made or had such prepayments been made at a
different time.
S-18
<PAGE>
RISKS OF SLOWER OR FASTER REPAYMENTS. Noteholders and certificateholders should
consider:
in the case of notes or certificates purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the receivables could
result in an actual yield that is less than the anticipated yield; and
in the case of notes or certificates purchased at a premium, the risk that a
faster than anticipated rate of principal payments on the receivables could
result in an actual yield that is less than the anticipated yield.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The following information is given solely to illustrate the effect of
prepayments of the receivables on the weighted average life of the securities
under the stated assumptions and is not a prediction of the prepayment rate that
might actually be experienced by the receivables.
Prepayments on motor vehicle receivables can be measured relative to a
prepayment standard or model. The model used in this prospectus supplement, the
Absolute Prepayment Model ('ABS'), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of assets, including the receivables.
The rate of payment of principal of each class of notes and the certificates
will depend on the rate of payment (including prepayments) of the principal
balance of the receivables. For this reason, final payment of any class of notes
and the final distribution in respect of the certificates could occur
significantly earlier than the respective Final Scheduled Payment Dates. The
noteholders and the certificateholders will exclusively bear any reinvestment
risk associated with early payment of their notes and certificates.
The tables (the 'ABS Tables') captioned 'Percent of Initial Note Principal
Amount at Various ABS Percentages' and 'Percent of Initial Certificate Balance
at Various ABS Percentages,' respectively, have been prepared on the basis of
the characteristics of the receivables. The ABS Tables assume that:
the receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases;
each scheduled monthly payment on the receivables is scheduled to be made
and is made on the last day of each month and each month has 30 days;
payments on the notes and the certificates are made on each payment date
(and each payment date is assumed to be the fifteenth day of the applicable
month);
the balance in the Reserve Account on each payment date is equal to the
Specified Reserve Balance; and
the notes and certificates are issued on August 31, 2000.
The ABS Tables indicate the projected weighted average life of each class of
notes and the certificates and set forth the percent of the initial principal
amount of each class of notes and the percent of the initial certificate balance
of the certificates that is projected to be outstanding after each of the
payment dates shown at various constant ABS percentages.
The ABS Tables also assume that the receivables have been aggregated into
hypothetical pools with all of the receivables within each such pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools (which is based on its aggregate principal balance, contract rate
of interest, original term to maturity and remaining term to maturity as of the
cut-off date) will be such that each pool will be fully amortized by the end of
its remaining term to maturity. The pools have an assumed cut-off date of August
1, 2000.
S-19
<PAGE>
<TABLE>
<CAPTION>
CONTRACT ORIGINAL TERM REMAINING TERM
AGGREGATE RATE OF TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE INTEREST (IN MONTHS) (IN MONTHS)
---- ----------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
1....................................... $ 5,379,017.59 9.630% 32 20
2....................................... $ 27,270,804.49 9.607% 42 32
3....................................... $106,083,978.21 9.556% 51 43
4....................................... $274,829,275.78 8.733% 60 55
5....................................... $ 69,843,705.40 8.441% 72 68
</TABLE>
The actual characteristics and performance of the receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the receivables will prepay at a constant
level of ABS until maturity or that all of the receivables will prepay at the
same level of ABS. Moreover, the diverse terms of receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS Tables at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the receivables, or actual prepayment
experience, will affect the percentages of initial amounts outstanding over time
and the weighted average lives of each class of notes and the certificates.
S-20
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES
-------------------------------------------------------------
PAYMENT DATE 0.50% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date................................................ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
October 15, 2000............................................ 82.37 78.03 75.29 73.41 71.47 68.47
November 15, 2000........................................... 73.58 67.19 63.16 60.38 57.53 53.10
December 15, 2000........................................... 64.82 56.45 51.17 47.53 43.80 38.00
January 15, 2001............................................ 56.07 45.80 39.32 34.86 30.28 23.17
February 15, 2001........................................... 47.35 35.26 27.63 22.38 16.98 8.62
March 15, 2001.............................................. 38.65 24.81 16.08 10.08 3.91 0.00
April 15, 2001.............................................. 29.97 14.47 4.69 0.00 0.00 0.00
May 15, 2001................................................ 21.31 4.23 0.00 0.00 0.00 0.00
June 15, 2001............................................... 12.68 0.00 0.00 0.00 0.00 0.00
July 15, 2001............................................... 4.06 0.00 0.00 0.00 0.00 0.00
August 15, 2001............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2001.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2001............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2001........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2001........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2002............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2002........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2002.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2002.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2002................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2002............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2002............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2002............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2002.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2002............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2002........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2002........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2003............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2003........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2003.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2003.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2003................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2003............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2003............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2003............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2003.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2003............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2003........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2003........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2004............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2004.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2004.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2004................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2004............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2004............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2004............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2004.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2004............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2005.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2005.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2005................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2005............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2005............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2005............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2005.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2006............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2006........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2006.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2006.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1)............................ 0.48 0.40 0.36 0.33 0.31 0.28
Weighted Average Life to Call (years)(1)(2)................. 0.48 0.40 0.36 0.33 0.31 0.28
</TABLE>
---------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the related payment date, (b) adding the
results and (c) dividing the sum by the related initial principal amount of
the note.
(2) This calculation assumes the servicer purchases the receivables on the
earliest payment date on which it is permitted to do so.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-21
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-2 NOTES
-------------------------------------------------------------
PAYMENT DATE 0.50% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date................................................ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
October 15, 2000............................................ 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2000........................................... 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2000........................................... 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2001............................................ 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2001.............................................. 100.00 100.00 100.00 100.00 100.00 94.78
April 15, 2001.............................................. 100.00 100.00 100.00 98.12 91.76 81.88
May 15, 2001................................................ 100.00 100.00 93.97 87.14 80.12 69.24
June 15, 2001............................................... 100.00 94.56 83.76 76.33 68.70 56.87
July 15, 2001............................................... 100.00 85.31 73.69 65.70 57.49 44.76
August 15, 2001............................................. 95.83 76.17 63.78 55.25 46.50 32.93
September 15, 2001.......................................... 87.94 67.12 54.01 44.98 35.72 21.37
October 15, 2001............................................ 80.06 58.18 44.39 34.91 25.17 10.09
November 15, 2001........................................... 72.22 49.34 34.93 25.02 14.85 0.00
December 15, 2001........................................... 64.39 40.61 25.63 15.32 4.75 0.00
January 15, 2002............................................ 56.59 31.98 16.48 5.82 0.00 0.00
February 15, 2002........................................... 48.81 23.46 7.49 0.00 0.00 0.00
March 15, 2002.............................................. 41.06 15.05 0.00 0.00 0.00 0.00
April 15, 2002.............................................. 33.34 6.75 0.00 0.00 0.00 0.00
May 15, 2002................................................ 25.84 0.00 0.00 0.00 0.00 0.00
June 15, 2002............................................... 18.37 0.00 0.00 0.00 0.00 0.00
July 15, 2002............................................... 10.93 0.00 0.00 0.00 0.00 0.00
August 15, 2002............................................. 3.51 0.00 0.00 0.00 0.00 0.00
September 15, 2002.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2002............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2002........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2002........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2003............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2003........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2003.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2003.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2003................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2003............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2003............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2003............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2003.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2003............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2003........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2003........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2004............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2004.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2004.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2004................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2004............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2004............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2004............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2004.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2004............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2005.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2005.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2005................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2005............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2005............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2005............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2005.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2006............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2006........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2006.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2006.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1)............................ 1.49 1.25 1.12 1.05 0.98 0.88
Weighted Average Life to Call (years)(1)(2)................. 1.49 1.25 1.12 1.05 0.98 0.88
</TABLE>
---------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the related payment date, (b) adding the
results and (c) dividing the sum by the related initial principal amount of
the note.
(2) This calculation assumes the servicer purchases the receivables on the
earliest payment date on which it is permitted to do so.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-22
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-3 NOTES
-------------------------------------------------------------
PAYMENT DATE 0.50% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date................................................ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
October 15, 2000............................................ 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2000........................................... 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2000........................................... 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2001............................................ 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2001.............................................. 100.00 100.00 100.00 100.00 100.00 100.00
April 15, 2001.............................................. 100.00 100.00 100.00 100.00 100.00 100.00
May 15, 2001................................................ 100.00 100.00 100.00 100.00 100.00 100.00
June 15, 2001............................................... 100.00 100.00 100.00 100.00 100.00 100.00
July 15, 2001............................................... 100.00 100.00 100.00 100.00 100.00 100.00
August 15, 2001............................................. 100.00 100.00 100.00 100.00 100.00 100.00
September 15, 2001.......................................... 100.00 100.00 100.00 100.00 100.00 100.00
October 15, 2001............................................ 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 99.14
December 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 89.06
January 15, 2002............................................ 100.00 100.00 100.00 100.00 95.19 79.24
February 15, 2002........................................... 100.00 100.00 100.00 96.72 86.12 69.70
March 15, 2002.............................................. 100.00 100.00 98.75 88.15 77.28 60.44
April 15, 2002.............................................. 100.00 100.00 90.60 79.77 68.66 51.46
May 15, 2002................................................ 100.00 98.80 82.74 71.71 60.39 42.86
June 15, 2002............................................... 100.00 91.36 75.05 63.83 52.34 34.54
July 15, 2002............................................... 100.00 84.02 67.50 56.15 44.51 26.50
August 15, 2002............................................. 100.00 76.79 60.11 48.66 36.91 18.74
September 15, 2002.......................................... 96.35 69.66 52.88 41.36 29.55 11.26
October 15, 2002............................................ 89.41 62.64 45.81 34.25 22.41 4.08
November 15, 2002........................................... 82.51 55.73 38.91 27.35 15.51 0.00
December 15, 2002........................................... 75.63 48.94 32.16 20.64 8.85 0.00
January 15, 2003............................................ 68.78 42.25 25.58 14.14 2.43 0.00
February 15, 2003........................................... 61.96 35.68 19.17 7.85 0.00 0.00
March 15, 2003.............................................. 55.17 29.22 12.93 1.76 0.00 0.00
April 15, 2003.............................................. 48.40 22.88 6.86 0.00 0.00 0.00
May 15, 2003................................................ 42.26 17.10 1.33 0.00 0.00 0.00
June 15, 2003............................................... 36.14 11.44 0.00 0.00 0.00 0.00
July 15, 2003............................................... 30.04 5.88 0.00 0.00 0.00 0.00
August 15, 2003............................................. 23.98 0.43 0.00 0.00 0.00 0.00
September 15, 2003.......................................... 17.94 0.00 0.00 0.00 0.00 0.00
October 15, 2003............................................ 11.94 0.00 0.00 0.00 0.00 0.00
November 15, 2003........................................... 5.96 0.00 0.00 0.00 0.00 0.00
December 15, 2003........................................... 0.01 0.00 0.00 0.00 0.00 0.00
January 15, 2004............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2004.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2004.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2004................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2004............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2004............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2004............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2004.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2004............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2004........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2005.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2005.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2005................................................ 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2005............................................... 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2005............................................... 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2005............................................. 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2005.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2006............................................ 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2006........................................... 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2006.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2006.............................................. 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1)............................ 2.66 2.34 2.13 2.00 1.88 1.70
Weighted Average Life to Call (years)(1)(2)................. 2.66 2.34 2.13 2.00 1.88 1.70
</TABLE>
---------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the related payment date, (b) adding the
results and (c) dividing the sum by the related initial principal amount of
the note.
(2) This calculation assumes the servicer purchases the receivables on the
earliest payment date on which it is permitted to do so.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-23
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-4 NOTES
------------------------------------------------------------------
PAYMENT DATE 0.50% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date............................................. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
October 15, 2000......................................... 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2000........................................ 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2000........................................ 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2001......................................... 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2001........................................ 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 100.00
April 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 100.00
May 15, 2001............................................. 100.00 100.00 100.00 100.00 100.00 100.00
June 15, 2001............................................ 100.00 100.00 100.00 100.00 100.00 100.00
July 15, 2001............................................ 100.00 100.00 100.00 100.00 100.00 100.00
August 15, 2001.......................................... 100.00 100.00 100.00 100.00 100.00 100.00
September 15, 2001....................................... 100.00 100.00 100.00 100.00 100.00 100.00
October 15, 2001......................................... 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2001........................................ 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2001........................................ 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2002......................................... 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2002........................................ 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2002........................................... 100.00 100.00 100.00 100.00 100.00 100.00
April 15, 2002........................................... 100.00 100.00 100.00 100.00 100.00 100.00
May 15, 2002............................................. 100.00 100.00 100.00 100.00 100.00 100.00
June 15, 2002............................................ 100.00 100.00 100.00 100.00 100.00 100.00
July 15, 2002............................................ 100.00 100.00 100.00 100.00 100.00 100.00
August 15, 2002.......................................... 100.00 100.00 100.00 100.00 100.00 100.00
September 15, 2002....................................... 100.00 100.00 100.00 100.00 100.00 100.00
October 15, 2002......................................... 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2002........................................ 100.00 100.00 100.00 100.00 100.00 95.42
December 15, 2002........................................ 100.00 100.00 100.00 100.00 100.00 84.65
January 15, 2003......................................... 100.00 100.00 100.00 100.00 100.00 74.37
February 15, 2003........................................ 100.00 100.00 100.00 100.00 93.87 64.59
March 15, 2003........................................... 100.00 100.00 100.00 100.00 84.19 55.32
April 15, 2003........................................... 100.00 100.00 100.00 93.27 74.91 46.54
May 15, 2003............................................. 100.00 100.00 100.00 84.50 66.42 38.49
June 15, 2003............................................ 100.00 100.00 93.39 76.05 58.30 30.90
July 15, 2003............................................ 100.00 100.00 84.87 67.91 50.56 23.78
August 15, 2003.......................................... 100.00 100.00 76.61 60.10 43.20 17.12
September 15, 2003....................................... 100.00 91.99 68.62 52.61 36.23 10.95
October 15, 2003......................................... 100.00 83.46 60.90 45.44 29.64 5.26
November 15, 2003........................................ 100.00 75.12 53.45 38.62 23.45 0.06
December 15, 2003........................................ 100.00 66.96 46.28 32.12 17.66 0.00
January 15, 2004......................................... 90.35 58.99 39.39 25.97 12.27 0.00
February 15, 2004........................................ 80.73 51.21 32.78 20.16 7.29 0.00
March 15, 2004........................................... 71.17 43.63 26.45 14.70 2.72 0.00
April 15, 2004........................................... 64.36 38.08 21.68 10.47 0.00 0.00
May 15, 2004............................................. 57.59 32.67 17.12 6.49 0.00 0.00
June 15, 2004............................................ 50.86 27.39 12.75 2.75 0.00 0.00
July 15, 2004............................................ 44.17 22.26 8.59 0.00 0.00 0.00
August 15, 2004.......................................... 37.52 17.27 4.64 0.00 0.00 0.00
September 15, 2004....................................... 30.90 12.42 0.90 0.00 0.00 0.00
October 15, 2004......................................... 24.33 7.72 0.00 0.00 0.00 0.00
November 15, 2004........................................ 17.80 3.17 0.00 0.00 0.00 0.00
December 15, 2004........................................ 11.31 0.00 0.00 0.00 0.00 0.00
January 15, 2005......................................... 4.86 0.00 0.00 0.00 0.00 0.00
February 15, 2005........................................ 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2005........................................... 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2005............................................. 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
July 15, 2005............................................ 0.00 0.00 0.00 0.00 0.00 0.00
August 15, 2005.......................................... 0.00 0.00 0.00 0.00 0.00 0.00
September 15, 2005....................................... 0.00 0.00 0.00 0.00 0.00 0.00
October 15, 2005......................................... 0.00 0.00 0.00 0.00 0.00 0.00
November 15, 2005........................................ 0.00 0.00 0.00 0.00 0.00 0.00
December 15, 2005........................................ 0.00 0.00 0.00 0.00 0.00 0.00
January 15, 2006......................................... 0.00 0.00 0.00 0.00 0.00 0.00
February 15, 2006........................................ 0.00 0.00 0.00 0.00 0.00 0.00
March 15, 2006........................................... 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2006........................................... 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1)......................... 3.86 3.57 3.33 3.15 2.96 2.66
Weighted Average Life to Call (years)(1)(2).............. 3.86 3.57 3.33 3.14 2.96 2.66
Optional Call Date....................................... Jan. 2005 Nov. 2004 Aug. 2004 May 2004 Mar. 2004 Oct. 2003
</TABLE>
---------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the related payment date, (b) adding the
results and (c) dividing the sum by the related initial principal amount of
the note.
(2) This calculation assumes the servicer purchases the receivables on the
earliest payment date on which it is permitted to do so.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-24
<PAGE>
PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS B CERTIFICATES
--------------------------------------------------------------------
PAYMENT DATE 0.50% 1.00% 1.30% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date............................................. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
October 15, 2000......................................... 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2000........................................ 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2000........................................ 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2001......................................... 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2001........................................ 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 100.00
April 15, 2001........................................... 100.00 100.00 100.00 100.00 100.00 100.00
May 15, 2001............................................. 100.00 100.00 100.00 100.00 100.00 100.00
June 15, 2001............................................ 100.00 100.00 100.00 100.00 100.00 100.00
July 15, 2001............................................ 100.00 100.00 100.00 100.00 100.00 100.00
August 15, 2001.......................................... 100.00 100.00 100.00 100.00 100.00 100.00
September 15, 2001....................................... 100.00 100.00 100.00 100.00 100.00 100.00
October 15, 2001......................................... 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2001........................................ 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2001........................................ 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2002......................................... 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2002........................................ 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2002........................................... 100.00 100.00 100.00 100.00 100.00 100.00
April 15, 2002........................................... 100.00 100.00 100.00 100.00 100.00 100.00
May 15, 2002............................................. 100.00 100.00 100.00 100.00 100.00 100.00
June 15, 2002............................................ 100.00 100.00 100.00 100.00 100.00 100.00
July 15, 2002............................................ 100.00 100.00 100.00 100.00 100.00 100.00
August 15, 2002.......................................... 100.00 100.00 100.00 100.00 100.00 100.00
September 15, 2002....................................... 100.00 100.00 100.00 100.00 100.00 100.00
October 15, 2002......................................... 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2002........................................ 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2002........................................ 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2003......................................... 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2003........................................ 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2003........................................... 100.00 100.00 100.00 100.00 100.00 100.00
April 15, 2003........................................... 100.00 100.00 100.00 100.00 100.00 100.00
May 15, 2003............................................. 100.00 100.00 100.00 100.00 100.00 100.00
June 15, 2003............................................ 100.00 100.00 100.00 100.00 100.00 100.00
July 15, 2003............................................ 100.00 100.00 100.00 100.00 100.00 100.00
August 15, 2003.......................................... 100.00 100.00 100.00 100.00 100.00 100.00
September 15, 2003....................................... 100.00 100.00 100.00 100.00 100.00 100.00
October 15, 2003......................................... 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 2003........................................ 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 2003........................................ 100.00 100.00 100.00 100.00 100.00 78.68
January 15, 2004......................................... 100.00 100.00 100.00 100.00 100.00 59.36
February 15, 2004........................................ 100.00 100.00 100.00 100.00 100.00 42.37
March 15, 2004........................................... 100.00 100.00 100.00 100.00 100.00 27.73
April 15, 2004........................................... 100.00 100.00 100.00 100.00 95.57 14.69
May 15, 2004............................................. 100.00 100.00 100.00 100.00 79.97 3.29
June 15, 2004............................................ 100.00 100.00 100.00 100.00 65.70 0.00
July 15, 2004............................................ 100.00 100.00 100.00 96.56 52.79 0.00
August 15, 2004.......................................... 100.00 100.00 100.00 81.67 41.23 0.00
September 15, 2004....................................... 100.00 100.00 100.00 67.95 31.05 0.00
October 15, 2004......................................... 100.00 100.00 87.90 55.40 22.26 0.00
November 15, 2004........................................ 100.00 100.00 72.66 44.05 14.87 0.00
December 15, 2004........................................ 100.00 94.31 58.41 33.90 8.91 0.00
January 15, 2005......................................... 100.00 74.77 45.17 24.97 4.39 0.00
February 15, 2005........................................ 92.90 55.93 32.95 17.28 1.43 0.00
March 15, 2005........................................... 63.67 37.80 21.75 10.83 0.00 0.00
April 15, 2005........................................... 58.56 34.16 19.03 8.72 0.00 0.00
May 15, 2005............................................. 53.48 30.64 16.47 6.82 0.00 0.00
June 15, 2005............................................ 48.44 27.23 14.08 5.12 0.00 0.00
July 15, 2005............................................ 43.43 23.95 11.86 3.64 0.00 0.00
August 15, 2005.......................................... 38.45 20.78 9.82 2.36 0.00 0.00
September 15, 2005....................................... 33.51 17.74 7.96 1.29 0.00 0.00
October 15, 2005......................................... 28.61 14.82 6.27 0.45 0.00 0.00
November 15, 2005........................................ 23.75 12.03 4.76 0.00 0.00 0.00
December 15, 2005........................................ 18.92 9.37 3.44 0.00 0.00 0.00
January 15, 2006......................................... 14.13 6.83 2.30 0.00 0.00 0.00
February 15, 2006........................................ 9.38 4.42 1.34 0.00 0.00 0.00
March 15, 2006........................................... 4.67 2.14 0.58 0.00 0.00 0.00
April 15, 2006........................................... 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1)......................... 4.90 4.68 4.47 4.26 3.97 3.48
Weighted Average Life to Call (years)(1)(2).............. 4.38 4.21 3.96 3.71 3.54 3.13
Optional Call Date....................................... Jan. 2005 Nov. 2004 Aug. 2004 May 2004 Mar. 2004 Oct. 2003
</TABLE>
---------
(1) The weighted average life of a certificate is determined by (a) multiplying
the amount of each principal payment on a certificate by the number of years
from the date of the issuance of the certificate to the related payment
date, (b) adding the results and (c) dividing the sum by the related initial
certificate balance of the certificate.
(2) This calculation assumes that the servicer purchases the receivables on the
first payment date on which it is permitted to do so.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
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<PAGE>
DESCRIPTION OF THE NOTES
The trust will issue the notes under an indenture to be dated as of the
Cut-off Date between the trust and The Chase Manhattan Bank, as indenture
trustee. We will file a copy of the indenture in its execution form with the SEC
after the trust issues the notes. We summarize below some of the most important
terms of the notes. This summary is not a complete description of all the
provisions of the notes and the indenture. The following summary supplements the
description of the general terms and provisions of the notes of any trust and
the related indenture set forth under the headings 'Certain Information
Regarding the Securities' and 'The Indenture' in the prospectus. We refer you to
those sections.
PAYMENTS OF INTEREST
Interest on the principal amounts of the notes will accrue at the respective
per annum interest rates for the various classes of notes and will be payable to
the noteholders on each payment date. The trust will make payments to the
noteholders as of each Record Date.
CALCULATION OF INTEREST. Interest will accrue and will be calculated on the
various classes of notes as follows:
Actual/360. Interest on the Class A-1 Notes will accrue from and including
the prior payment date (or the closing date, in the case of the first
payment date) to but excluding the current payment date and be calculated
on the basis of actual days elapsed and a 360-day year.
30/360. Interest on the Class A-2 Notes, Class A-3 Notes and Class A-4
Notes will accrue from and including the 15th day of the calendar month
preceding the payment date (or the closing date, in the case of the first
payment date) to but excluding the 15th day of the calendar month of that
payment date and be calculated on the basis of a 360-day year of twelve
30-day months.
Unpaid Interest. Interest accrued as of any payment date but not paid on
such payment date will accrue interest at the applicable interest rate (to
the extent lawful).
PRIORITY OF INTEREST PAYMENTS. The trust will pay interest on the notes
(without priority among the classes of notes) on each payment date with
available funds in accordance with the priority set forth under 'Application of
Available Funds -- Priority of Distribution' in this prospectus supplement.
PAYMENTS OF PRINCIPAL
PRIORITY AND AMOUNT OF PRINCIPAL PAYMENTS. The trust will generally make
principal payments to the noteholders on each payment date in the amount and in
the priority set forth under 'Application of Available Funds -- Priority of
Distributions' in this prospectus supplement.
EVENT OF DEFAULT. An Event of Default will occur under the indenture if the
outstanding principal amount of any note has not been paid in full on its Final
Scheduled Payment Date. The failure to pay principal of a note is not an Event
of Default until its Final Scheduled Payment Date. Payments on the notes may be
accelerated upon an Event of Default. Upon an acceleration of the notes,
payments of principal will be made pro rata to the holders of each class of
notes. Upon an acceleration of the notes because of a failure to make a payment
due on the notes or certain insolvency events in respect of the trust, the
priority in which the trust makes distributions to the noteholders and
certificateholders will change such that interest payments on the certificates
will not be made until the notes are paid in full.
NOTES MIGHT NOT BE REPAID ON THEIR FINAL SCHEDULED PAYMENT DATES. The
principal balance of any class of notes to the extent not previously paid will
be due on the Final Scheduled Payment Date relating to that class shown on the
cover of this prospectus supplement. The actual date on which the aggregate
outstanding principal amount of any class of notes is paid may be earlier or
later than the Final Scheduled Payment Date for that class of notes based on a
variety
S-26
<PAGE>
of factors, including those described under 'Maturity and Prepayment
Considerations' in this prospectus supplement and in the prospectus.
OPTIONAL PREPAYMENT
All outstanding notes will be prepaid in whole, but not in part, on any
payment date on which the servicer exercises its option to purchase the
receivables. The servicer may purchase the receivables when aggregate principal
balance of the receivables has declined to 5% or less of the Pool Balance as of
the Cut-off Date, as described in the prospectus under 'Description of the
Receivables Transfer and Servicing Agreements -- Termination.' Upon such
purchase by the servicer, you will receive:
the unpaid principal amount of your notes plus accrued and unpaid interest
on your notes; plus
interest on any past due interest at the rate of interest on your notes (to
the extent lawful).
It is expected that at the time this purchase option becomes available to
the servicer, only the Class A-4 Notes and the certificates will be outstanding.
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates under the trust agreement. We will
file a copy of the trust agreement with the SEC after the trust issues the
certificates. We summarize below some of the most important terms of the
certificates. This summary is not a complete description of all the provisions
of the trust agreement and the certificates. The following summary is a
supplement to the description of the general terms and provisions of the
certificates of any given trust and the related trust agreement provided under
the headings 'Certain Information Regarding the Securities' and 'Description of
the Receivables Transfer and Servicing Agreements' in the prospectus. We refer
you to those sections.
DISTRIBUTIONS
INTEREST. On each payment date, commencing on October 16, 2000, the
certificateholders will be entitled to receive the amount of interest that
accrues on the certificate balance at the applicable rate of interest set forth
on the cover page of this prospectus supplement.
Interest will accrue from and including the 15th day of the calendar month
preceding the payment date (or the closing date, in the case of the first
payment date) to but excluding the 15th day of the calendar month of that
payment date.
INTEREST IS CALCULATED 30/360. Interest on the certificates will be
calculated on the basis of a 360-day year of twelve 30-day months.
UNPAID INTEREST ACCRUES. Interest distributions due for any payment date but
not distributed on such payment date will be due on the next payment date
increased by an amount equal to interest on such amount at the rate of interest
on the certificates (to the extent lawful).
DISTRIBUTIONS ON CERTIFICATES. The trust will make distributions on the
certificates in the amounts and in the priority set forth under 'Application of
Available Funds' in this prospectus supplement. Certificateholders will not
receive any distributions of principal until the notes are paid in full.
Following the acceleration of the notes because of a failure to make a payment
due on the notes or certain insolvency events in respect of the trust, the
noteholders will be entitled to be paid interest and all principal in full
before any distributions may be made on the certificates.
The outstanding certificate balance of the certificates will be payable in
full on the Final Scheduled Payment Date for the certificates. The actual date
on which the trust pays the certificate balance of the certificates may be
earlier or later than that Final Scheduled Payment Date, based on a variety of
factors, including those described under 'Maturity and Prepayment
Considerations' in this prospectus supplement and in the prospectus.
S-27
<PAGE>
SUBORDINATION OF CERTIFICATES
The rights of the certificateholders to receive distributions of interest
are subordinated to the rights of noteholders to receive payments of interest
and, if the notes have been accelerated because of failure to make a payment due
on the notes or certain insolvency events in respect of the trust, principal. In
addition, the certificateholders will have no right to receive distributions of
principal until the aggregate principal amount of all the notes has been paid in
full. This subordination is effected by the priority of distributions set forth
under 'Application of Available Funds -- Priority of Distributions' in this
prospectus supplement.
OPTIONAL PREPAYMENT
If the servicer exercises its option to purchase the receivables when the
aggregate principal balance of the receivables declines to 5% or less of the
Pool Balance as of the Cut-off Date, you will receive an amount in respect of
your certificates equal to the sum of:
the outstanding certificate balance of your certificates together with
accrued and unpaid interest at the rate of interest for the certificates;
and
interest on any past due interest at the rate of interest for the
certificates, to the extent lawful.
It is expected that at the time this purchase option becomes available to
the servicer, only the Class A-4 Notes and the certificates will be outstanding.
That distribution will cause the early retirement of your certificates. See
'Description of the Receivables Transfer and Servicing
Agreements -- Termination' in the prospectus.
APPLICATION OF AVAILABLE FUNDS
SOURCES OF FUNDS FOR DISTRIBUTIONS
The funds available to the trust to make payments on the securities on each
payment date will come from the following sources:
collections received on the receivables during the prior calendar month,
net recoveries received during the prior calendar month on receivables that
were charged off as losses in prior months,
the aggregate amount of Advances remitted by the servicer,
proceeds of repurchases of receivables by the seller or purchases of
receivables by the servicer because of certain breaches of representations
and warranties, and
funds, if any, withdrawn from the Reserve Account for that payment date.
The precise calculation of the funds available to make payments on the
securities is in the definition of Available Funds in the section 'Glossary of
Terms'. We refer you to that definition. Among other things, Available Funds are
calculated net of (i) reimbursements of outstanding Advances to the servicer and
(ii) payments to the servicer of various fees, if any, paid by the obligors that
constitute the Supplemental Servicing Fee. See 'Description of the Receivables
Transfer and Servicing Agreements -- Advances' and ' -- Servicing Compensation
and Expenses' in the prospectus.
PRIORITY OF DISTRIBUTIONS
On each payment date the trust will apply the Available Funds for that
payment date in the following amounts and order of priority:
(1) Servicing Fee -- the Servicing Fee payable to the servicer;
(2) Note Interest -- interest due on all the notes ratably to the holders of
each class of notes;
(3) Certificate Interest -- interest distributable to the holders of the
certificates; however, if an Event of Default due to a failure to make a
payment due on the notes or certain
S-28
<PAGE>
insolvency events in respect of the trust has occurred and the notes
have been accelerated, interest will not be distributed to the holders
of the certificates until the notes are paid in full;
(4) Principal Payment -- an amount equal to the sum of (i) the principal
collections on the receivables received during the prior Collection
Period and (ii) the aggregate principal balance (net of liquidation
proceeds received during that Collection Period and applied to
principal) of all receivables designated as 'defaulted receivables' in
that Collection Period (the 'Regular Principal Distribution Amount')
will be applied to pay principal on the securities in the following
amounts in the following order of priority:
(i) the Class A-1 Notes until they are paid in full;
(ii) the Class A-2 Notes until they are paid in full;
(iii) the Class A-3 Notes until they are paid in full;
(iv) the Class A-4 Notes until they are paid in full; and
(v) the certificates until they are paid in full;
however, (a) if the notes are accelerated after an Event of Default due
to a breach of a material covenant or agreement by the trust, the
Available Funds remaining after clause (3) will be applied to pay
principal pro rata on all classes of the notes until they are paid in
full and then to distribute interest and principal on the certificates
until they are paid in full and (b) if the notes are accelerated after an
Event of Default due to a failure to make a payment due on the notes or
certain insolvency events in respect of the trust, the Available Funds
remaining after clause (2) will be applied to pay principal pro rata on
all classes of notes until they are paid in full and then to distribute
interest and principal on the certificates until they are paid in full;
(5) Final Scheduled Payment Date -- if the payment date is a Final Scheduled
Payment Date for a class of securities, the amount, if any, necessary to
pay that class in full after giving effect to the payment pursuant to
clause (4) will be paid on that class;
(6) Reserve Account Deposit -- to the Reserve Account, the amount, if any,
necessary to reinstate the balance of the Reserve Account up to the
Specified Reserve Balance;
(7) Indenture Trustee and Owner Trustee Fees and Expenses -- to pay any
unpaid fees and expenses of the indenture trustee and owner trustee;
however, if the notes are accelerated after an Event of Default, these
fees and expenses will be paid prior to clause (1); and
(8) any amounts remaining after the above distributions shall be paid to the
seller.
If the Available Funds are insufficient to make the payments in clauses (1)
through (5), funds, if any, on deposit in the Reserve Account will be applied to
cover those shortfalls. See 'Description of the Sale and Servicing
Agreement -- Deposits to the Collection Account'.
A receivable will be designated as a 'defaulted receivable' when the
servicer determines that it is unlikely to be paid in full or when at least 5%
of a scheduled payment is 120 or more days delinquent.
DESCRIPTION OF THE SALE AND SERVICING AGREEMENT
We have summarized below some of the important terms of the sale and
servicing agreement. We will file a copy of the sale and servicing agreement
with the SEC after we issue the securities. This summary is not a complete
description of all of the provisions of the sale and servicing agreement. You
can find more information about the transfer of the receivables from the seller
to the trust on the closing date in the prospectus under 'Description of the
Receivables Transfer and Servicing Agreements'.
S-29
<PAGE>
ACCOUNTS
In addition to the Collection Account, the servicer will cause to be
established:
one or more distribution accounts for the benefit of the noteholders;
one or more distribution accounts for the benefit of the
certificateholders; and
the Reserve Account in the name of the indenture trustee on behalf of the
noteholders and the certificateholders.
Any of the distribution accounts may be a subaccount of the Collection Account.
SERVICING COMPENSATION AND EXPENSES
The servicer is entitled to receive the Servicing Fee on each payment date.
The Servicing Fee, together with any portion of the Servicing Fee that remains
unpaid from prior payment dates, will be payable on each payment date. The
Servicing Fee will be paid only to the extent of the funds deposited in the
Collection Account with respect to the Collection Period preceding such payment
date, plus funds, if any, deposited into the Collection Account from the Reserve
Account. The servicer also is entitled to receive the Supplemental Servicing
Fee. See 'Description of the Receivables Transfer and Servicing
Agreements -- Servicing Compensation and Expenses' in the prospectus.
RIGHTS UPON EVENT OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, the indenture trustee or
holders of not less than a majority of the principal amount of the notes (or, if
no notes are outstanding, a majority of the certificate balance of the
certificates) may remove the servicer without the consent of any of the other
securityholders.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, holders of not less than a
majority of the principal amount of the notes (or, if no notes are outstanding,
a majority of the certificate balance of the certificates), subject to the
exceptions provided in the sale and servicing agreement, may waive any Event of
Servicing Termination except for a failure to make any required deposits to or
payments from any account, without the consent of any of the other
securityholders. The certificateholders will not have the right to determine
whether any Event of Servicing Termination should be waived until the notes have
been paid in full.
DEPOSITS TO THE COLLECTION ACCOUNT
The servicer will establish the Collection Account as described under
'Description of the Receivables Transfer and Servicing Agreements' in the
prospectus. In general, the servicer will be permitted to retain collections on
the receivables until the Business Day preceding any payment date. However, the
servicer will be required to remit collections received with respect to the
receivables not later than the second Business Day after receipt to the
Collection Account (1) if there is an Event of Servicing Termination, (2) if the
Bank is no longer the servicer or (3) if one of the other conditions set forth
in the sale and servicing agreement is not met.
On or before the payment date, the servicer will cause all collections on
receivables, Advances by the servicer and other amounts constituting Available
Funds to be deposited into the Collection Account. See 'Description of
Receivables Transfer and Servicing Agreements -- Collections' and ' -- Advances'
in the prospectus.
On or before each payment date, the servicer will notify the indenture
trustee to withdraw the following amounts from the Reserve Account and deposit
them into the Collection Account. In each case, the amount will be withdrawn
only to the extent of funds in the Reserve Account after giving effect to all
prior withdrawals. The amounts to be withdrawn from the Reserve Account are:
S-30
<PAGE>
the amount, if any, by which (a) the Total Required Payment exceeds (b) the
Available Funds for that payment date; and
the Reserve Account Excess Amount.
The 'Total Required Payment' on any payment date, will be the sum of:
(1) the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
(2) all interest payable on the notes, including any accrued interest and
interest on accrued interest;
(3) all interest distributable on the certificates, including any accrued
interest and interest on accrued interest;
(4) the Regular Principal Distribution Amount; and
(5) if the payment date is a Final Scheduled Payment Date for a class of
securities, the amount, if any, required to reduce the principal balance
of that class of securities to zero after giving effect to the amount in
clause (4) under 'Application of Available Funds -- Priority of
Distributions' in this prospectus supplement.
However, following the acceleration of the notes after the occurrence of an
Event of Default due to a failure to pay an amount due on the notes or certain
insolvency events in respect of the trust, the Total Required Payment will equal
the sum of:
the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
all interest payable on the notes, including any accrued interest thereon;
the amount necessary to reduce the outstanding principal amount of all the
notes to zero;
all interest payable on the certificates, including any accrued interest
thereon; and
the amount necessary to reduce the outstanding principal amount of the
certificates to zero.
If the notes are accelerated for any of those reasons, certificateholders will
not receive any distributions until the notes are paid in full. Also, funds on
deposit in the Reserve Account will be applied solely toward payment of the
notes until the notes are paid in full.
The "Reserve Account Excess Amount", with respect to any payment date, will
be an amount equal to the excess, if any, of:
the amount of cash or other immediately available funds in the Reserve
Account on that payment date, prior to giving effect to any withdrawals
from the Reserve Account relating to that payment date, over
the Specified Reserve Balance with respect to that payment date.
The 'Specified Reserve Balance' for a payment date will be the greater of
(a) 1.25% of the outstanding principal balance of the receivables at the end of
the related Collection Period and (b) 0.50% of the principal balance of the
receivables as of the Cut-off Date. However, the Specified Reserve Balance will
be calculated using a percentage of 2.50% in (a) above and 0.75% in (b) above
for any payment date for which the Average Net Loss Ratio exceeds 0.85% or the
Average Delinquency Ratio exceeds 0.85% (the 'specified trigger level'). Also,
that higher percentage will remain in effect until each of the Average Net Loss
Ratio and the Average Delinquency Ratio is equal to or less than 0.85% for at
least six consecutive payment dates. In no event will the Specified Reserve
Balance for any payment date exceed the aggregate outstanding principal balance
of the receivables at the end of the related Collection Period. The Specified
Reserve Balance may be reduced to a lesser amount as determined by the seller,
if each of Moody's and Standard & Poor's shall have confirmed in writing to the
indenture trustee that such action will not result in a withdrawal or reduction
in any of its ratings of the securities.
SERVICER WILL PROVIDE INFORMATION TO INDENTURE TRUSTEE. On the Business Day
prior to each payment date, the servicer will provide the indenture trustee with
the information required pursuant to the sale and servicing agreement with
respect to the Collection Period preceding such payment date, including:
the aggregate amount of collections on the receivables;
S-31
<PAGE>
the aggregate amount of receivables designated as defaulted receivables;
the aggregate Advances to be made by the servicer; and
the aggregate Purchase Amount to be paid by the seller and the servicer.
RESERVE ACCOUNT
The servicer will establish the Reserve Account. It will be held in the name
of the indenture trustee for the benefit of the noteholders and
certificateholders. To the extent that amounts on deposit in the Reserve Account
are depleted, the noteholders and the certificateholders will have no recourse
to the assets of the seller or servicer as a source of payment to the
securities.
DEPOSITS TO THE RESERVE ACCOUNT. The Reserve Account will be funded by a
deposit by the trust on the closing date in the amount of $3,625,550.86. The
amount on deposit in the Reserve Account may increase from time to time up to
the Specified Reserve Balance by deposits of funds withdrawn from the Collection
Account after payment of the Total Required Payment.
WITHDRAWALS FROM THE RESERVE ACCOUNT. Amounts on deposit in the Reserve
Account may be deposited into the Collection Account to the extent described
under ' -- Deposits to the Collection Account' above.
INVESTMENT. Amounts on deposit in the Reserve Account will be invested by
the indenture trustee at the direction of the seller in Permitted Investments
and investment earnings (net of losses and investment expenses) therefrom will
be deposited into the Reserve Account. Permitted Investments are generally
limited to obligations or securities that mature on or before the next payment
date. However, to the extent each Rating Agency rating the notes and
certificates confirms that such actions will not adversely affect its ratings of
the securities, funds in the Reserve Account may be invested in obligations that
will not mature prior to the next payment date and will not be sold to meet any
shortfalls.
FUNDS IN THE RESERVE ACCOUNT WILL BE LIMITED. Amounts on deposit in the
Reserve Account from time to time are available to --
enhance the likelihood that you will receive the amounts due on your notes
or certificates; and
decrease the likelihood that you will experience losses on your notes or
certificates.
However, the amounts on deposit in the Reserve Account are limited to the
Specified Reserve Balance. If the amount required to be withdrawn from the
Reserve Account to cover shortfalls in funds on deposit in the Collection
Account exceeds the amount available to be withdrawn from the Reserve Account, a
shortfall in the amounts distributed to the noteholders and certificateholders
could result. Depletion of the Reserve Account ultimately could result in losses
on your notes or certificates.
After the payment in full, or the provision for such payment of all accrued
and unpaid interest on the notes and certificates and the outstanding principal
amount of the notes and the certificate balance of the certificates, any funds
remaining on deposit in the Reserve Account, subject to certain limitations,
will be paid to the seller.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel for the Bank and Federal Tax
Counsel for the trust, for federal income tax purposes, the notes will be
characterized as debt, and the trust will not be characterized as an association
(or a publicly traded partnership) taxable as a corporation. See 'Certain
Federal Income Tax Consequences' in the prospectus.
CERTAIN STATE TAX CONSEQUENCES
The tax discussion in the prospectus does not address the tax treatment of
the trust, the notes, the certificates, noteholders or certificateholders under
any state tax laws. You are urged to consult with your own tax advisors
regarding the state tax treatment of the trust as well as any
S-32
<PAGE>
state tax consequences to you, particularly in the case of financial
institutions, of purchasing, holding and disposing of your notes or
certificates.
ERISA CONSIDERATIONS
THE NOTES
The notes may, in general, be purchased by or on behalf of employee benefit
plans and similar retirement plans and arrangements that are subject to ERISA or
to Section 4975 of the Code (a 'Plan'). Although we cannot assure you in this
regard, the notes should be treated as 'debt' and not as 'equity interests' for
purposes of the Plan Assets Regulation because the notes:
are expected to be treated as indebtedness under local law and will, in the
opinion of Federal Tax Counsel for the trust, be treated as debt, rather
than equity, for federal income tax purposes (see 'Certain Federal Income
Tax Consequences' in the prospectus); and
should not be deemed to have any 'substantial equity features.'
See 'ERISA Considerations' in the prospectus.
However, the acquisition and holding of notes of any class by or on behalf
of a Plan could be considered to give rise to a prohibited transaction under
ERISA and Section 4975 of the Code if the trust, the owner trustee, the
indenture trustee, any certificateholder or any of their respective affiliates,
is or becomes a 'party in interest' or a 'disqualified person' (as defined in
ERISA and the Code, respectively) with respect to such Plan. In such case,
certain exemptions from the prohibited transaction rules could be applicable to
such acquisition and holding by a Plan depending on the type and circumstances
of the Plan fiduciary making the decision to acquire a note. For additional
information regarding treatment of the notes under ERISA, see 'ERISA
Considerations' in the prospectus.
THE CERTIFICATES
The certificates are not Senior Certificates. Plans and persons investing on
behalf of or with 'plan assets' of Plans may not acquire the certificates. An
insurance company using the assets of its general account may purchase
certificates on the condition that:
such insurance company is able to represent that, as of the date it
acquires an interest in a certificate, less than 25% of the assets of such
general account constitute 'plan assets' for purposes of Title I of ERISA
and Section 4975 of the Code; and
such insurance company agrees that if at any time during any calendar
quarter while it is holding an interest in the certificates, 25% or more of
the assets of such general account constitute 'plan assets' for purposes of
Title I of ERISA and Section 4975 of the Code, and, at that time, if no
exemption or exception applies to the continued holding of the certificates
under ERISA, by the end of the next quarter such insurance company will
dispose of all certificates then held in its general account by the end of
the next quarter.
In addition, investors other than Plans and persons investing on behalf of
or with 'plan assets' of Plans should be aware that a prohibited transaction
under ERISA and the Code could be deemed to occur if any holder of the
certificates or any of its affiliates is or becomes a party in interest or a
disqualified person with respect to any Plan that acquires and holds the notes
without the investment by such Plan in such Notes being covered by one or more
exemptions from the prohibited transaction rules.
Each purchaser of the certificates will be deemed to represent and certify
that it either:
is not a Plan and is not acquiring its certificates on behalf of or with
"plan assets" of any such Plan; or
is an insurance company using the assets of its general account under the
limitations described above.
For additional information regarding treatment of the certificates under
ERISA, we refer you to 'ERISA Considerations' in the prospectus.
S-33
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement,
the seller has agreed to sell to each of the underwriters named below, and each
of those underwriters has severally agreed to purchase, the initial principal
amount of Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes
set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITERS NOTES NOTES NOTES NOTES
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Chase Securities Inc........... $ 29,500,000 $ 32,000,000 $ 34,000,000 $20,879,000
Deutsche Bank Securities
Inc.......................... 29,500,000 32,000,000 34,000,000 20,800,000
J.P. Morgan Securities Inc..... 29,500,000 32,000,000 34,000,000 20,800,000
Salomon Smith Barney Inc....... 29,500,000 32,000,000 34,000,000 20,800,000
------------ ------------ ------------ -----------
Total...................... $118,000,000 $128,000,000 $136,000,000 $83,279,000
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
The seller has been advised by the underwriters that they propose initially
to offer the notes to the public at the applicable prices set forth on the cover
page of this prospectus supplement. After the initial public offering of the
Class A-1 Notes, the Class A-2 Notes, the Class A-3 and the Class A-4 Notes, the
public offering prices may change.
An affiliate of the seller will purchase all of the certificates from the
seller, and no underwriting or selling compensation will be paid in connection
with such sale.
The underwriting discounts and commissions, the selling concessions that the
underwriters may allow to certain dealers, and the discounts that such dealers
may reallow to certain other dealers, expressed as a percentage of the aggregate
initial principal amount of each class of notes shall be as follows:
<TABLE>
<CAPTION>
UNDERWRITING SELLING
DISCOUNT NET PROCEEDS CONCESSIONS REALLOWANCE
AND TO THE NOT TO NOT TO
COMMISSIONS SELLER(1) EXCEED EXCEED
----------- --------- ------ ------
<S> <C> <C> <C> <C>
Class A-1 Notes................... 0.120% 99.880000% 0.072% 0.070%
Class A-2 Notes................... 0.170% 99.813064% 0.102% 0.075%
Class A-3 Notes................... 0.240% 99.746843% 0.144% 0.125%
Class A-4 Notes................... 0.295% 99.688152% 0.177% 0.150%
</TABLE>
---------
(1) Before deducting expenses payable by the seller estimated at $520,000.
Until the distribution of the notes is completed, rules of the SEC may limit
the ability of the underwriters and certain selling group members to bid for and
purchase the notes. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of the
notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the notes.
If the underwriters create a short position in the notes in connection with
this offering (i.e., they sell more notes than the aggregate initial principal
amount set forth on the cover page of this prospectus supplement), the
underwriters may reduce that short position by purchasing notes in the open
market.
The underwriters may also impose a penalty bid on certain underwriters and
selling group members. This means that if the underwriters purchase notes in the
open market to reduce the underwriters' short position or to stabilize the price
of such notes, they may reclaim the amount of the selling concession from any
underwriter or selling group member who sold those notes as part of the
offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such
S-34
<PAGE>
purchases. The imposition of a penalty bid might also have an effect on the
price of a security to the extent that it were to discourage resales of the
security.
Neither the seller nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that any of the
transactions described above might have on the price of the notes. In addition,
neither the seller nor any of the underwriters makes any representation that the
underwriters will engage in such transactions or that such transactions, if
commenced, will not be discontinued without notice.
The notes and the certificates are new issues of securities and there
currently is no secondary market for the notes or the certificates. The
underwriters for the notes expect to make a market in the notes but will not be
obligated to do so. We cannot assure you that a secondary market for the notes
will develop. We expect that there will not be a secondary market for the
certificates. If a secondary market for the notes or the certificates does
develop, it might end at any time or it might not be sufficiently liquid to
enable you to resell any of your notes or certificates.
The indenture trustee may, from time to time, invest the funds in the
Collection Account and the Reserve Account in investments acquired from or
issued by the underwriters.
In the ordinary course of business, 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 of 1933, as
amended, or to contribute to payments which the underwriters may be required to
make in respect thereof.
The underwriters have agreed to pay certain expenses of the seller in
connection with the offering.
The closings of the sale of each class of the notes and the certificates are
conditioned on the closing of the sale of each other class of notes and those
certificates.
Upon receipt of a request by an investor who has received an electronic
prospectus from an underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a prospectus,
the seller or such underwriter will promptly deliver, without charge, a paper
copy of this prospectus supplement and the prospectus.
LEGAL OPINIONS
Certain legal matters and federal income tax matters relating to the notes
and the certificates will be passed upon for the seller and the servicer by
Brown & Wood LLP. Certain legal matters relating to the certificates will be
passed upon for the seller and servicer by Richards Layton & Finger P.A. Certain
legal matters relating to the notes will be passed upon for the underwriters by
Simpson Thacher & Bartlett.
S-35
<PAGE>
GLOSSARY OF TERMS
Additional defined terms used in this prospectus supplement are defined
under 'Glossary of Terms' in the prospectus.
'ABS' means the Absolute Prepayment Model which we use to measure
prepayments on receivables and we describe under 'The Receivables
Pool -- Weighted Average Life of the Securities'.
'ABS TABLES' means the tables captioned 'Percent of Initial Note Principal
Amount at Various ABS Percentages' and 'Percent of Initial Certificate Balance
at Various ABS Percentages,' respectively, beginning on page S-21 of this
prospectus supplement.
'AVAILABLE COLLECTIONS' for a payment date will be the sum of the following
amounts with respect to the Collection Period preceding that payment date
(subject to the exclusions set forth below such amounts):
all payments collected on the receivables;
all liquidation proceeds in respect of receivables which were designated as
defaulted receivables in prior Collection Periods;
all Advances made by the servicer of interest due on the receivables;
the Purchase Amount of each receivable that was paid during the related
Collection Period; and
partial prepayments of any refunded item included in the principal balance
of a receivable, such as extended warranty protection plan costs, or
physical damage, credit life, disability insurance premiums, or any partial
prepayment which causes a reduction in the obligor's periodic payment to an
amount below the scheduled payment as of the Cut-off Date.
Available Collections on any payment date will exclude the following:
amounts received on any receivable to the extent that the servicer has
previously made an unreimbursed Advance with respect to such receivable and
the amount received exceeds the accrued and unpaid interest on such
receivable;
amounts received on any of the receivables to the extent that the servicer
has previously made an unreimbursed Advance on a receivable which is not
recoverable from collections on the particular receivable;
all payments and proceeds (including liquidation proceeds) of any
receivables the Purchase Amount of which has been included in the Available
Funds in a prior Collection Period;
liquidation proceeds with respect to accrued and unpaid interest on any
receivable but only to the extent of any unreimbursed Advances on that
receivable; and
amounts constituting the Supplemental Servicing Fee.
'AVAILABLE FUNDS' for a payment date shall be the sum of the Available
Collections and the Reserve Account Excess Amount.
'AVERAGE DELINQUENCY RATIO' means, for any payment date, the average of the
Delinquency Ratios for the preceding three Collection Periods.
'AVERAGE NET LOSS RATIO' means, for any payment date, the average of the Net
Loss Ratios for the preceding three Collection Periods.
'BANK' means USAA Federal Savings Bank.
'BUSINESS DAY' is a day other than a Saturday, a Sunday or a day on which
banking institutions or trust companies in the State of New York, State of
Delaware or the State of Texas are authorized by law, regulation or executive
order to be closed.
'CERTIFICATE BALANCE' means, with respect to the certificates, initially,
$18,127,781 and, thereafter, means the initial certificate balance of the
certificates, reduced by all amounts allocable to principal previously
distributed to the certificateholders.
S-36
<PAGE>
'CLEARSTREAM' means Clearstream, Luxembourg, a professional depository under
the laws of Luxembourg.
'CLOSING DATE' means August 31, 2000.
'CODE' means the Internal Revenue Code of 1986, as amended.
'COLLECTION ACCOUNT' means an account established pursuant to the sale and
servicing agreement, held in the name of the indenture trustee, into which the
servicer is required to deposit collections on the receivables and other
amounts.
'COLLECTION PERIOD' means, with respect to the first payment date, the
period from and including the Cut-off Date to and including September 30, 2000
and, with respect to each subsequent payment date, the calendar month preceding
the calendar month in which such payment date occurs.
'CONTRACT RATE' means the per annum interest borne by a receivable.
'CUT-OFF DATE' means the date as of which the seller will transfer the
receivables to the trust, which is August 1, 2000.
'DEFAULTED RECEIVABLE' means a receivable (i) that the servicer determines
is unlikely to be paid in full or (ii) with respect to which at least 5% of a
scheduled payment is 120 or more days delinquent as of the end of a calendar
month.
'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 receivables that 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 to (b) the Pool Balance as of
the last day of such Collection Period.
'DTC' means The Depository Trust Company and any successor depository
selected by the indenture trustee.
'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended.
'EUROCLEAR' means a professional depository operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation.
'FEDERAL TAX COUNSEL' means Brown & Wood LLP.
'FINAL SCHEDULED PAYMENT DATE' for each class of notes and certificates
means the respective dates set forth on the cover page of this prospectus
supplement or, if such date is not a Business Day, the next succeeding Business
Day.
'INDENTURE TRUSTEE' means The Chase Manhattan Bank, a New York banking
corporation, as indenture trustee under the indenture.
'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.
'MOODY's' means Moody's Investors Service, Inc. and its successors in
interest.
'NET LOSS RATIO' means, for any Collection Period, the ratio, expressed as
an annualized percentage, of (a) Realized Losses minus Recoveries for such
Collection Period, to (b) the average of the Pool Balances on the first day of
such Collection Period and the last day of such Collection Period.
'OWNER TRUSTEE' means First Union Trust Company, National Association, a
national banking association, as owner trustee under the trust agreement.
S-37
<PAGE>
'PAYMENT DATE' means the date on which the trust will pay interest and
principal on the notes and certificates, which will be the 15th day of each
month or, if any such day is not a Business Day, on the next Business Day,
commencing on October 16, 2000.
'POOL BALANCE' means the aggregate outstanding principal balance of the
receivables as of the date of determination.
'PURCHASED RECEIVABLE' means a receivable that (a) has been repurchased by
the seller due to certain breaches of representations or warranties made by the
seller with respect to such receivable or (b) has been purchased by the servicer
due to certain breaches of servicing covenants.
'REALIZED LOSSES' mean, for any Collection Period and for each receivable
that became a defaulted receivable during such Collection Period, the excess of
the principal balance of each such receivable over liquidation proceeds received
with respect to such receivable during such Collection Period, to the extent
allocable to principal.
'RECORD DATE' with respect to any payment date means the day immediately
preceding the payment date or, if the securities are issued as Definitive
Securities, the last day of the preceding month.
'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.
'REGULAR PRINCIPAL DISTRIBUTION AMOUNT' means, for any payment date, an
amount equal to the sum of (i) the principal collections on the receivables
received during the prior Collection Period and (ii) the aggregate principal
balance (net of liquidation proceeds received during that Collection Period and
applied to principal) of all receivables designated as defaulted receivables in
that Collection Period. The Regular Principal Distribution Amount will not
exceed the outstanding principal amount of the notes and certificates.
'RESERVE ACCOUNT' means the account which the servicer will establish
pursuant to the sale and servicing agreement in the name of the indenture
trustee into which the trust will deposit the Reserve Initial Deposit and into
which the indenture trustee will make the other deposits and withdrawals
specified in this prospectus supplement.
'RESERVE ACCOUNT EXCESS AMOUNT', with respect to any payment date, means the
amount equal to the excess, if any, of --
the amount of cash or other immediately available funds in the Reserve
Account on that payment date, prior to giving effect to any withdrawals
from the Reserve Account relating to that payment date, over
the Specified Reserve Balance with respect to that payment date.
'RESERVE INITIAL DEPOSIT' means the $3,625,550.86 initially deposited into
the Reserve Account.
'SEC' means the Securities and Exchange Commission.
'SERVICING FEE' means a fee payable to the servicer on each payment date for
servicing the receivables which is equal to the product of 1/12 of 0.50% (except
the servicing fee for the first payment date will be adjusted to reflect the
long initial Collection Period) and the aggregate principal balance of the
receivables as of the first day of the related Collection Period.
The 'SPECIFIED RESERVE BALANCE' for a payment date will be the greater of
(a) 1.25% of the outstanding principal balance of the receivables at the end of
the related Collection Period and (b) 0.50% of the principal balance of the
receivables as of the Cut-off Date. However, the Specified Reserve Balance will
be calculated using a percentage of 2.50% in (a) above and 0.75% in (b) above
for any payment date for which the Average Net Loss Ratio exceeds 0.85% or the
Average Delinquency Ratio exceeds 0.85% (the 'specified trigger levels'). Also,
that higher percentage will remain in effect until each of the Average Net Loss
Ratio and the Average Delinquency Ratio is equal to or less than 0.85% for at
least six consecutive payment dates. In no
S-38
<PAGE>
event will the Specified Reserve Balance exceed the aggregate outstanding
principal balance of the receivables at the end of the related Collection
Period. The Specified Reserve Balance may be reduced to a lesser amount as
determined by the seller, if each of Moody's and Standard & Poor's shall have
confirmed in writing to the indenture trustee that such action will not result
in a withdrawal or reduction in any of its ratings of the securities.
'STANDARD & POOR'S' means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., and its successors in interest.
'SUPPLEMENTAL SERVICING FEE' means, for each Collection Period, the amount
of any late fees and other administrative fees and expenses collected during
that Collection Period, plus any interest earned during the Collection Period on
amounts on deposit in the Collection Account during the Collection Period. The
servicer does not currently collect such fees and expenses from obligors, but
may do so in the future.
'TOTAL REQUIRED PAYMENT', with respect to any payment date, means the sum
of:
(1) the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
(2) all interest payable on the notes, including any accrued interest and,
to the extent lawful, interest on accrued interest;
(3) all interest distributable on the certificates, including any accrued
interest and, to the extent lawful, interest on accrued interest;
(4) the Regular Principal Distribution Amount; and
(5) if that payment date is a Final Scheduled Payment Date for a class of
securities, the amount, if any, required to reduce the principal balance
of that class of securities to zero after giving effect to the amount in
clause (4).
However, following the acceleration of the notes after the occurrence of an
Event of Default due to a failure to pay an amount due on the notes or certain
insolvency events in respect of the trust, the TOTAL REQUIRED PAYMENT will EQUAL
the sum of:
the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
all interest payable on the notes, including any accrued interest thereon;
the amount necessary to reduce the outstanding principal amount of the
notes to zero;
all interest payable on the certificates, including any accrued interest
thereon; and
the amount necessary to reduce the outstanding principal amount of the
certificates to zero.
S-39
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[USAA Logo]
USAA AUTO TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
USAA FEDERAL SAVINGS BANK
SELLER AND SERVICER
BEFORE YOU PURCHASE ANY OF
THESE SECURITIES, BE SURE TO
READ THE RISK FACTORS BEGINNING
ON PAGE 8 OF THIS PROSPECTUS
AND THE RISK FACTORS SET FORTH
IN THE RELATED PROSPECTUS
SUPPLEMENT.
A security is not a deposit and
neither the securities nor the
underlying motor vehicle
installment loans are insured
or guaranteed by the FDIC or
any other governmental
authority.
The notes and the certificates
will represent obligations of
or interests in the trust only
and will not represent
obligations of or interests in
USAA Federal Savings Bank or
any of its affiliates.
EACH TRUST --
will issue asset-backed notes and/or certificates in
one or more classes, rated in one of the four
highest rating categories by at least one nationally
recognized statistical rating organization;
will own --
-- a portfolio of motor vehicle installment
loans;
-- collections on those loans;
-- security interests in the vehicles financed
by those loans; and
-- funds in the accounts of the trust; and
may have the benefit of some form of credit or
payment enhancement.
The main sources of funds for making payments on a
trust's securities will be collections on its motor
vehicle installment loans and any enhancement that
the trust may have.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this prospectus is August 17, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
READING THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS
SUPPLEMENT.......................... 3
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 4
Copies of the Documents........... 4
SUMMARY............................... 5
RISK FACTORS.......................... 8
THE TRUSTS............................ 14
The Receivables................... 14
The Trustee....................... 14
USAA FEDERAL SAVINGS BANK............. 15
THE BANK'S PORTFOLIO OF MOTOR VEHICLE
LOANS............................... 15
THE RECEIVABLES POOLS................. 19
We Will Provide More Specific
Information About the
Receivables in the Prospectus
Supplement...................... 20
MATURITY AND PREPAYMENT
CONSIDERATIONS...................... 20
USE OF PROCEEDS....................... 21
PRINCIPAL DOCUMENTS................... 21
PAYMENTS ON THE SECURITIES............ 22
CERTAIN INFORMATION REGARDING THE
SECURITIES.......................... 23
Fixed Rate Securities............. 23
Floating Rate Securities.......... 23
Book-Entry Registration........... 23
Definitive Securities............. 28
Reports to Securityholders........ 29
THE INDENTURE......................... 30
The Indenture Trustee............. 35
DESCRIPTION OF THE RECEIVABLES
TRANSFER AND SERVICING AGREEMENTS... 36
Sale and Assignment of
Receivables..................... 36
Accounts.......................... 37
Servicing Procedures.............. 38
Collections....................... 38
Advances.......................... 39
Servicing Compensation and
Expenses........................ 39
Distributions..................... 40
Credit and Payment Enhancement.... 40
Net Deposits...................... 41
Statements to Trustees and
Trusts.......................... 41
Evidence as to Compliance......... 41
Certain Matters Regarding the
Servicer........................ 41
Events of Servicing Termination... 42
Rights Upon Event of Servicing
Termination..................... 43
Waiver of Past Events of Servicing
Termination..................... 43
Amendment......................... 43
Payment of Notes.................. 44
Termination....................... 44
List of Certificateholders........ 44
Administration Agreement.......... 45
Duties of Trustee................. 45
The Trustee....................... 45
SOME IMPORTANT LEGAL ISSUES RELATING
TO THE RECEIVABLES.................. 46
Security Interest in the
Receivables..................... 46
Security Interests in the Financed
Vehicles........................ 46
Enforcement of Security Interests
in Financed Vehicles............ 48
Other Matters..................... 48
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ 49
TRUSTS FOR WHICH A PARTNERSHIP
ELECTION IS MADE.................... 49
Tax Characterization of the Trust
as a Partnership................ 49
Tax Consequences to Holders of the
Notes........................... 49
Tax Consequences to Holders of the
Certificates.................... 51
TRUSTS IN WHICH ALL CERTIFICATES ARE
RETAINED BY THE SELLER OR AN
AFFILIATE OF THE SELLER............. 55
Tax Characterization of the
Trust........................... 55
TRUSTS TREATED AS GRANTOR TRUSTS...... 56
Tax Characterization of the Trust
as a Grantor Trust.............. 56
FASIT PROVISIONS...................... 61
CERTAIN STATE TAX CONSEQUENCES........ 65
ERISA CONSIDERATIONS.................. 65
Senior Certificates Issued by
Trusts.......................... 67
Special Considerations Applicable
to Insurance Company General
Accounts........................ 69
PLAN OF DISTRIBUTION.................. 69
LEGAL OPINIONS........................ 70
GLOSSARY OF TERMS FOR THE
PROSPECTUS.......................... 71
</TABLE>
2
<PAGE>
READING THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT
We provide information on your securities in two separate documents that
offer varying levels of detail:
this prospectus provides general information, some of which may not apply
to a particular series of securities, including your securities, and
the accompanying prospectus supplement will provide a summary of the
specific terms of your securities.
If the terms of the securities described in this prospectus vary with the
accompanying prospectus supplement, you should rely on the information in the
prospectus supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the table of contents in the front of
each document to locate the referenced sections.
You will find a glossary of defined terms used in this prospectus on
page 71.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement, including any information incorporated by
reference. We have not authorized anyone to provide you with different
information. The information in this prospectus or the accompanying prospectus
supplement is only accurate as of the dates on their respective covers.
In this prospectus, the terms 'we,' 'us' and 'our' refer to USAA Federal
Savings Bank.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
USAA Federal Savings Bank, as the originator of each trust, has filed a
registration statement with the Securities and Exchange Commission ('SEC') under
the Securities Act of 1933, as amended. This prospectus is part of the
registration statement but the registration statement includes additional
information.
You may inspect and copy the registration statement at:
the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 (telephone 1-800-732-0330),
the SEC's regional office at Citicorp Center, 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661, and
the SEC's regional office at Seven World Trade Center, New York, New York
10048.
Also, the SEC maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to 'incorporate by reference' information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus. Information that we file later with the SEC will
automatically update the information in this prospectus. In all cases, you
should rely on the later information over different information included in this
prospectus or the related prospectus supplement. We incorporate by reference any
future annual, monthly or special SEC reports and proxy materials filed by or on
behalf of a trust until we terminate our offering of the securities by that
trust.
COPIES OF THE DOCUMENTS
You may receive a free copy of any or all of the documents incorporated by
reference in this prospectus or incorporated by reference into the accompanying
prospectus supplement if:
you received this prospectus and
you request such copies from USAA Federal Savings Bank, 10750 McDermott
Freeway, San Antonio, Texas 78288 (Telephone: 210-498-2265).
This offer only includes the exhibits to such documents if such exhibits are
specifically incorporated by reference in such documents. You may also read and
copy these materials at the public reference facilities of the SEC in
Washington, D.C. referred to above.
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SUMMARY
The following summary is a short description of the main structural features
that a trust's securities may have. For that reason, this summary does not
contain all of the information that may be important to you or that describes
all of the terms of a security. To fully understand the terms of a trust's
securities, you will need to read both this prospectus and the related
prospectus supplement, in their entirety.
THE TRUSTS
A separate trust will be formed to issue each series of securities. Each trust
will be created by an agreement between the seller and the trustee.
THE SELLER AND THE SERVICER
USAA Federal Savings Bank.
TRUSTEE
The prospectus supplement will name the trustee for the trust.
INDENTURE TRUSTEE
If a trust issues notes, the prospectus supplement will name the indenture
trustee.
SECURITIES
A trust's securities may include one or more classes of notes and/or
certificates. You will find the following information about each class of
securities in the prospectus supplement:
its principal amount;
its interest rate, which may be fixed or variable or a combination;
the timing, amount and priority or subordination of payments of principal and
interest;
the method for calculating the amount of principal payments;
its final payment date;
whether and when it may be redeemed prior to its final payment date; and
how losses on the receivables are allocated among the classes of securities.
Some classes of securities may be entitled to:
principal payments with disproportionate, nominal or no interest payments or
interest payments with disproportionate, nominal or no principal payments.
The prospectus supplement will identify any class of securities that is not
being offered to the public.
OPTIONAL PREPAYMENT
Generally, the servicer will have the option to purchase the receivables of each
trust on any payment date when the aggregate principal balance of the
receivables sold to the trust has declined to 10% (or such other percentage
specified in the prospectus supplement) or less of the initial principal
balance. Upon such a purchase, the securities of that trust will be prepaid in
full.
THE RECEIVABLES AND OTHER TRUST PROPERTY
The receivables of each trust will consist of a pool of motor vehicle
installment loans made by the seller and secured by new and used automobiles and
light-duty trucks and other property, including:
the rights to receive payments made on the receivables after the cut-off date
specified in the related prospectus supplement;
security interests in the vehicles financed by the receivables; and
any proceeds from claims on various related insurance policies.
You will find a description of the characteristics of the trust's receivables in
the prospectus supplement.
For a more detailed description of the receivables, including the criteria they
must meet in order to be included in a trust, and the other property supporting
the securities, see 'The Receivables Pools' in this prospectus.
Other Property of the Trust
In addition to the receivables, each trust will own amounts on deposit in
various trust accounts, which may include:
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an account into which collections are deposited;
an account to fund post-closing purchases of additional receivables; or
a reserve account or other account relating to credit enhancement.
Purchase of Receivables After the Closing Date
If a trust has not purchased all of its receivables at the time you purchase
your securities, it will purchase the remainder of its receivables from the
seller over a period specified in the prospectus supplement.
CREDIT OR PAYMENT ENHANCEMENT
The prospectus supplement will specify the credit or payment enhancement, if
any, for each trust. Credit or payment enhancement may consist of one or more of
the following:
subordination of one or more classes of securities;
a reserve account;
overcollateralization (i.e., the amount by which the principal amount of the
receivables exceeds the principal amount of all of the trust's securities);
excess interest collections (i.e., the excess of anticipated interest
collections on the receivables over servicing fees, interest on the trust's
securities and any amounts required to be deposited in a reserve account, if
any);
letter of credit or other credit facility;
surety bond;
liquidity arrangements;
swaps (including currency swaps) and other derivative instruments and interest
rate protection agreements;
repurchase or put obligations;
yield supplement accounts or agreements;
guaranteed investment contracts;
guaranteed rate agreements; or
other agreements with respect to third party payments or other support.
Limitations or exclusions from coverage could apply to any form of credit or
payment enhancement. The prospectus supplement will describe the credit or
payment enhancement and related limitations and exclusions applicable for
securities issued by a trust. Enhancements cannot guarantee that losses will not
be incurred on the securities.
Reserve Account
If there is a reserve account, the seller will initially deposit in it cash or
securities having a value equal to the amount specified in the prospectus
supplement.
Amounts on deposit in a reserve account will be available to cover shortfalls in
the payments on the securities as described in the prospectus supplement. The
prospectus supplement may also specify (1) a minimum balance to be maintained in
the reserve account and what funds are available for deposit to reinstate that
balance, and (2) when and to whom any amount will be distributed if the balance
exceeds this minimum amount.
For more information about credit enhancement, see 'Description of the
Receivables Transfer and Servicing Agreements -- Credit and Payment Enhancement'
in this prospectus.
TRANSFER AND SERVICING OF THE RECEIVABLES
The seller will transfer receivables to a trust under an agreement. The servicer
will agree with the trust to be responsible for servicing, managing, maintaining
custody of and making collections on the receivables.
For more information about the sale and servicing of the receivables, see
'Description of the Receivables Transfer and Servicing Agreements -- Sale and
Assignment of Receivables' in this prospectus.
Servicing Fees
Each trust will pay the servicer a servicing fee based on the outstanding
balance of the receivables. The amount of the servicing fee will be specified in
the prospectus supplement. The servicer will also be entitled to retain as
supplemental servicing compensation certain fees and charges paid by obligors
and net investment income from reinvestment of collections on the receivables.
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Servicer Advances of Certain Late Interest Payments
When interest collections received on the receivables are less than the
scheduled interest collections in a collection period, the servicer will advance
to the trust that portion of the shortfalls that the servicer, in its sole
discretion, expects to be paid in the future by the related obligors.
The servicer will be entitled to reimbursement from other collections of the
trust for these advances that are not repaid out of collections of the related
late payments.
Repurchase May Be Required For Modified Receivables
In the course of its normal servicing procedures, the servicer may defer or
modify the payment schedule of a receivable. Some of these arrangements may
obligate the servicer to repurchase the receivable.
For a discussion of the servicer's repurchase obligations, see 'Description of
the Receivables Transfer and Servicing Agreements -- Servicing Procedures' in
this prospectus.
Repurchase May Be Required For Breaches of Representation or Warranty
The seller will make representations and warranties relating to the receivables
when it sells them to the trust.
The seller will be required to repurchase a receivable from the trust if
(1) one of the seller's representations or warranties is breached with respect
to that receivable and (2) the receivable is materially and adversely affected
by the breach.
For a discussion of the representations and warranties given by the seller and
its related repurchase obligations, see 'Description of the Receivables Transfer
and Servicing Agreements -- Sale and Assignment of Receivables' in this
prospectus.
TAX STATUS
If the trust issues notes and the trust does not elect to be characterized as a
Financial Asset Securitization Investment Trust, federal tax counsel to the
trust will deliver an opinion when the notes are issued that for federal income
tax purposes:
the notes will be characterized as debt unless otherwise stated in the
prospectus supplement and
the trust will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation.
If the trust is a grantor trust or elects to be treated as a Financial Asset
Securitization Investment Trust, you will find a discussion of the federal
income tax characterization of its certificates and the trust in this prospectus
and the prospectus supplement.
See 'Certain Federal Income Tax Consequences' and 'Certain State Tax
Consequences' in this prospectus for additional information concerning the
application of federal and state tax laws to the securities.
ERISA CONSIDERATIONS
If you are an employee benefit plan, you should review the matters discussed
under 'ERISA Considerations' in this prospectus before investing in the
securities.
FORM, DENOMINATION AND RECORD DATE
Generally, you may purchase securities only in book-entry form and will not
receive your securities in definitive form. You may purchase securities in the
denominations set forth in the prospectus supplement. The record date for a
payment date will be the business day immediately preceding the payment date or,
if definitive securities are issued, the last day of the preceding calendar
month.
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RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the securities.
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INTERESTS OF OTHER PERSONS IN THE Financing statements under the Uniform Commercial Code
RECEIVABLES COULD REDUCE THE FUNDS will be filed reflecting the sale of the receivables by
AVAILABLE TO MAKE PAYMENTS ON YOUR us to the trust. Our accounting records and computer
SECURITIES systems will also be marked to reflect a sale of the
receivables to the trust. However, because the servicer
will maintain possession of the receivables and not
segregate or mark the receivables as belonging to the
trust, another person could acquire an interest in a
receivable that is superior to the trust's interest by
obtaining physical possession of the loan document
representing that receivable without knowledge of the
assignment of the receivable to the trust. If another
person acquires an interest in a receivable that is
superior to the trust's interest in the receivable, some
or all of the collections on that receivable may not be
available to make payment on the securities.
If another person acquires a security or other interest
in a financed vehicle that is superior to the trust's
security interest in the vehicle, some or all of the
proceeds from the sale of the vehicle may not be
available to make payments on the securities.
The trust's security interest in the financed vehicles
could be impaired for one or more of the following
reasons:
we might fail to perfect our security interest in a
financed vehicle;
another person may acquire an interest in a financed
vehicle that is superior to the trust's security
interest through fraud, forgery, negligence or error
because the servicer will not amend the certificate of
title or ownership to identify the trust as the new
secured party;
the trust may not have a security interest in the
financed vehicles in certain states because the
certificates of title to the financed vehicles will not
be amended to reflect assignment of a security interest
therein to the trust;
holders of some types of liens, such as tax liens or
mechanics liens, may have priority over the trust's
security interest; and
the trust may lose its security interest in vehicles
confiscated by the government.
Neither the seller nor the servicer will be required to
repurchase a receivable if the security interest in a
related vehicle or the receivable becomes impaired after
the receivable is sold to the trust.
CONSUMER PROTECTION LAWS MAY CAUSE A TRUST Federal and state consumer protection laws impose
TO EXPERIENCE LOSSES ON ITS RECEIVABLES requirements upon creditors in connection with
extensions of credit and collections on retail
installment loans. Some of these laws make an assignee
of the loan (such as a trust) liable to the obligor for
any violation by the lender. Any liabilities of the
trust under these laws could reduce
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the funds that the trust would otherwise have to make
payments on your securities.
ONLY THE ASSETS OF THE TRUST ARE AVAILABLE Neither the seller nor any of its affiliates is
TO PAY YOUR SECURITIES obligated to make any payments relating to (1) the
securities of a trust or (2) the receivables owned by a
trust. Therefore, you must rely solely on the assets of
the trust for repayment of your securities. If these
assets are insufficient, you may suffer losses on your
securities.
The assets of a trust will consist solely of its
receivables and, to the extent specified in the
prospectus supplement, various deposit accounts and any
credit or payment enhancement.
AMOUNTS ON DEPOSIT IN ANY RESERVE ACCOUNT WILL BE
LIMITED AND SUBJECT TO DEPLETION. The amount required to
be on deposit in any reserve account will be limited. If
the amounts in the reserve account are depleted as
amounts are paid out to cover shortfalls in
distributions of principal and interest on your
securities, the trust will depend solely on collections
on the receivables and any other credit or payment
enhancement to make payments on your securities. In
addition, the minimum required balance in a reserve
account may decrease as the outstanding balance of the
receivables decreases.
YOU MAY SUFFER LOSSES UPON A LIQUIDATION OF THE
RECEIVABLES IF THE PROCEEDS OF THE LIQUIDATION ARE LESS
THAN THE AMOUNTS DUE ON THE OUTSTANDING SECURITIES.
Under certain circumstances described herein, the
receivables of a trust may be sold after the occurrence
of an event of default. The related securityholders will
suffer losses if the trust sells the receivables for
less than the total amount due on its securities. We
cannot assure you that sufficient funds would be
available to repay those securityholders in full.
DELAYS IN COLLECTING PAYMENTS COULD OCCUR If we were to cease acting as servicer, the processing
IF USAA FEDERAL SAVINGS BANK CEASES TO BE of payments on the receivables and information relating
THE SERVICER to collections could be delayed, which could delay
payments to securityholders. We can be removed as
servicer if we default on our servicing obligations as
described in this prospectus. See 'Description of the
Receivables Transfer and Servicing Agreements -- Events
of Servicing Termination.' We may resign as servicer
under certain circumstances described in this
Prospectus. See 'Description of the Receivables Transfer
and Servicing Agreements -- Certain Matters Regarding
the Servicer.'
THE INSOLVENCY OF THE SELLER MAY DELAY The seller intends that each transfer of receivables by
PAYMENTS ON YOUR SECURITIES OR CAUSE YOU it to a trust under a sale and servicing agreement or a
TO INCUR A LOSS pooling and servicing agreement constitutes a sale. In
the event that the seller were to become insolvent, the
Federal Deposit Insurance Act ('FDIA'), as amended by
the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ('FIRREA'), sets forth certain
powers that the Federal Deposit Insurance Corporation
may exercise if it were appointed receiver of the
seller. To the extent that the seller has granted a
security interest in the receivables to a
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trust and that security interest was validly perfected
before the seller's insolvency and was not taken in
contemplation of insolvency or with the intent to
hinder, delay or defraud the seller or its creditors,
that security interest would not be subject to avoidance
by the Federal Deposit Insurance Corporation as receiver
of the seller. Positions taken by the staff of the
Federal Deposit Insurance Corporation prior to the
passage of FIRREA do not suggest that the Federal
Deposit Insurance Corporation, if appointed receiver of
the seller, would interfere with the timely transfer to
the trust of payments collected on the related
receivables If, however, the Federal Deposit Insurance
Corporation were to assert a contrary position, or were
to require the trustee or the indenture trustee to
establish its rights to those payments by submitting to
and completing the administrative claims procedure
established under the FDIA, or the conservator or
receiver were to request a stay of proceedings with
respect to the seller as provided under the FDIA, delays
in payments on the related securities and possible
reductions in the amount of those payments could occur.
Recently, the FDIC adopted a proposed rule, 'Treatment
by the Federal Deposit Insurance Corporation as
Conservator or Receiver of Financial Assets Transferred
by an Insured Depository Institution in Connection with
a Securitization or Participation'. If the proposed rule
were effective and the seller's transfer of receivables
to a trust were to satisfy the requirements of the
proposed rule, then the Federal Deposit Insurance
Corporation, as conservator or receiver of the seller,
would not seek to treat the receivables and collections
as the seller's property or property of the
conservatorship or receivership of the seller rather
than the trust's property. If the proposed rule becomes
effective, we will indicate in the prospectus supplement
whether the seller will rely on the rule. We cannot
predict whether the proposed rule will become effective
and we cannot assure you that a transfer of receivables
by the seller to a trust will comply with the rule.
SUBORDINATION MAY CAUSE SOME CLASSES OF The rights of the holders of any class of securities to
SECURITIES TO BEAR ADDITIONAL CREDIT RISK receive payments of interest and principal may be
subordinated to one or more other classes of securities.
Holders of subordinated classes of securities will bear
more credit risk than more senior classes. Subordination
may take the following forms:
interest payments on any date on which interest is due
may first be allocated to the more senior classes;
principal payments on the subordinated classes might not
begin until principal of the more senior classes is
repaid in full;
principal payments on the more senior classes may be
made on a payment date before interest payments on the
subordinated classes are made;
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subordinated classes bear the risk of losses on the
receivables and the resulting cash shortfalls before
the more senior classes do; and
if the trustee sells the receivables after an event of
default, the net proceeds of that sale may be allocated
first to pay principal and interest on the more senior
classes.
The timing and priority of payment, seniority,
allocations of losses and method of determining payments
on the respective classes of securities of any trust
will be described in the prospectus supplement.
PREPAYMENTS ON THE RECEIVABLES MAY Faster than expected prepayments on the receivables will
ADVERSELY AFFECT THE AVERAGE LIFE OF AND cause the trust to make payments on its securities
RATE OF RETURN ON YOUR SECURITIES earlier than expected. You may not be able to reinvest
the principal repaid to you at a rate of return that is
equal to or greater than the rate of return on your
securities. We cannot predict the effect of prepayments
on the average life of your securities.
All the receivables by their terms may be prepaid at any
time. Prepayments include:
prepayments in whole or in part by the obligor;
liquidations due to default;
partial payments with proceeds from physical damage,
credit life and disability insurance policies;
required purchases of receivables by the servicer or
repurchases of receivables by the seller for specified
breaches of their representations or covenants; and
an optional repurchase of a trust's receivables by the
servicer when their aggregate principal balance is 10%
(or such other percentage specified in the prospectus
supplement) or less of the initial aggregate principal
balance.
A variety of economic, social and other factors will
influence the rate of optional prepayments on the
receivables and defaults.
The final payment of each class of securities is
expected to occur prior to its final scheduled payment
date because of the prepayment and purchase
considerations set forth above. If sufficient funds are
not available to pay any class of notes in full on its
final payment date, an event of default will occur and
final payment of such class of notes will occur later
than such date.
For more information regarding the timing of repayments
of the securities, see 'Maturity and Prepayment
Considerations' in the prospectus supplement and in this
prospectus.
YOU MAY SUFFER LOSSES ON YOUR SECURITIES The servicer will generally be permitted to hold with
BECAUSE THE SERVICER WILL HOLD COLLECTIONS its own funds (1) collections it receives from obligors
AND COMMINGLE THEM WITH ITS OWN FUNDS on the receivables and (2) the purchase price of
receivables required to be repurchased from the trust
until the day prior to the next date on which
distributions are made on
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the securities. During this time, the servicer may
invest those amounts at its own risk and for its own
benefit and need not segregate them from its own funds.
If the servicer is unable for any reason to pay these
amounts to the trust on the payment date, you might
incur a loss on your securities.
For more information about the servicer's obligations
regarding payments on the receivables, see 'Description
of the Receivables Transfer and Servicing Agreements --
Collections' in this prospectus.
THE SENIOR CLASS OF SECURITIES CONTROLS Generally, the holders of a majority of a trust's senior
REMOVAL OF THE SERVICER UPON A DEFAULT ON class of securities (or the applicable trustee acting on
ITS SERVICING OBLIGATIONS their behalf) can remove the servicer if the servicer --
does not deliver to the applicable trustee the available
funds for application to a required payment after a
grace period after notice or discovery;
defaults on a servicing obligation which materially and
adversely affects the trust after a grace period after
notice; or
becomes the subject of certain insolvency proceedings.
Those holders may also waive a default by the servicer.
The holders of any subordinate class of securities do
not have any rights to participate in such
determinations for so long as any of the more senior
classes are outstanding, and the subordinate classes of
securities may be adversely affected by determinations
made by the more senior classes.
See 'Description of the Receivables Transfer and
Servicing Agreements -- Events of Servicing
Termination.'
YOU MAY NOT BE ABLE TO RESELL YOUR There may be no secondary market for the securities.
SECURITIES Underwriters may participate in making a secondary
market in the securities, but are under no obligation to
do so. We cannot assure you that a secondary market will
develop. If a secondary market does develop, we cannot
assure you that it will continue or that you will be
able to resell your securities.
GEOGRAPHIC CONCENTRATION OF A TRUST'S AUTO Adverse economic conditions or other factors
LOANS MAY ADVERSELY AFFECT YOUR SECURITIES particularly affecting any state or region where there
is a high concentration of a trust's auto loans could
adversely affect the securities of that trust. We are
unable to forecast, with respect to any state or region,
whether any such conditions may occur, or to what extent
such conditions may affect auto loans or the repayment
of your securities. The location of a trust's auto loans
by state, based upon borrowers' addresses at the time
the auto loans were made, will be set out in the
prospectus supplement.
RATINGS OF THE SECURITIES At the initial issuance of the securities of a trust, at
least one nationally recognized statistical rating
organization will rate the offered securities in one of
the four highest rating categories. A rating is not a
recommendation to purchase, hold or sell securities, and
it does not comment as to market price or suitability
for a particular investor. The
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ratings of the securities address the likelihood of the
payment of principal and interest on the securities
according to their terms. We cannot assure you that a
rating will remain for any given period of time or that
a rating agency will not lower or withdraw its rating
if, in its judgment, circumstances in the future so
warrant. A reduction or withdrawal of a security's
rating will adversely affect its market value.
IF BOOK-ENTRY REGISTRATION IS USED, YOU The securities will be delivered to you in book-entry
WILL BE ABLE TO EXERCISE YOUR RIGHTS AS A form through the facilities of The Depository Trust
SECURITYHOLDER ONLY THROUGH THE CLEARING Company ('DTC') or Clearstream (formerly Cedelbank) or
AGENCY AND YOUR ABILITY TO TRANSFER YOUR Euroclear. Consequently, your securities will not be
SECURITIES MAY BE LIMITED registered in your name and you will not be recognized
as a securityholder by the trustee or any applicable
indenture trustee. You will only be able to exercise the
rights of a securityholder indirectly through DTC and
its participating organizations. Specifically, you may
be limited in your ability to resell the securities to a
person or entity that does not participate in the DTC
system or Clearstream or Euroclear. Physical
certificates will only be issued in the limited
circumstances described in the prospectus. See 'Certain
Information Regarding the Securities -- Definitive
Securities' in this prospectus.
POTENTIAL DELAYS IN PAYMENTS ON YOUR The year 2000 issue results from the custom of writing
SECURITIES DUE TO POTENTIAL COMPUTER computer programs using two digits to define a year.
PROGRAM PROBLEMS BECAUSE OF THE YEAR 2000 Computer programs that have time-sensitive software may
ISSUE recognize a date using '00' as the year 1900 rather than
the year 2000. Thus far, the servicer has not
encountered any material year 2000 problems arising from
its own operations or from those of its suppliers,
customers or agents. We cannot assure you that such
problems will not arise in the future.
In the event that the servicer, or any of its suppliers,
customers or agents encounter substantial problems
because of the year 2000 issue, the servicer's
performance of its obligations under the agreements to
which it is a party 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 TRUSTS
The seller will establish a separate trust as either a Delaware business
trust or a common law trust to issue each series of notes and/or certificates.
Each trust will be established for the transactions described in this prospectus
and in the related prospectus supplement. If a trust is a grantor trust for
federal income tax purposes, the prospectus supplement will so state.
THE RECEIVABLES
Certain information concerning the seller's experience with respect to its
portfolio of Motor Vehicle Loans (including previously sold Motor Vehicle Loans
which the seller continues to service) will be set forth in each prospectus
supplement. We cannot assure you that the delinquency, repossession and net loss
experience on any pool of receivables owned by a trust will be comparable to
that information.
On the closing date for a trust, the seller will sell and transfer
receivables to the trust in an amount specified in the related prospectus
supplement. Generally, the trust will have the right to receive all payments on
those receivables that are received on or after the date (a 'cut-off date')
specified in the prospectus supplement. To the extent provided in the prospectus
supplement, the seller will convey additional receivables ('SUBSEQUENT
RECEIVABLES') to the trust as frequently as daily during the period (the
'FUNDING PERIOD') specified in the prospectus supplement. A trust will purchase
any Subsequent Receivables with amounts deposited in a pre-funding account on
the closing date. Up to 50% of the net proceeds from the sale of the securities
issued by a trust may be deposited into a pre-funding account for the purchase
of Subsequent Receivables. Any Subsequent Receivables will also be assets of the
trust.
The property of each trust will also include:
security interests in the financed vehicles;
the rights to proceeds, if any, from claims on certain theft, physical
damage, credit life or credit disability insurance policies, if any,
covering the financed vehicles or the obligors;
the seller's rights to certain documents and instruments relating to the
receivables;
such amounts as from time to time may be held in one or more accounts
maintained for the trust;
any credit or payment enhancement specified in the prospectus supplement;
certain payments and proceeds with respect to the receivables held by the
servicer;
certain rebates of premiums and other amounts relating to certain insurance
policies and other items financed under the receivables; and
any and all proceeds of the above items.
If the trust issues notes, the trust's rights and benefits with respect to
the property of the trust will be assigned to the indenture trustee for the
benefit of the noteholders.
THE TRUSTEE
The trustee for each trust will be specified in the related prospectus
supplement. The trustee's liability in connection with the issuance and sale of
the securities is limited solely to the express obligations of the trustee set
forth in the trust agreement or the pooling and servicing agreement. The trustee
may resign at any time, in which event the administrator, in the case of a trust
agreement, or the servicer, in case of a pooling and servicing agreement, will
be obligated to appoint a successor trustee. The administrator or the servicer
may also remove the trustee if:
the trustee ceases to be eligible to continue as trustee under the trust
agreement or the pooling and servicing agreement, as applicable, or
the trustee becomes insolvent.
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In either of these circumstances, the administrator or servicer must appoint
a successor trustee. If the trustee resigns or is removed, the resignation or
removal and appointment of a successor trustee will not become effective until
the successor trustee accepts its appointment.
You will find the addresses of the principal offices of the trust and the
trustee in the prospectus supplement.
USAA FEDERAL SAVINGS BANK
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, and its
deposits are insured by the Federal Deposit Insurance Corporation. The Bank is
an indirect wholly-owned subsidiary of the United Services Automobile
Association ('USAA') and 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, 1999, its total assets and total common and preferred stockholders'
equity were $8.9 billion and $806 million, respectively.
The Bank's executive offices are located at 10750 McDermott Freeway, San
Antonio, Texas 78288 and its telephone number is (210) 498-2265.
USAA is a reciprocal interinsurance exchange formed in 1922. As of
December 31, 1999, USAA and its various property and casualty insurance
subsidiaries had approximately 3.6 million members.
USAA and its various property and casualty insurance subsidiaries provide
personal line 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 seventh largest private passenger automobile and the sixth
largest homeowners insurer in the United States, based on 1999 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 Investors Service, Inc. and Standard & Poor's
Ratings Services, respectively. USAA is headquartered in San Antonio, Texas and
employs approximately 23,000 people.
THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS
ORIGINATION OF MOTOR VEHICLE LOANS
The Bank directly originates motor vehicle installment loans secured by new
and used automobiles and light-duty trucks (the 'MOTOR VEHICLE LOANS').
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 generally accepted by telephone
but may also be accepted in person or by mail. The Bank's primary source of
applicants is the membership and associate membership of USAA, which consist of
officers and former officers of the U.S. military, their dependents and former
dependents and, more recently, enlisted personnel in the U.S. military.
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 Bank may change its servicing and origination policies and practices 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 pre-approved basis or on a judgmental basis, which, since
September 1992, has included a credit scoring process.
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PRE-APPROVAL PROCESS. 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.
All potential pre-approved customer names are screened against the database
maintained by the Bank's parent company USAA. USAA's database must show that the
potential customer:
is an active USAA insurance policyholder or is eligible to be one; and
is not identified in USAA's database as a customer who should not receive
advertising from USAA or its subsidiary companies.
The Bank then screens those potential customer names against its database of
credit card accounts, although an existing credit card account is not a
prerequisite for pre-approval. If the potential customer has a credit card
account, the Bank's credit card database must show that the account:
is current and has been active more than twelve months;
has not been more than 30 days delinquent on more than two occasions in the
most recent 12 month period;
has had no record of bankruptcy, closed account or collection problems; and
has no lost or stolen account or fraudulent activity record.
A potential customer who is pre-approved using the credit card account
screening process 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. The Bank offers those pre-approved potential
customers Motor Vehicle Loans in amounts of $15,000 to $30,000.
A potential customer without a credit card account with the Bank is eligible
for a pre-approved Motor Vehicle Loan in an amount of $15,000 to $30,000 if the
individual has no record of bankruptcy or collection problems on any Bank loan
products and has an existing Motor Vehicle Loan with the Bank that:
has not been more than 30 days delinquent;
has a term greater than one year and has been outstanding for more than one
year; and
had an original principal balance in excess of $7,500.
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 need only identify 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.
JUDGMENTAL PROCESS. If an applicant is not pre-approved for a Motor Vehicle
Loan as described above, the Bank requires the applicant to complete an
application, generally over the telephone, 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. The Bank reviews each application for
completeness and for compliance with the Bank's guidelines and applicable
consumer regulations.
The Bank evaluates each applicant 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 and the credit bureau reports referred to
below.
Automated Review. The Bank first performs the evaluation on an automated
basis. If the automated review of the application shows that the applicant meets
certain criteria in the Bank's underwriting guidelines described below at
specified levels and has at least a specified credit score
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in the Bank's credit scoring process referred to below, then the application is
approved. If the application is not approved in the automated review and has not
been submitted by a pre-approved customer, a credit analyst performs a
judgmental review using the same criteria and standards.
Credit Criteria. Among the criteria considered in evaluating each
application are:
stability of the applicant with specific regard to the applicant's
occupation and length of employment;
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;
a debt service to gross monthly income ratio test; and
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%.
The Bank uses an empirically based credit scoring process that uses credit
scores provided by credit bureaus to objectively assess an applicant's
creditworthiness. This credit scoring process was created using historical
information from the database of Motor Vehicle Loans owned or 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 Bank's credit scoring
process is periodically reviewed and, if necessary, updated to reflect current
statistical data. The Bank's credit scoring process is intended to provide a
basis for lending decisions, not to supersede the judgment of the credit
analyst.
The Bank has approved applications that do not meet its standard credit
guidelines, both before and after implementation of the credit scoring process.
Generally, those approvals require concurrent approval of a second, designated
senior credit analyst or credit manager of the Bank. Applications that do not
comply with all the Bank's guidelines must have compensating factors which
indicate a strong capacity to repay the loan. In such cases, the reason for
approving the Motor Vehicle Loan is often because the applicant has made a down
payment and the amount financed is lower than the maximum permitted by the
Bank's guidelines.
AMOUNT ADVANCED. 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 the lesser of the purchase price and:
for a new financed vehicle, the manufacturer's suggested retail price plus
taxes and title and license fees on the financed vehicle or
for a used financed vehicle the 'retail' value stated in the most recently
published National Auto Research Black Book used vehicle guide, adjusted
for high or low mileage and before credit for any optional equipment, plus
taxes and title and license fees.
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, the
Bank adjusts its credit guidelines 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.
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INSURANCE
Each Motor Vehicle Loan requires the obligor to obtain comprehensive and
collision insurance with respect to the financed vehicle. After the funding of
the Motor Vehicle Loan, the Bank does not monitor the obligor's compliance with
such requirement. Most obligors obtain the required comprehensive and collision
insurance from USAA or an affiliate thereof.
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 those of 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 an obligor fails to maintain
the required insurance.
COLLECTION PROCEDURES
The Bank performs collection activities with respect to delinquent Motor
Vehicle Loans including the 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 95% 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, the Bank
sends a demand letter. After 50 days of delinquency, the Bank accelerates the
Motor Vehicle Loan. Repossession procedures generally will be initiated after a
Motor Vehicle Loan continues to be delinquent for 60 to 90 days, depending on
factors such as payments made and credit score. 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 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.
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 when it determines that
the Motor Vehicle Loan is uncollectible, or during the month the Motor Vehicle
Loan becomes 120 days delinquent, whichever occurs first.
Upon repossession and sale of the financed vehicle, the Bank pursues any
deficiency remaining 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:
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;
the extension will result in the obligor's payments being brought current;
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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
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 Receivables Transfer and Servicing
Agreements -- Servicing Procedures' for certain additional conditions on
credit-related extensions which must be satisfied with respect to receivables
owned by a trust.
THE RECEIVABLES POOLS
CRITERIA FOR SELECTING THE RECEIVABLES. The receivables, including
Subsequent Receivables, to be held by each trust will be selected from the
Bank's portfolio of Motor Vehicle Loans on the basis of several criteria,
including that each receivable:
is secured by a new or used automobile or light-duty truck;
was originated in the U.S.;
has a fixed or variable interest rate;
provides for level monthly payments that fully amortize the amount financed
over its original term to maturity or provides for a different type of
amortization described in the prospectus supplement; and
satisfies the other criteria, if any, set forth in the prospectus
supplement.
The Bank will select the receivables from the Motor Vehicle Loans in its
portfolio that satisfy the above criteria. No selection procedures which the
Bank believes to be adverse to the securityholders of the trust will be used in
selecting the receivable for the trust.
SIMPLE INTEREST RECEIVABLES. The receivables may provide for the application
of payments on the simple interest method. If an obligor on a simple interest
receivable pays a fixed monthly installment before its scheduled due date --
the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the
payment been made as scheduled; and
the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly greater.
Conversely, if an obligor pays a fixed monthly installment after its
scheduled due date --
the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled; and
the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly less.
In either case, the obligor pays a fixed monthly installment until the final
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance. If a simple interest receivable is prepaid, the obligor is required to
pay interest only to the date of prepayment.
RECEIVABLES OTHER THAN SIMPLE INTEREST RECEIVABLES. If the receivables are
not simple interest receivables, the prospectus supplement will describe the
method of applying payments on the receivables.
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WE WILL PROVIDE MORE SPECIFIC INFORMATION ABOUT THE RECEIVABLES IN THE
PROSPECTUS SUPPLEMENT
We will provide information about the receivables to be held by each trust
in the related prospectus supplement, including, to the extent appropriate:
the portion of the receivables secured by new vehicles and by used
vehicles;
the aggregate principal balance of all of the receivables;
the average principal balance of the receivables and the range of principal
balances;
the number of receivables;
the average original amount financed and the range of original amounts
financed;
the weighted average contract rate of interest and the range of such rates;
the weighted average original term and the range of original terms;
the weighted average remaining term and the range of remaining terms;
the scheduled weighted average life; and
the distribution by contract rate of interest and by the states of
origination.
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the securities of any trust will generally be
influenced by the rate at which the principal balances of its receivables are
paid, which payment may be in the form of scheduled amortization or prepayments.
'Prepayments' for these purposes includes the following circumstances:
Prepayments by obligors, who may repay at any time without penalty.
The seller may be required to repurchase a receivable from the trust if
certain breaches of representations and warranties occur and the receivable
is materially and adversely affected by the breach.
The servicer may be obligated to purchase a receivable from the trust if
certain breaches of covenants occur or if the servicer extends or modifies
the terms of a receivable beyond the Collection Period preceding the final
payment date for the securities specified in the prospectus supplement.
Partial prepayments, including those related to rebates of extended
warranty contract costs and insurance premiums.
Liquidations of the receivables due to default.
Partial prepayments from proceeds from physical damage, credit life and
disability insurance policies.
In light of the above considerations, we cannot assure you as to the amount
of principal payments to be made on the securities of a trust on each payment
date since that amount will depend, in part, on the amount of principal
collected on the trust's receivables during the applicable Collection Period.
Any reinvestment risks resulting from a faster or slower incidence of prepayment
of receivables will be borne entirely by the securityholders. The related
prospectus supplement may set forth certain additional information with respect
to the maturity and prepayment considerations applicable to the receivables and
the securities of the trust.
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 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 interest rates borne by the loans, the rate of
prepayment and refinancings would be expected to increase. Conversely, if
prevailing market
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interest rates were to increase significantly above those interest rates, the
rate of prepayments and refinancings would be expected to decrease.
USE OF PROCEEDS
The net proceeds from the sale of the securities of a trust will be applied
by the trust or the seller, as indicated in the prospectus supplement --
if by the trust, to the purchase of the receivables from the seller;
if the trust has a pre-funding account, to make the deposit into that
account;
if the trust has a yield supplement account, to make the deposit into that
account;
if the trust has a reserve account, to make the initial deposit into that
account; and
for any other purposes specified in the prospectus supplement.
The seller will add the funds received by it to its general funds. The trust
may also issue certain classes of securities to the seller in partial payment
for the receivables.
PRINCIPAL DOCUMENTS
In general, the operations of a trust will be governed by the following
documents:
IF THE TRUST ISSUES NOTES:
<TABLE>
<CAPTION>
DOCUMENT PARTIES PRIMARY PURPOSES
-------- ------- ----------------
<S> <C> <C>
Trust Agreement Trustee and Bank, as depositor Creates the trust
Provides for issuance of certificates
and payments to certificateholders
Establishes rights and duties of trustee
Establishes rights of certificateholders
Indenture Trust, as issuer of the notes, Provides for issuance of the notes,
and indenture trustee the terms of the notes and payments
of noteholders
Establishes rights and duties of
indenture trustee
Establishes rights of noteholders
Sale and Servicing Bank, as seller and servicer, Effects sale of receivables to the trust
Agreement and a trust as purchaser Contains representations and
warranties of seller concerning the receivables
Contains servicing obligations of servicer
Provides for compensation to servicer
Directs how cash flow will be applied
to expenses of the trust and payments
on its securities
</TABLE>
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<PAGE>
IF THE TRUST IS A GRANTOR TRUST (AS SPECIFIED IN THE PROSPECTUS SUPPLEMENT):
<TABLE>
<CAPTION>
DOCUMENT PARTIES PRIMARY PURPOSES
-------- ------- ----------------
<S> <C> <C>
Pooling and Servicing Trustee and Bank, as seller Creates the trust
Agreement and servicer Effects sale of receivables to the trust
Contains representations and
warranties of seller concerning the receivables
Contains servicing obligations of servicer
Provides for compensation of servicer
Provides for issuance of certificates
and payments to certificateholders
Directs how cash flow will be applied
to expenses of the trust and payments
to certificateholders
Establishes rights and duties of trustee
Establishes rights of certificateholders
</TABLE>
Various provisions of these documents are described throughout this
prospectus and in the related prospectus supplement. The prospectus supplement
for a series will describe any material provisions of these documents as used in
that series that differ in a material way from the provisions described in this
prospectus.
A form of each of these principal documents has been filed as an exhibit to
the registration statement of which this prospectus forms a part. The summaries
of the principal documents in this prospectus do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of those principal documents.
PAYMENTS ON THE SECURITIES
The prospectus supplement will describe
the timing, amount and priority of payments of principal and interest on
each class of the securities,
their interest rates or the formula for determining their interest rates,
the method of determining the amount of their principal payments,
the priority of the application of the trust's available funds to its
expenses and payments on its securities, and
the allocation of losses on the receivables among the classes of
securities.
The rights of any class of securities to receive payments may be senior or
subordinate to other classes of securities. A security may be entitled to
principal payments with disproportionate, nominal or no interest payments
or
interest payments with disproportionate, nominal or no principal payments
or
residual cash flow remaining after all other classes have been paid.
Interest rates may be fixed or floating. If a class of securities is redeemable,
the prospectus supplement will describe when they may be redeemed and at what
price. The aggregate initial principal amount of the securities issued by a
trust may be greater than, equal to or less than the aggregate initial principal
amount of the receivables held by that trust.
Payments of principal and interest on any class of securities will be made
on a pro rata basis among all the security holders of such class. If the amount
of funds available to make a payment on a class is less than the required
payment, the holders of the securities of that class will receive their pro rata
share of the amount available for the class. A series may provide for a
liquidity facility or similar arrangement that permits one or more classes of
securities to be paid in planned amounts on scheduled payment dates.
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CERTAIN INFORMATION REGARDING THE SECURITIES
Each class of securities entitled to receive interest payments may bear
interest at a fixed rate of interest or a floating rate of interest as more
fully described below and in the related prospectus supplement.
FIXED RATE SECURITIES
Each class of fixed rate securities will bear interest at the applicable per
annum interest rate or pass-through rate, as the case may be, specified in the
related prospectus supplement. Interest on each class of fixed rate securities
may be computed on the basis of a 360-day year of twelve 30-day months or on
such other day count basis as is specified in the related prospectus supplement.
FLOATING RATE SECURITIES
Each class of floating rate securities will bear interest for each
applicable interest accrual period described in the prospectus supplement at a
rate determined (i) by reference to a base rate of interest, plus or minus the
number of basis points specified in the prospectus supplement, if any, or
multiplied by the percentage specified in the prospectus supplement, if any or
(ii) as otherwise specified in the related prospectus supplement. Interest on
each class of floating rate securities will be computed on the day count basis
specified in the related prospectus supplement.
The base rate of interest for any floating rate securities will be based on
a London interbank offered rate, commercial paper rates, Federal funds rates,
U.S. government treasury securities rates, negotiable certificates of deposit
rates or another rate set forth in the related prospectus supplement.
A class of floating rate securities may also have either or both of the
following (in each case expressed as a rate per annum):
a maximum limitation, or ceiling, on the rate at which interest may accrue
during any interest accrual period. In addition to any maximum interest
rate that may be applicable to any class of floating rate securities, the
interest rate applicable to any class of floating rate securities will in
no event be higher than the maximum rate permitted by applicable law; and
a minimum limitation, or floor, on the rate at which interest may accrue
during any interest accrual period.
Each trust issuing floating rate securities may appoint a calculation agent
to calculate interest rates on each class of its floating rate securities. The
prospectus supplement will identify the calculation agent, if any, for each such
class of floating rate securities, which may be either the trustee or indenture
trustee with respect to such trust. All determinations of interest by a
calculation agent shall, in the absence of manifest error, be conclusive for all
purposes and binding on the holders of the floating rate securities. All
percentages resulting from any calculation of the rate of interest on a floating
rate security will be rounded, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward.
BOOK-ENTRY REGISTRATION
THE TRUSTS MAY USE BOOK-ENTRY REGISTRATION INSTEAD OF ISSUING DEFINITIVE
SECURITIES. Except for the securities, if any, of a trust retained by the seller
or its affiliates, each class of securities offered through this prospectus and
the related prospectus supplement may initially be represented by one or more
certificates registered in the name of DTC's nominee, except as set forth below.
The securities will be available for purchase in the denominations specified in
the related prospectus supplement and may be available for purchase in
book-entry form only. Accordingly, such nominee is expected to be the holder of
record of any class of securities issued in book-entry form. If a class of
securities is issued in book-entry form, unless and until Definitive Securities
are issued under the limited circumstances described in this prospectus or in
the related prospectus
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<PAGE>
supplement, you, as an owner of securities will not be entitled to receive a
physical certificate representing your interest in the securities of such class.
If a class of securities is issued in book-entry form, all references in
this prospectus and in the related prospectus supplement to actions by holders
of such class of securities refer to actions taken by DTC upon instructions from
its participating organizations and all references in this prospectus and in the
related prospectus supplement to distributions, notices, reports and statements
to certificateholders of such class of certificates refer to distributions,
notices, reports and statements to DTC or its nominee, as the case may be, as
the registered holder of such class of certificates, for distribution to
certificateholders of such class of certificates in accordance with DTC's
procedures with respect thereto.
Any securities of a given trust owned by the seller or its affiliates will
be entitled to equal and proportionate benefits under the applicable indenture,
trust agreement or pooling and servicing agreement, except that, unless the
seller and its affiliates own the entire class, such securities will be deemed
not to be outstanding for the purpose of determining whether the requisite
percentage of securityholders have given any request, demand, authorization,
direction, notice, consent or other action under those documents.
The prospectus supplement will specify whether the holders of the notes or
certificates of the trust may hold their respective securities as Book-Entry
Securities.
You may hold your securities through DTC in the U.S., Clearstream or the
Euroclear System in Europe or in any manner described in the related prospectus
supplement. The global securities will be tradeable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
INITIAL SETTLEMENT OF THE GLOBAL SECURITIES. All global securities will be
held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC.
Investors' interests in the global securities will be represented through
financial institutions acting on their behalf as direct and indirect
participants in DTC. As a result, Clearstream and Euroclear will hold positions
on behalf of their customers or participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global securities through DTC will follow
the settlement practices that apply 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 global securities through Clearstream or
Euroclear accounts will follow the settlement procedures that apply to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Except as required by law, none of the administrator, if any, the applicable
trustee or the applicable indenture trustee, if any, will have any liability for
any aspect of the records relating to payments made on account of beneficial
ownership interests of the securities of any trust held by DTC's nominee, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
SECONDARY MARKET TRADING OF THE GLOBAL SECURITIES. 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 Clearstream customers and/or Euroclear participants.
Secondary market trading between Clearstream customers or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC participant to
the account of a Clearstream
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<PAGE>
customer or a Euroclear participant, the purchaser will send instructions to
Clearstream or Euroclear through a Clearstream customer or Euroclear participant
at least one business day prior to settlement. Clearstream or Euroclear will
instruct the respective depositary, as the case may be, to receive the global
securities against payment. Payment will include interest accrued on the global
securities from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by the respective depositary to the
DTC participant's account against delivery of the global securities. After
settlement has been completed, the global securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Clearstream customer's or Euroclear participant's
account. The securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the global securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (that is, the trade fails), the Clearstream or Euroclear cash debit
will be valued instead as of the actual settlement date.
Clearstream customers 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 this 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 Clearstream or Euroclear. Under this
approach, they may take on credit exposure to Clearstream or Euroclear until the
global securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of credit
to them, Clearstream customers or Euroclear participants can elect not to
pre-position funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Clearstream customers or Euroclear
participants purchasing global securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the global securities were
credited to their accounts. However, interest on the global securities would
accrue from the value date. Therefore, in many cases the investment income on
the global securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Clearstream customer'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 global securities to
the respective depositary for the benefit of Clearstream customers or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream customers and Euroclear
participants may employ their customary procedures for transactions in which
global securities are to be transferred by the respective clearing system,
through the respective depositary, to a DTC participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream customer or
Euroclear participant at least one business day prior to settlement. In these
cases, Clearstream or Euroclear will instruct the respective depositary, as
appropriate, to deliver the securities to the DTC participant's account against
payment. Payment will include interest accrued on the global securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Clearstream customer or
Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream customer'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 Clearstream customer or Euroclear participant have a line
of credit with its respective clearing system and elect to be in debit 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 (that is, the trade
fails), receipt of the cash proceeds in the Clearstream customer's or Euroclear
participant's account would instead be valued as of the actual settlement date.
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Finally, day traders that use Clearstream or Euroclear and that purchase
global securities from DTC participants for delivery to Clearstream customers 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:
borrowing through Clearstream or Euroclear for one day (until the purchase
side of the day trade is reflected in their Clearstream or Euroclear
accounts) in accordance with the clearing system's customary procedures;
borrowing the global securities in the U.S. from a DTC participant no later
than one day prior to settlement, which would give the global securities
sufficient time to be reflected in their Clearstream or Euroclear account
in order to settle the sale side of the trade; or
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 Clearstream customer or
Euroclear participant.
The securityholders who are not participants, either directly or indirectly,
but who desire to purchase, sell or otherwise transfer ownership of, or other
interest in, securities may do so only through direct and indirect participants.
In addition, securityholders will receive all distributions of principal and
interest from the indenture trustee or the applicable trustee through the
participants who in turn will receive them from DTC. Under a book-entry format,
securityholders may experience some delay in their receipt of payments, since
such payments will be forwarded by the applicable trustee to DTC's nominee. DTC
will forward such payments to its participants which thereafter will forward
them to indirect participants or securityholders. To the extent the related
prospectus supplement provides that Book-Entry Securities will be issued, the
only 'noteholder' or 'certificateholder,' as applicable, will be DTC's nominee.
Securityholders will not be recognized by the indenture trustee or the trustee
as 'noteholders' or 'certificateholders' and securityholders will be permitted
to exercise the rights of securityholders only indirectly through DTC and its
participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of securities among
participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal and interest on the
securities. Participants and indirect participants with which securityholders
have accounts with respect to their respective securities similarly are required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective securityholders. Accordingly, although securityholders will not
possess their respective securities, the rules provide a mechanism by which
participants will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a
securityholder to pledge securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
securities, may be limited due to the lack of a physical certificate for such
securities.
DTC will advise the related administrator or servicer of each trust that it
will take any action permitted to be taken by a securityholder under the related
indenture, trust agreement or pooling and servicing agreement only at the
direction of one or more participants to whose accounts with DTC such securities
are credited. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of participants
whose holdings include such undivided interests.
Non-U.S. holders of global securities will be subject to U.S. withholding
taxes unless such holders meet certain requirements and deliver appropriate U.S.
tax documents to the securities clearing organizations or their participants.
THE DEPOSITORIES. 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 Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
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securities transactions between participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers (who may include any of the underwriters
of securities of the trust), 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 participant,
either directly or indirectly.
Clearstream Banking, societe anonyme ('Clearstream'), was incorporated in
1970 as 'Cedel S.A.', a company with limited liability under Luxembourg law (a
societe anonyme). Cedel S.A. subsequently changed its name to Cedelbank. On
January 10, 2000, Cedelbank's parent company, Cedel International, societe
anonyme ('CI') merged its clearing, settlement and custody business with that of
Deutsche Borse Clearing AG ('DBC'). The merger involved the transfer by CI of
substantially all of its assets and liabilities (including its shares in
Clearstream) to a new Luxembourg company, New Cedel International, societe
anonyme ('New CI'), which is 50% owned by CI and 50% owned by DBC's parent
company Deutsche Borse AG.
Following the merger, the Board of Directors of CI renamed the companies in
the group 'Clearstream'. With effect from January 14, 2000, New CI has been
renamed 'Clearstream International, societe anonyme'. On January 18, 2000,
Cedelbank was renamed 'Clearstream Banking, societe anonyme'.
On January 17, 2000, DBC was renamed 'Clearstream Banking AG'. Consequently,
there are now two entities in the corporate group headed by Clearstream
International which share the name 'Clearstream Banking', the entity previously
named 'Cedelbank' and the entity previously named 'Deutsche Borse Clearing AG'.
Clearstream holds securities for its customers and facilitates the clearance
and settlement of securities transactions between Clearstream customers through
electronic book-entry changes in accounts of Clearstream customers, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled by Clearstream in any of 36 currencies, including United States dollars.
Clearstream provides to its Clearstream customers, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Clearstream interfaces
with domestic markets in several countries. As a professional depository,
Clearstream is subject in Luxembourg to regulation by and supervision by the
Commission for the Supervision of the Financial Sector. Clearstream customers
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 any of the underwriters of any
trust securities. Indirect access to Clearstream is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Clearstream customer, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for its 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 the risk from transfers of
securities and cash that are not simultaneous.
The Euroclear system has subsequently been extended to clear and settle
transactions between Euroclear participants and counterparties both in
Clearstream and in many domestic securities markets. Transactions may be settled
in any of 34 currencies. In addition to safekeeping (custody) and securities
clearance and settlement, the Euroclear system includes securities lending and
borrowing and money transfer services. The Euroclear system is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation that establishes policy on behalf of Euroclear participants. 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.
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All operations are conducted by the Euroclear operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
operator. They are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear system and
applicable Belgian law. These govern all transfers of securities and cash, both
within the Euroclear system, and receipts and withdrawals of securities and
cash. All securities in the Euroclear system are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts.
Euroclear participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include any of the underwriters of any trust securities. 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 acts under the Terms and Conditions, the
Operating Procedures of the Euroclear system and Belgian law only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
DEFINITIVE SECURITIES
With respect to any class of notes and any class of certificates issued in
book-entry form, such notes or certificates will be issued as Definitive Notes
and Definitive Certificates, respectively, to noteholders or certificateholders
or their respective nominees, rather than to DTC or its nominee, only if (1) the
administrator of the trust or trustee of the trust determines that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such securities and the administrator or the seller, as the case
may be, is unable to locate a qualified successor and so notifies the indenture
trustee or the trustee in writing, (2) the administrator or the seller, as the
case may be, at its option, elects to terminate the book-entry system through
DTC or (3) after the occurrence of an Event of Default under the indenture or an
Event of Servicing Termination with respect to such securities, holders
representing at least a majority of the outstanding principal amount of the
notes or the certificates, as the case may be, of such class advise the
indenture trustee or the trustee through DTC in writing that the continuation of
a book-entry system through DTC (or a successor thereto) with respect to such
notes or certificates is no longer in the best interest of the holders of such
securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the indenture trustee or the trustee will be required to notify all
applicable securityholders of a given class through participants of the
availability of Definitive Securities. Upon surrender by DTC of the definitive
certificates representing the corresponding securities and receipt of
instructions for re-registration, the indenture trustee or the trustee will
reissue such securities as Definitive Securities to such securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the indenture trustee or the trustee in accordance
with the procedures set forth in the related indenture or the related trust
agreement directly to holders of Definitive Securities in whose names the
Definitive Securities were registered at the close of business on the record
date specified for such securities in the related prospectus supplement. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the indenture trustee or trustee or, if
the securityholder satisfies certain requirements in the related indenture or
the related trust agreement, by wire transfer. The final payment on any such
Definitive Security, however, will be made only upon presentation and surrender
of such Definitive Security at the office or agency specified in the notice of
final distribution to the applicable securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the indenture trustee or the trustee or of a registrar named in a notice
delivered to holders of Definitive Securities. No service charge will be imposed
for any registration of transfer or exchange, but the indenture trustee or the
trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
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REPORTS TO SECURITYHOLDERS
On or prior to each payment date, the administrator or the servicer will
prepare and provide to the related indenture trustee and/or trustee a statement
to be delivered to the securityholders on such payment date. With respect to
securities of each trust, each such statement to be delivered to securityholders
will include (to the extent applicable to those securityholders) the following
information (and any other information so specified in the prospectus
supplement) with respect to such payment date or the period since the previous
payment date, as applicable:
(1) the amount of the distribution allocable to principal of each class of
such securities;
(2) the amount of the distribution allocable to interest on or with respect
to each class of securities;
(3) the amount of the distribution allocable to draws from any reserve
account or payments in respect of any other credit or payment
enhancement arrangement;
(4) the aggregate principal balance of the receivables as of the close of
business on the last day of the preceding Collection Period;
(5) any overcollateralization amount or credit enhancement amount;
(6) the aggregate outstanding principal amount for each class of such
securities, each after giving effect to all payments reported under
clause (1) above on such date;
(7) the amount of the servicing fee paid to the servicer and the amount of
any unpaid servicing fee with respect to the related Collection Period
or Collection Periods, as the case may be;
(8) the amount of the aggregate amount of losses realized on the
receivables during that Collection Period calculated as described in
the related prospectus supplement;
(9) previously due and unpaid interest payments (plus interest accrued on
such unpaid interest), if any, on each class of securities, and the
change in such amounts from the preceding statement;
(10) previously due and unpaid principal payments (plus interest accrued on
such unpaid principal), if any, on each class of securities, and the
change in such amounts from the preceding statement;
(11) the aggregate amount to be paid in respect of receivables, if any,
repurchased in such Collection Period;
(12) the balance of any reserve account, if any, on such date, after giving
effect to changes therein on such date;
(13) the amount of Advances to be remitted by the servicer on such date;
(14) for each such date during any Funding Period, the amount remaining in
the pre-funding account;
(15) for the first such date that is on or immediately following the end of
any Funding Period, the amount remaining in the pre-funding account
that has not been used to fund the purchase of Subsequent Receivables
and is being passed through as payments of principal on the securities
of such trust; and
(16) the amount of any cumulative shortfall between payments due in respect
of any credit or payment enhancement arrangement and payments received
in respect of such credit or payment enhancement arrangement, and the
change in any such shortfall from the preceding statement.
Each amount set forth under clauses (1), (2), (7), (9) and (10) with respect
to the notes or the certificates of any trust will be expressed as a dollar
amount per $1,000 of the initial principal amount of such securities.
Within the prescribed period of time for federal income tax reporting
purposes after the end of each calendar year during the term of each trust, the
indenture trustee or the trustee will mail
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to each person who at any time during such calendar year has been a
securityholder with respect to the trust and received any payment thereon a
statement containing certain information for the purposes of such
securityholder's preparation of federal income tax returns. See 'Certain Federal
Income Tax Consequences.'
THE INDENTURE
One or more classes of notes of a trust will be issued under the terms of an
indenture between the trust and the indenture trustee specified in the
prospectus supplement, a form of which has been filed as an exhibit to the
registration statement of which this prospectus forms a part. This summary
describes the material provisions common to the notes of each trust that issues
notes; the attached prospectus supplement will give you additional information
specific to the notes which you are purchasing. This summary does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the notes and the indenture.
EVENTS OF DEFAULT. With respect to the notes issued by a trust, 'Events of
Default' under the related indenture will consist of:
a default for five days (or such longer period specified in the prospectus
supplement) or more in the payment of any interest on any notes;
a default in the payment of the principal of or any installment of the
principal of any note when the same becomes due and payable;
a default in the observance or performance of any covenant or agreement of
the trust made in the related indenture other than those dealt with
specifically elsewhere as an Event of Default which default materially and
adversely affects the noteholders and which default continues for a period
of 60 days after notice thereof is given to the trust by the applicable
indenture trustee or to the trust and such indenture trustee by the holders
of at least 25% in principal amount of the Controlling Class of notes;
certain events of bankruptcy, insolvency, receivership or liquidation of
the applicable trust or its property as specified in the indenture; or
such other events, if any, set forth in the related prospectus supplement.
The 'Controlling Class' of notes of a trust will be its Class A Notes as
long as they are outstanding. When they have been paid in full, the next most
senior class of the trust's notes, if any, will become the Controlling Class so
long as they are outstanding, and so on.
The amount of principal due and payable to holders of a class of notes under
the related indenture until its final scheduled payment date generally will be
limited to amounts available to pay principal thereon. Therefore, the failure to
pay principal on a class of notes generally will not result in the occurrence of
an Event of Default under the indenture until the final scheduled payment date
for such class of notes.
Rights upon Event of Default. If an Event of Default should occur and be
continuing with respect to the notes of any trust, the related indenture trustee
or holders of a majority in principal amount of the Controlling Class may
declare the principal of such notes to be immediately due and payable. Such
declaration may be rescinded by the holders of a majority in principal amount of
the Controlling Class then outstanding if both of the following occur:
the issuer has paid or deposited with the indenture trustee enough money to
pay:
-- all payments of principal of and interest on all notes and all
other amounts that would then be due if the Event of Default
causing the acceleration of maturity had not occurred; and
-- all sums paid or advanced by the indenture trustee and the
reasonable compensation, expenses, disbursements and advances of
the indenture trustee and its agents and counsel; and
all Events of Default, other than the nonpayment of the principal of the
notes that has become due solely by the acceleration, have been cured or
waived.
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If an Event of Default has occurred with respect to the notes issued by any
trust, the related indenture trustee may institute proceedings to collect
amounts due or foreclose on trust property, exercise remedies as a secured party
or sell the related receivables. Upon the occurrence of an Event of Default
resulting in acceleration of the notes, the indenture trustee may sell the
related receivables if:
the holders of 100% of the notes issued by such trust consent to such sale
(excluding notes held by the seller, the servicer or their affiliates),
the proceeds of such sale are sufficient to pay in full the principal of
and the accrued interest on the notes of such trust at the date of such
sale, or
there has been an Event of Default arising from the failure to pay
principal or interest and the indenture trustee determines that the
proceeds of the receivables would not be sufficient on an ongoing basis to
make all payments on the notes of such trust as such payments would have
become due if such obligations had not been declared due and payable, and
such indenture trustee obtains the consent of the holders of 66 2/3% of the
aggregate outstanding amount of the Controlling Class of such trust.
Any money received in realizing on trust property will first be applied to pay
any due and unpaid fees and expenses of the indenture trustee.
In addition, if the Event of Default relates to a default by a trust in
observing or performing any covenant or agreement (other than an Event of
Default relating to non-payment of interest or principal, insolvency or any
other event which is otherwise specifically dealt with by the indenture), the
indenture trustee is prohibited from selling the receivables unless the holders
of all outstanding notes and certificates issued by that trust consent to such
sale or the proceeds of such sale are sufficient to pay in full the principal of
and the accrued interest on the outstanding notes and certificates of that
trust. The indenture trustee may also elect to have the trust maintain
possession of the receivables and apply collections as received without
obtaining the consent of securityholders.
Subject to the provisions of the applicable indenture relating to the duties
of the related indenture trustee, if an Event of Default under the indenture
occurs and is continuing with respect to notes of the trust, such indenture
trustee will be under no obligation to exercise any of the rights or powers
under such indenture at the request or direction of any of the holders of such
notes, if such indenture trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be incurred
by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the related indenture, the
holders of a majority in principal amount of the Controlling Class of a given
trust will have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the applicable indenture trustee, and the
holders of a majority in principal amount of the Controlling Class may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of such indenture that cannot be modified without the waiver or
consent of the holders of all of the outstanding notes of the related trust.
No holder of a note of any trust will have the right to institute any
proceeding with respect to the related indenture, unless --
such holder previously has given to the applicable indenture trustee
written notice of a continuing Event of Default;
the holders of not less than 25% in principal amount of the Controlling
Class of such trust have made written request to such indenture trustee to
institute such proceeding in its own name as indenture trustee;
such holder or holders have offered such indenture trustee reasonable
indemnity;
such indenture trustee has for 60 days after such notice, request and offer
of indemnity failed to institute such proceeding; and
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no direction inconsistent with such written request has been given to such
indenture trustee during such 60-day period by the holders of a majority in
principal amount of the Controlling Class.
Each indenture trustee and the related noteholders, by accepting the related
notes, will covenant that they will not at any time institute against the
applicable trust any bankruptcy, reorganization or other proceeding under any
federal or state bankruptcy or similar law.
With respect to any trust, neither the related indenture trustee nor the
related trustee in its individual capacity, nor any holder of a certificate
representing an ownership interest in the trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will be personally liable for the payment of the principal
of or interest on the related notes or for the agreements of the trust contained
in the applicable indenture.
EACH TRUST WILL BE SUBJECT TO COVENANTS UNDER THE INDENTURE. Each trust will
be subject to the covenants discussed below, as provided in the related
indenture.
Restrictions on merger and consolidation. The related trust may not
consolidate with or merge into any other entity, unless:
-- the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia,
-- such entity expressly assumes the trust's obligation to make due
and punctual payments upon the notes of the related trust and the
performance or observance of every agreement and covenant of the
trust under the indenture,
-- no event that is (or with notice or lapse of time or both would
become) an Event of Default under the indenture shall have occurred
and be continuing immediately after such merger or consolidation,
-- the trust has been advised that the rating of the notes and the
certificates of such trust then in effect would not be reduced or
withdrawn by the Rating Agencies as a result of such merger or
consolidation,
-- the trust has received an opinion of counsel to the effect that
such consolidation or merger would have no material adverse federal
income tax consequence to the trust or to any related noteholder or
certificateholder,
-- any action as is necessary to maintain the lien and security
interest created by the related indenture shall have been taken,
and
-- the trust has received an opinion of counsel and officer's
certificate each stating that such consolidation or merger
satisfies all requirements under the related indenture.
Other negative covenants. Each trust will not, among other things --
-- except as expressly permitted by the applicable Basic Documents,
sell, transfer, exchange or otherwise dispose of any of the assets
of the trust,
-- claim any credit on or make any deduction from the principal and
interest payable in respect of the notes of the related trust
(other than amounts withheld under the tax code or applicable state
law) or assert any claim against any present or former holder of
such notes because of the payment of taxes levied or assessed upon
the trust or its property,
-- dissolve or liquidate in whole or in part,
-- permit the lien of the related indenture to be subordinated or
otherwise impaired,
-- permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations with respect to such notes under such indenture except
as may be expressly permitted thereby, or
-- permit any lien, charge, excise, claim, security interest, mortgage
or other encumbrance to be created on or extend to or otherwise
arise upon or burden the assets of the trust or any part thereof,
or any interest therein or the proceeds thereof, except for
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tax, mechanics' or certain other liens and except as may be created
by the terms of the related indenture.
No trust may engage in any activity other than as specified under the
section of the related prospectus supplement titled 'The Trust.' No trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
under the related notes and indenture, the related certificates and as a result
of any Advances made to it by the servicer or otherwise in accordance with the
related sale and servicing agreement or other documents relating to the trust.
LIST OF NOTEHOLDERS. With respect to the notes of any trust, three or more
holders of the notes of any trust or one or more holders of such notes
evidencing not less than 25% of the aggregate outstanding principal amount of
the Controlling Class may, by written request to the related indenture trustee
accompanied by a copy of the communication that the applicant proposes to send,
obtain access to the list of all noteholders maintained by such indenture
trustee for the purpose of communicating with other noteholders with respect to
their rights under the related indenture or under such notes. Such indenture
trustee may elect not to afford the requesting noteholders access to the list of
noteholders if it agrees to mail the desired communication or proxy, on behalf
of and at the expense of the requesting noteholders, to all noteholders of the
trust.
ANNUAL COMPLIANCE STATEMENT. Each trust will be required to file annually
with the related indenture trustee a written statement as to the fulfillment of
its obligations under the indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The indenture trustee for each trust will
be required to mail each year to all related noteholders a brief report relating
to its eligibility and qualification to continue as indenture trustee under the
related indenture, any amounts advanced by it under the indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the trust to
the applicable indenture trustee in its individual capacity, the property and
funds physically held by such indenture trustee as such and any action taken by
it that materially affects the related notes and that has not been previously
reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An indenture will be discharged
with respect to the collateral securing the related notes upon the delivery to
the related indenture trustee for cancellation of all such notes or, with
certain limitations, upon deposit with such indenture trustee of funds
sufficient for the payment in full of all such notes.
MODIFICATION OF INDENTURE. Any trust, together with the related indenture
trustee, may, without the consent of the noteholders of the trust, execute a
supplemental indenture for any of the following purposes:
to correct or amplify the description of any property at any time subject
to the lien of the indenture, or better to convey to the indenture trustee
any property subject or required to be subjected to the lien of the
indenture, or to subject to the lien of the indenture additional property;
to evidence the succession, in compliance with the applicable provisions of
the indenture, of another person to the trust, and the assumption by any
such successor of the covenants of the trust in the indenture and in the
notes;
to add to the covenants of the trust, for the benefit of the noteholders,
or to surrender any right or power in the indenture conferred upon the
trust;
to convey, transfer, assign, mortgage or pledge any property to or with the
indenture trustee;
to cure any ambiguity, to correct or supplement any provision in the
indenture or in any supplemental indenture that may be inconsistent with
any other provision in the indenture or in any supplemental indenture or to
make any other provisions with respect to matters or questions arising
under the indenture or under any supplemental indenture which shall not be
inconsistent with the provisions of the indenture; provided that such
action shall not materially adversely affect the interests of the
noteholders;
to evidence and provide for the acceptance of the appointment under the
indenture by a successor trustee with respect to the notes and to add to or
change any of the provisions of
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the indenture as shall be necessary to facilitate the administration of the
trusts under the indenture by more than one trustee; or
to modify, eliminate or add to the provisions of the indenture to such
extent as shall be necessary to effect the qualification of the indenture
under the Trust Indenture Act or under any similar federal statute enacted
after the date of the indenture and to add to the indenture such other
provisions as may be required by the Trust Indenture Act.
The trust and the applicable indenture trustee may also enter into
supplemental indentures, without obtaining the consent of the noteholders of the
related trust, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
indenture or modifying in any manner the rights of such noteholders (except with
respect to the matters listed in the next paragraph which require the approval
of the noteholders) provided that:
such action will not, as evidenced by an opinion of counsel, materially
adversely affect the interest of any noteholder;
such action will not, as confirmed by the Rating Agencies rating the notes
of the related trust, cause the then current rating assigned to any class
of such notes to be withdrawn or reduced; and
an opinion of counsel as to certain tax matters is delivered.
Without the consent of the holder of each such outstanding note affected
thereby (in addition to the satisfaction of each of the conditions set forth in
the preceding paragraph), however, no supplemental indenture will:
change the due date of any installment of principal of or interest on any
such note or reduce the principal amount thereof, the interest rate thereon
or the redemption price with respect thereto, change the application of the
proceeds of a sale of the trust property to payment of principal and
interest on the notes or change any place of payment where, or the coin or
currency in which, any such note or any interest thereon is payable;
impair the right to institute suit for the enforcement of certain
provisions of the related indenture regarding payment;
reduce the percentage of the aggregate amount of the Controlling Class or
of the notes, the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required
for any waiver of compliance with certain provisions of the related
indenture or of certain defaults or events of default thereunder and their
consequences as provided for in such indenture;
modify or alter the provisions of the related indenture regarding the
voting of notes held by the applicable trust, any other obligor on such
notes, the seller or an affiliate of any of them;
reduce the percentage of the aggregate outstanding amount of the
Controlling Class, the consent of the holders of which is required to
direct the related indenture trustee to sell or liquidate the receivables
after an Event of Default if the proceeds of such sale would be
insufficient to pay the principal amount and accrued but unpaid interest on
the outstanding notes and certificates of such trust;
decrease the percentage of the aggregate principal amount of the
Controlling Class or of the notes required to amend the sections of the
related indenture which specify the applicable percentage of aggregate
principal amount of the notes of such trust necessary to amend such
indenture or any of the other Basic Documents;
affect the calculation of the amount of interest or principal payable on
any note on any payment date (including the calculation of any of the
individual components of such calculation);
affect the rights of the noteholders to the benefit of any provisions for
the mandatory redemption of the notes provided in the related indenture, or
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permit the creation of any lien ranking prior to or on a parity with the
lien of the related indenture with respect to any of the collateral for
such notes or, except as otherwise permitted or contemplated in such
indenture, terminate the lien of such indenture on any such collateral or
deprive the holder of any such note of the security afforded by the lien of
such indenture.
THE INDENTURE TRUSTEE
The indenture trustee of notes for each trust will be specified in the
related prospectus supplement. The indenture trustee for any trust may resign at
any time, in which event the administrator of the trust, on behalf of the trust,
will be obligated to appoint a successor trustee. The administrator of a trust,
on behalf of the trust, will be obligated to remove an indenture trustee if such
indenture trustee ceases to be eligible to continue as such under the related
indenture or if such indenture trustee becomes insolvent. In such circumstances,
the administrator of the trust will be obligated to appoint a successor trustee
for the notes of the applicable trust. In addition, a majority of the
Controlling Class may remove the indenture trustee without cause and may appoint
a successor indenture trustee. If a trust issues a class of notes that is
subordinated to one or more other classes of notes and an Event of Default
occurs under the related indenture, the indenture trustee may be deemed to have
a conflict of interest under the Trust Indenture Act of 1939 and may be required
to resign as trustee for one or more of the classes of notes. In any such case,
the indenture will provide for a successor indenture trustee to be appointed for
those classes of notes. Any resignation or removal of the indenture trustee and
appointment of a successor trustee for the notes of the trust does not become
effective until acceptance of the appointment by the successor trustee for such
trust.
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DESCRIPTION OF THE RECEIVABLES TRANSFER
AND SERVICING AGREEMENTS
The following summary describes certain terms of the documents pursuant to
which the seller sells receivables to a trust and the servicer services the
receivables on behalf of the trust. In the case of a trust that is not a grantor
trust, that document is the sale and servicing agreement. For a grantor trust,
it is the pooling and servicing agreement. This section also describes certain
provisions of the trust agreement for a trust that is not a grantor trust. Forms
of those documents have been filed as exhibits to the Registration Statement of
which this prospectus forms a part. This summary describes the material
provisions common to the securities of each trust; the attached prospectus
supplement will give you additional information specific to the securities which
you are purchasing. This summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all the provisions of those
documents.
SALE AND ASSIGNMENT OF RECEIVABLES
SALE AND ASSIGNMENT BY THE SELLER. When the trust issues securities, the
seller will sell and assign to the trust under a sale and servicing agreement or
a pooling and servicing agreement, without recourse, the seller's entire
interest in the Receivables, including its security interests in the related
financed vehicles. Each such receivable will be identified in a schedule to the
related sale and servicing agreement or a pooling and servicing agreement. The
trustee of the trust will not independently verify the existence and eligibility
of any receivables. The trustee of the trust will, concurrently with such sale
and assignment, execute and deliver the related notes and/or certificates.
SALE AND ASSIGNMENT OF SUBSEQUENT RECEIVABLES. The related prospectus
supplement for the trust will specify whether, and the terms, conditions and
manner under which, Subsequent Receivables will be sold by the seller to the
applicable trust from time to time during any Funding Period on each Subsequent
Transfer Date.
REPRESENTATIONS AND WARRANTIES. In each sale and servicing agreement or
pooling and servicing agreement, the seller will represent and warrant to the
applicable trust, among other things, that at the date of issuance of the
related notes and/or certificates or at the applicable Subsequent Transfer
Date --
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;
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, and any
consumer credit, equal opportunity and disclosure laws applicable to such
receivable and sale;
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 and other similar laws and equitable
principles relating to or affecting the enforcement of creditors' rights;
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;
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as of the cut-off 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;
as of the cut-off 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;
except for payment defaults continuing for a period of not more than 30
days (or such other number of days specified in the prospectus supplement)
as of the cut-off 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;
each receivable requires that the obligor thereunder obtain comprehensive
and collision insurance covering the financed vehicle; and
each receivable satisfies the criteria for the selection of receivables for
the trust described in the prospectus supplement.
SELLER MUST REPURCHASE THE RECEIVABLES RELATING TO A BREACH OF
REPRESENTATION OR WARRANTY. As of the last day of the first or second Collection
Period following the discovery by or notice to the seller of a breach of any
representation or warranty of the seller which materially and adversely affects
the interests of the related trust in any receivable, the seller, unless the
breach has been cured, will repurchase such receivable from the trust. The
repurchase price will equal the 'PURCHASE AMOUNT', which is the unpaid principal
balance of that receivable plus accrued interest thereon to the date of purchase
at the weighted average interest rate borne by the trust's securities. The
purchase obligation will constitute the sole remedy available to the
certificateholders or the trustee and any noteholders or indenture trustee in
respect of the related trust for any such uncured breach.
SERVICING OF THE RECEIVABLES. Under each sale and servicing agreement or
pooling and servicing agreement, the servicer will service and administer the
receivables held by each trust and, as custodian on behalf of the trust, will
maintain possession of the installment loan agreements and any other documents
relating to such receivables. To assure uniform quality in servicing the
receivables, as well as to facilitate servicing and save administrative costs,
the installment loan agreements and other documents relating thereto will not be
physically segregated from other similar documents that are in the servicer's
possession or otherwise stamped or marked to reflect the transfer to the trust.
The obligors under the receivables will not be notified of the transfer.
However, Uniform Commercial Code financing statements reflecting the sale and
assignment of the receivables by the seller to the trust will be filed, and the
servicer's accounting records and computer systems will be marked to reflect
such sale and assignment. Because those receivables will remain in the
servicer's possession and will not be stamped or otherwise marked to reflect the
assignment to the trust if a subsequent purchaser were to obtain physical
possession of such receivables without knowledge of the assignment, the trust's
interest in the receivables could be defeated. See 'Some Important Legal Issues
Relating to the Receivables -- Security Interests in Vehicles.'
ACCOUNTS
For each trust, the servicer will establish and maintain one or more
collection accounts in the name of the indenture trustee on behalf of the
related securityholders or, if the trust does not issue notes, in the name of
the trustee for the related certificateholders. The servicer will deposit all
collections on the receivables into the collection account. If the trust issues
notes, the servicer or the indenture trustee may establish and maintain a
distribution account (which may be a subaccount of the collection account), in
the name of the indenture trustee on behalf of such noteholders, into which
amounts released from the collection account and any other accounts of
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the trust for payment to such noteholders will be deposited and from which
distributions of interest and/or principal to such noteholders will be made. The
servicer or the trustee may establish and maintain one or more certificate
distribution accounts, in the name of the trustee on behalf of the
certificateholders, into which amounts released from the collection account and
any other accounts of the trust for distribution to the certificateholders will
be deposited and from which all distributions to the certificateholders will be
made.
Any other accounts to be established with respect to securities of the
trust, including any pre-funding account, yield supplement account or reserve
account, will be described in the related prospectus supplement.
For any securities of the trust, funds in the trust accounts will be
invested as provided in the related sale and servicing agreement or pooling and
servicing agreement in Permitted Investments. Permitted Investments satisfy
criteria established by the Rating Agencies and are generally limited to
obligations or securities that mature on or before the date of the next payment
date. However, to the extent permitted by the Rating Agencies, funds in any
reserve account may be invested in securities that will not mature prior to the
date of the next distribution on the notes or certificates and which will not be
sold to meet any shortfalls. Thus, the amount of cash available in any reserve
account at any time may be less than the balance of the reserve account. If the
amount required to be withdrawn from any reserve account to cover shortfalls in
collections on the related receivables (as provided in the related prospectus
supplement) exceeds the amount of cash in the reserve account, a temporary
shortfall in the amounts distributed to the related noteholders or
certificateholders could result, which could, in turn, increase the average life
of the notes or the certificates of such trust. Net investment earnings on funds
deposited in the trust accounts shall be deposited in the applicable collection
account or distributed as provided in the related prospectus supplement.
The trust accounts will be maintained as Eligible Deposit Accounts, which
are accounts at a depository institution satisfying certain requirements of the
Rating Agencies.
SERVICING PROCEDURES
The Bank will act as servicer and make reasonable efforts to collect all
payments due with respect to the receivables held by each trust and will use the
same collection procedures that it follows with respect to Motor Vehicle Loans
that it services for itself, in a manner consistent with the related sale and
servicing agreement or pooling and servicing agreement.
Consistent with its normal procedures, the servicer may, in its discretion,
arrange with the obligor on a receivable to defer or modify the payment
schedule. Some of such arrangements may require the servicer to purchase the
receivable while others may result in the servicer making Advances with respect
to the receivable. The servicer may be obligated to purchase a receivable if,
among other things, it extends the date for final payment by the obligor of such
receivable beyond the last day of the Collection Period during which the latest
maturing receivable matures, as set forth in the related prospectus supplement,
or changes the contract rate of interest or the total amount or number of
scheduled payments of such receivable. If the servicer determines that eventual
payment in full of a receivable is unlikely, the servicer will follow its normal
practices and procedures to realize upon the receivable, including the
repossession and disposition of the financed vehicle securing the receivable at
a public or private sale, or the taking of any other action permitted by
applicable law.
COLLECTIONS
With respect to securities of each trust, so long as the Bank is the
servicer and provided that (1) there exists no Event of Servicing Termination
and (2) each other condition to making monthly deposits as may be required by
the related sale and servicing agreement or pooling and servicing agreement is
satisfied, the servicer may retain all payments on the related receivables
received from obligors and all proceeds of the related receivables collected
during a Collection Period until the business day preceding the applicable
payment date or the payment date itself. However, if
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such conditions are not met, the servicer will be required to deposit such
amounts into the related collection account not later than the second business
day after receipt. The servicer or the seller, as the case may be, will remit
the aggregate Purchase Amount of any receivables to be purchased from the trust
to its collection account on or prior to the business day preceding the
applicable payment date. Pending deposit into the collection account,
collections may be employed by the servicer at its own risk and for its own
benefit and will not be segregated from its own funds. To the extent set forth
in the related prospectus supplement, the servicer may, in order to satisfy the
requirements described above, obtain a letter of credit or other security for
the benefit of the related trust to secure timely remittances of collections of
the related receivables and payment of the aggregate Purchase Amount with
respect to receivables purchased by the servicer.
Collections on a receivable made during a Collection Period shall be applied
first to any outstanding Advances made by the servicer with respect to such
receivable (to the extent described below under ' -- Advances'), second, to the
payment of accrued and unpaid interest, third, to the payment of principal and,
fourth, to the payment of any late fees or certain other fees or charges.
ADVANCES
The servicer will make a payment with respect to each receivable (other than
a receivable designated as 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 of
interest, over (b) the interest actually received by the servicer with respect
to such receivable from the obligor or from the payment of the Purchase Amount
during or with respect to such Collection Period (any such payment, an
'ADVANCE') unless 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, if any. In the event that the servicer
does not make an Advance, any payment deficiency on the securities resulting
therefrom will be funded by the application of available amounts, if any, in the
reserve account or any other available credit enhancement.
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 paid to the servicer on the related
payment date to reimburse the servicer for previous unreimbursed Advances (the
'OUTSTANDING ADVANCES') with respect to such receivable. Any such reimbursement
will be from past due interest paid by the obligor under such receivable. Also,
the servicer will reimburse itself for an Outstanding Advance for a receivable
out of any funds of the trust when the receivable is designated a defaulted
receivable.
The servicer will deposit all Advances into the collection account on the
business day immediately preceding the related payment date.
SERVICING COMPENSATION AND EXPENSES
The servicer will be entitled to receive a servicing fee for each Collection
Period equal to a per annum percentage (specified in the prospectus supplement)
of the aggregate principal balance of the receivables as of the first day of
such Collection Period. The servicer also will be entitled to receive as a
supplemental servicing fee for each Collection Period any late fees and other
administrative fees and expenses collected during such Collection Period. The
servicer does not currently charge such fees and expenses, but may do so in the
future. If specified in the related prospectus supplement, the supplemental
servicing fee will include net investment earnings on funds deposited in the
trust accounts and other accounts with respect to the trust. The servicer will
be paid the servicing fee and the supplemental servicing fee for each Collection
Period on the applicable payment date.
The servicing fee and the supplemental servicing fee are intended to
compensate the servicer for performing the functions of a third party servicer
of the receivables as an agent for the trust, including collecting and posting
all payments, responding to inquiries of obligors on the
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receivables, investigating delinquencies, sending payment coupons to obligors,
reporting federal income tax information to obligors, paying costs of
collections and repossessions, and policing the collateral. The fees will also
compensate the servicer for administering the particular receivables pool,
including making advances, accounting for collections, furnishing monthly and
annual statements to the related trustee and indenture trustee with respect to
distributions, and generating federal income tax information for the trust. The
fees, if any, also will reimburse the servicer for certain taxes, the fees of
the related trustee and indenture trustee, if any, accounting fees, outside
auditor fees, data processing costs, and other costs incurred in connection with
administering the applicable 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 additional compensation consisting of investment earnings
described above, is comparable to fees that would be paid to parties
unaffiliated with the Bank.
DISTRIBUTIONS
With respect to securities of each trust, beginning on the payment date
specified in the related prospectus supplement, distributions of principal and
interest (or, where applicable, of principal or interest only) on each class of
such securities entitled thereto will be made by the applicable trustee or
indenture trustee to the noteholders and the certificateholders of such trust.
The timing, calculation, allocation, order, source, priorities of and
requirements for all payments to each class of securityholders of such trust
will be set forth in the related prospectus supplement.
ALLOCATION OF COLLECTIONS ON RECEIVABLES. On the business day before each
payment date, the servicer shall determine the amount in the collection account
available to make payments or distributions to securityholders on the related
payment date and will direct the indenture trustee, if any, and/or the trustee
to make the distributions as described in the related prospectus supplement.
CREDIT AND PAYMENT ENHANCEMENT
ANY FORM OF CREDIT ENHANCEMENT MAY BE LIMITED AND MAY ONLY APPLY TO CERTAIN
CLASSES OF SECURITIES. The presence of a reserve account and other forms of
credit or payment enhancement for the benefit of any class or securities of the
trust is intended to (1) enhance the likelihood of receipt by the
securityholders of such class of the full amount of principal and interest due
thereon and (2) decrease the likelihood that such securityholders will
experience losses. The various types of credit or payment enhancement that a
trust may have are listed under 'Summary -- Credit or Payment Enhancement.' The
credit or payment enhancement for a class of securities may not provide
protection against all risks of loss and may not guarantee repayment of the
entire principal amount and interest thereon. If losses occur which exceed the
amount covered by any credit enhancement or which are not covered by any credit
enhancement, securityholders will bear their allocable share of deficiencies, as
described in the related prospectus supplement.
SELLER MAY REPLACE CREDIT OR PAYMENT ENHANCEMENT WITH RATING CONFIRMATION.
If so provided in the related prospectus supplement, the seller may replace the
credit enhancement for any class of securities with another form of credit
enhancement without the consent of securityholders, provided the Rating Agencies
confirm in writing that substitution will not result in the reduction or
withdrawal of the rating of any class of securities of the related trust.
RESERVE ACCOUNT. If so provided in the related prospectus supplement, the
reserve account will be funded by an initial deposit by the trust or the seller
on the closing date in the amount set forth in the related prospectus supplement
and, if the related trust has a Funding Period, will also be funded by the trust
on each Subsequent Transfer Date to the extent described in the related
prospectus supplement. As further described in the related prospectus
supplement, the amount on deposit in a reserve account will be increased on each
payment date thereafter up to the specified reserve balance by the deposit
therein of the amount of collections on the related receivables available
therefor or as described in the prospectus supplement. The related prospectus
supplement will describe the circumstances and manner under which distributions
may be made out of a reserve account.
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SELLER MAY ASSIGN RIGHTS IN RESERVE ACCOUNT SUBJECT TO CONDITIONS. The
seller may at any time, without consent of the securityholders of a trust, sell,
transfer, convey or assign in any manner its rights to and interests in
distributions from a reserve account of that trust provided that --
the Rating Agencies confirm in writing that such action will not result in
a reduction or withdrawal of the rating of any class of securities issued
by that trust;
the seller provides to the applicable trustee and any indenture trustee an
opinion of counsel from independent counsel that such action will not cause
the trust to be classified as an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes; and
such transferee or assignee agrees in writing to take positions for federal
income tax purposes consistent with the federal income tax positions
previously taken by the seller.
NET DEPOSITS
As an administrative convenience and for so long as certain conditions are
satisfied (see 'Collections' above), the servicer will be permitted to make the
deposit of collections, aggregate Advances and payments of Purchase Amounts for
any trust for or with respect to the related Collection Period, net of
distributions to the servicer as reimbursement of Advances or payment of fees to
the servicer with respect to such Collection Period. The servicer, however, will
account to the trustee, any indenture trustee, the noteholders, if any, and the
certificateholders with respect to each trust as if all deposits, distributions,
and transfers were made individually.
STATEMENTS TO TRUSTEES AND TRUSTS
Prior to each payment date with respect to securities of each trust, the
servicer will provide to the applicable indenture trustee, if any, and the
applicable trustee as of the close of business on the last day of the preceding
Collection Period the report that is required to be provided to securityholders
of such trust described under 'Certain Information Regarding the Securities --
Reports to Securityholders.'
EVIDENCE AS TO COMPLIANCE
Each sale and servicing agreement and pooling and servicing agreement will
provide that a firm of independent certified public accountants will furnish to
the related trust and indenture trustee or trustee, as applicable, annually a
statement as to compliance by the servicer during the preceding twelve months
(or, in the case of the first such certificate, from the applicable closing
date) with certain standards relating to the servicing of the applicable
receivables.
Each sale and servicing agreement and pooling and servicing agreement will
also provide for delivery to the related trust and indenture trustee or trustee,
as applicable, substantially simultaneously with the delivery of such
accountants' statement referred to above, of a certificate signed by an officer
of the servicer stating that the servicer has fulfilled its obligations under
that agreement throughout the preceding twelve months (or, in the case of the
first such certificate, from the closing date) 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
securityholders by a request in writing addressed to the applicable trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each sale and servicing agreement and pooling and servicing agreement will
provide that the Bank may not resign from its obligations and duties as servicer
thereunder, except upon a determination that the Bank's performance of such
duties is no longer permissible under applicable law. No such resignation will
become effective until the related indenture trustee or trustee, as applicable,
or a successor servicer has assumed the Bank's servicing obligations and duties
under
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such sale and servicing agreement or pooling and servicing agreement. The
servicer will also have the right to delegate any of its duties under those
agreements to a third party without the consent of any securityholder or the
confirmation of any rating. Notwithstanding any such delegation, the servicer
will remain responsible and liable for its duties under those agreements as if
it had made no delegations.
Each sale and servicing agreement and pooling and servicing agreement will
further provide that neither the servicer nor any of its directors, officers,
employees and agents will be under any liability to the related trust or the
related noteholders or certificateholders for taking any action or for
refraining from taking any action under such sale and servicing agreement or
pooling and servicing agreement or for errors in judgment; except 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 the servicer's duties thereunder or by reason
of reckless disregard of its obligations and duties thereunder, except that
employees of the servicer or its affiliates will be protected against liability
that would otherwise be imposed by reason of negligence. Such 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 the servicer's performance of its duties under such
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. However, such indemnification will be paid on a payment date
only after all payments required to be made to securityholders and the servicer
have been made and all amounts required to be deposited in enhancement accounts
have been deposited. In addition, each sale and servicing agreement and pooling
and servicing 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 such sale and servicing agreement or
pooling and servicing 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 of a particular sale
and servicing agreement or pooling and servicing agreement, the rights and
duties of the parties thereto, and the interests of the related securityholders
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.
Under the circumstances specified in each sale and servicing agreement and
pooling and servicing agreement, any entity into which the servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the servicer is a party, or any entity succeeding to the business of
the servicer or, with respect to its obligations as servicer, any entity 50% or
more of the equity of which is owned, directly or indirectly, by USAA, which
corporation or other entity in each of the foregoing cases assumes the
obligations of the servicer, will be the successor of the servicer under such
sale and servicing agreement or pooling and servicing agreement.
EVENTS OF SERVICING TERMINATION
'Events of Servicing Termination' under each sale and servicing agreement or
pooling and servicing agreement will consist of:
any failure by the servicer (or, so long as the seller is the servicer, the
seller) to deliver to the trustee or indenture trustee for distribution to
the securityholders of the related trust or for deposit in any of the trust
accounts or the certificate distribution account any required payment,
which failure continues unremedied for five business days after written
notice from the trustee or indenture trustee is received by the servicer or
the seller, as the case may be, or after discovery by an officer of the
servicer or the seller, as the case may be;
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 in such sale and servicing agreement or pooling and
servicing agreement, which failure materially and
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adversely affects the rights of the noteholders or the certificateholders
of the related trust and which continues unremedied for 90 days after the
giving of written notice of such failure (A) to the servicer or the seller,
as the case may be, by the trustee or the indenture trustee or (B) to the
servicer, the seller and the trustee or the indenture trustee by holders of
notes or certificates of such trust, as applicable, of not less than 25% in
principal amount of the Controlling Class (or, if the trust has issued
notes and its notes are no longer outstanding, 25% by aggregate certificate
balance of the certificates);
the occurrence of certain insolvency events specified in the sale and
servicing agreement or pooling and servicing agreement with respect to the
servicer; and
such other events, if any, set forth in the related prospectus supplement.
RIGHTS UPON EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination under a sale and servicing
agreement or pooling and servicing agreement remains unremedied, the related
indenture trustee or holders of not less than a majority of the Controlling
Class or the class of notes specified in the prospectus supplement (and after
the notes have been paid in full or if the trust has not issued notes, the
trustee or the holders of not less than a majority of the certificate balance)
may terminate all the rights and obligations of the servicer under such sale and
servicing agreement or pooling and servicing agreement, whereupon such indenture
trustee or trustee or a successor servicer appointed by such indenture trustee
or trustee will succeed to all the responsibilities, duties and liabilities of
the servicer under such sale and servicing agreement or pooling and servicing
agreement and will be entitled to similar compensation arrangements.
If, however, a receiver, bankruptcy trustee or similar official has been
appointed for the servicer, and no Event of Servicing Termination other than
such appointment has occurred, such receiver, bankruptcy trustee or official may
have the power to prevent such indenture trustee, such noteholders, the trustee
or such certificateholders from effecting a transfer of servicing. In the event
that such indenture trustee or trustee of the trust is legally unable to act as
servicer, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor servicer. Such indenture trustee or trustee may make
such arrangements for compensation to be paid, which in no event may be greater
than the servicing compensation to the servicer under such sale and servicing
agreement or pooling and servicing agreement.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
The holders of not less than a majority of the Controlling Class or the
class of notes specified in the prospectus supplement (and after the notes have
been paid in full or if the trust has not issued notes, the trustee or the
holders of not less than a majority of the certificate balance) may, on behalf
of all such securityholders, waive any Event of Servicing Termination under the
related sale and servicing agreement or pooling and servicing agreement and its
consequences, except an Event of Servicing Termination consisting of a failure
to make any required deposits to or payments from any of the trust accounts in
accordance with such sale and servicing agreement or pooling and servicing
agreement.
AMENDMENT
The parties to each of the Receivables Transfer and Servicing Agreements may
amend any of such agreements, without the consent of the related
securityholders, to add any provisions to or change or eliminate any of the
provisions of such Receivables Transfer and Servicing Agreements or modify the
rights of such securityholders; provided that such action will not materially
and adversely affect the interest of any such securityholder as evidenced by
either (i) an opinion of counsel or an officer's certificate to that effect and
(ii) notification by each Rating Agency then rating any of the related
securities that the rating then assigned to the securities will not be reduced
or withdrawn by such Rating Agency. The Receivables Transfer and Servicing
Agreements may also be amended by the seller, the servicer, the related trustee
and any related indenture
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trustee with the consent of the holders of any notes of such trust evidencing
not less than a majority in principal amount of the notes, and the holders of
the certificates of such trust evidencing not less than a majority of the
certificate balance of the certificates then outstanding, to add any provisions
to or change or eliminate any of the provisions of such Receivables Transfer and
Servicing Agreements or modify the rights of the securityholders; provided,
however, that no such amendment may (1) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
related receivables or distributions that are required to be made for the
benefit of such securityholders or change any interest rate on the securities or
the amount required to be on deposit in the reserve account, if any, or (2)
reduce the percentage of the notes or certificates of such trust the holders of
which are required to consent to any such amendment, without the consent of the
holders of all the outstanding notes and certificates of such trust.
PAYMENT OF NOTES
The indenture trustee will agree in the related indenture that, upon the
payment in full of all outstanding notes of a given trust and the satisfaction
and discharge of the related indenture, to continue to carry out its obligations
under the sale and servicing agreement as agent for the trustee of the trust.
TERMINATION
With respect to each trust, the obligations of the servicer, the seller, the
related trustee and the related indenture trustee under the Receivables Transfer
and Servicing Agreements will terminate upon the earlier of (1) the maturity or
other liquidation of the last related receivable and the disposition of any
amounts received upon liquidation of any such remaining receivables and (2) the
payment to noteholders and certificateholders of the related trust of all
amounts required to be paid to them under the Receivables Transfer and Servicing
Agreements.
In order to avoid excessive administrative expense, the servicer will be
permitted at its option to purchase from each trust as of the end of any
applicable Collection Period, if the aggregate principal balance of the
receivables held by the trust is 10% (or such other percentage specified in the
prospectus supplement) or less of the aggregate principal balance of the
receivables as of the cut-off date, all remaining related receivables at a price
equal to the aggregate of the Purchase Amounts thereof as of the end of such
Collection Period, after giving effect to the receipt of any monies collected on
the receivable.
If and to the extent provided in the related prospectus supplement with
respect to the trust, the applicable trustee will, within ten days following a
payment date as of which the aggregate principal balance of the receivables is
equal to or less than the percentage of the initial aggregate principal balance
of the receivables as of the cut-off date specified in the related prospectus
supplement, solicit bids for the purchase of the receivables remaining in the
trust in the manner and subject to the terms and conditions set forth in such
prospectus supplement. If the applicable trustee receives satisfactory bids as
described in such prospectus supplement, then the receivables remaining in the
trust will be sold to the highest bidder.
As more fully described in the related prospectus supplement, any
outstanding notes of the related trust will be paid in full concurrently with
either of the events specified above and the subsequent distribution to the
related certificateholders of all amounts required to be distributed to them
under the applicable trust agreement will effect early retirement of the
certificates of such trust.
LIST OF CERTIFICATEHOLDERS
With respect to the certificates of any trust, three or more holders of the
certificates of such trust or one or more holders of such certificates
evidencing not less than 25% of the certificate balance of such certificates
may, by written request to the related trustee accompanied by a copy of the
communication that the applicant proposes to send, obtain access to the list of
all
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certificateholders maintained by the trustee for the purpose of communicating
with other certificateholders with respect to their rights under the related
trust agreement or pooling and servicing agreement or under such certificates.
ADMINISTRATION AGREEMENT
The Bank will be the administrator of each trust that is not a grantor trust
and will agree, to the extent provided in an administration agreement, to
provide the notices and certain reports and to perform other administrative
obligations of the trust and the trustee required by the related indenture. The
administrator will be entitled to a periodic administration fee which will be
paid by the seller as compensation for the performance of the administrator's
obligations under the applicable administration agreement and as reimbursement
for its expenses related thereto.
The administrator may resign its duties under the administration agreement
upon at least 60 days' prior written notice. The trust may remove the
administrator without cause upon at least 60 days' prior written notice. The
trust may also remove the administrator upon (i) its default in any material
respect in its duties under the administration agreement that remains uncured
for ten days (or such longer period acceptable to the trust) or (ii) certain
insolvency events in respect of the administrator. No such resignation or
removal will be effective until a successor has agreed to be the administrator
and the applicable rating agencies have confirmed the ratings of the securities
of that trust.
DUTIES OF TRUSTEE
The trustee will not make any representations as to the validity or
sufficiency of any agreements, the securities (other than its execution and
authentication of the securities), or the receivables or any related documents,
and will not be 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
securities or the receivables, or any monies prior to the time such monies are
deposited into any account in its name. The trustee will not independently
verify any receivables. The trustee will be required to perform only those
duties specifically required of it under the trust agreement or the pooling and
servicing agreement. Generally, those duties will be limited to the receipt of
the various certificates, reports, or other instruments required to be furnished
to the trustee under the applicable agreement, in which case it will only be
required to examine them to determine whether they conform to the requirements
of the agreement.
The trustee will not be under any obligation to exercise any of the rights
or powers vested in it by the trust agreement or the pooling and servicing
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 the
certificateholders have offered to the trustee reasonable security or indemnity
against the costs, expenses, and liabilities which the trustee may incur. No
certificateholder will have any right under the trust agreement or the pooling
and servicing agreement to institute any proceeding with respect to that
agreement, unless such holder previously has given to the trustee written notice
of default and unless, with respect to a class of certificates, the holders of
certificates evidencing not less than a majority of the certificate balance of
that class of 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 trustee will be named in the prospectus supplement. The trustee may
resign at any time by giving written notice to the seller or the servicer, in
which event the trustee, in the case of a pooling and servicing agreement, or
the seller or the administrator, in the case of a trust agreement, will be
obligated to appoint a successor trustee. The trustee will be obligated to
resign if the trustee ceases to be eligible to continue as such under the trust
agreement or the pooling
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and servicing agreement, becomes legally unable to act, or becomes insolvent. In
such circumstances, the trustee, in the case of a pooling and servicing
agreement, or the seller or the administrator, in the case of a trust agreement,
will be obligated to appoint a successor trustee. Any resignation or removal of
the trustee and appointment of a successor trustee will not become effective
until acceptance of the appointment by the successor trustee.
The trust agreement or the pooling and servicing agreement will provide that
the servicer will pay the trustee's fees. That 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). If the servicer fails to indemnify the
trustee, the trustee will be entitled to be indemnified by the trust. Any such
indemnification will be paid on a payment date only after all amounts required
to be paid to the securityholders 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 seller, the servicer and their respective affiliates may have normal
banking relationships with the trustee and its affiliates.
SOME IMPORTANT LEGAL ISSUES RELATING TO THE RECEIVABLES
SECURITY INTEREST IN THE RECEIVABLES
The receivables are 'chattel paper' as defined in the Uniform Commercial
Code (the 'UCC') in effect in the States of Texas and New York. 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 a trust's ownership
interest in its receivables, the seller 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 its receivables and their proceeds. Under the
sale and servicing agreement or the pooling and servicing agreement, the seller
will be obligated to maintain the perfection of the trust's ownership interest
in the receivables. However, 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 documents evidencing the
receivables since they would not be marked to show such sale, although the
seller's master computer records will indicate 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 seller 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 seller is registered. The receivables prohibit the sale or
transfer of the financed vehicle without the seller's consent.
The seller will assign its security interest in the individual financed
vehicles to the trust purchasing the related receivables. However, because of
the administrative burden and expense and
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since the seller remains as servicer of the receivables, neither the seller nor
any other person will amend the certificates of title to identify the trust as
the new secured party and, accordingly, the seller 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 seller's rights
as the secured party as against creditors of the obligor. In some states, in the
absence of such endorsement and delivery, neither the indenture trustee, the
trust nor the trustee may have a perfected security interest in the financed
vehicle. In such event or in the event that the seller 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, if the seller did not have a perfected security interest, against the
seller pursuant to the seller's repurchase obligation. See 'Description of
Transfer and Servicing Agreements -- Sale and Assignment of Receivables.' If
there are any financed vehicles as to which the seller has failed to perfect the
security interest assigned to the trust, (a) that 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 that security interest.
Except as described above, 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 seller 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. There
also exists a risk in not identifying the trust as the new secured party on the
certificate of title that, through fraud or negligence, the security interest of
the trust could be released.
If 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 seller 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 seller would receive notice of surrender if the security
interest in the financed vehicle is noted on the certificate of title.
Accordingly, the seller 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 seller 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 seller must surrender possession of the
certificate of title or will receive notice as a result of its lien note thereon
and accordingly will have an opportunity to require satisfaction of the related
receivable before release of the lien. Under the sale and servicing agreement or
the pooling and servicing agreement, the servicer will be 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 seller will represent in the
sale and servicing agreement or the pooling and servicing agreement that as of
the cut-off date 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 indenture trustee or the trustee if
such a lien arises.
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ENFORCEMENT OF SECURITY INTERESTS IN FINANCED VEHICLES
The servicer on behalf of each trust may take action to enforce its security
interest by repossession and resale of the financed vehicles securing the
trust's 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.
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 sale and servicing agreement or the pooling and servicing 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 a 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 sale and servicing agreement
or the pooling and servicing agreement and would create an obligation of the
seller to repurchase the receivable unless such failed criterion is cured.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the notes and the
certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
noteholders or certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ('IRS') rulings on similar transactions involving both
debt and equity interests issued by a trust with terms similar to those of the
notes and the certificates. As a result, the IRS may disagree with all or a part
of the discussion below. Prospective investors are urged to consult their own
tax advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the notes and
the certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the 'CODE'), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each trust will be provided
with an opinion of special federal tax counsel to each trust specified in the
related prospectus supplement ('FEDERAL TAX COUNSEL'), regarding certain federal
income tax matters discussed below. An opinion of Federal Tax Counsel, however,
is not binding on the IRS or the courts. No ruling on any of the issues
discussed below will be sought from the IRS. For purposes of the following
summary, references to the trust, the notes, the certificates and related terms,
parties and documents shall be deemed to refer, unless otherwise specified
herein, to each trust and the notes, certificates and related terms, parties and
documents applicable to such trust.
The federal income tax consequences to certificateholders will vary
depending on whether (i) an election is made to treat the trust as a partnership
under the Code, (ii) all the certificates are retained by the seller or an
affiliate thereof, or (iii) whether the trust will be treated as a grantor
trust. The prospectus supplement for each series of certificates will specify
whether a partnership election will be made or the trust will be treated as a
grantor trust.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Federal Tax Counsel will deliver its opinion that a trust for which a
partnership election is made will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the trust agreement
and related documents will be complied with, and on counsel's conclusions that
the nature of the income of the trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The seller will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related prospectus supplement, advise the trust that the notes
will be classified as debt for federal income tax purposes. The discussion below
assumes this characterization of the notes is correct.
OID, INDEXED SECURITIES, ETC. The discussion below assumes that all payments
on the notes are denominated in U.S. dollars, that the notes are not indexed
securities or strip notes, and that principal and interest is payable on the
notes. Moreover, the discussion assumes that the interest formula for the notes
meets the requirements for 'qualified stated interest' under Treasury
regulations (the 'OID regulations') relating to original issue discount ('OID'),
and that any OID on the notes (i.e., any excess of the principal amount of the
notes over their issue price) does not exceed a de minimis amount (i.e., 1/4% of
their principal amount multiplied by the number of full years included in their
term), all within the meaning of the OID regulations. If these conditions
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are not satisfied with respect to a series of notes, additional tax
considerations with respect to such notes will be disclosed in the applicable
prospectus supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest thereon will be taxable to a noteholder as
ordinary interest income when received or accrued in accordance with such
noteholder's method of tax accounting. Under the OID regulations, a holder of a
note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a note that has a fixed maturity date of not more than one year
from the issue date of such note (a 'SHORT-TERM NOTE') may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
SALE OR OTHER DISPOSITION. If a noteholder sells a note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount, OID
(including de minimis OID) and gain previously included by such noteholder in
income with respect to the note and decreased by the amount of bond premium (if
any) previously amortized and by the amount of principal payments previously
received by such noteholder with respect to such note. Any such gain or loss
will be capital gain or loss if the note was held as a capital asset, except for
gain representing accrued interest and accrued market discount not previously
included in income. Any capital gain recognized upon a sale, exchange or other
disposition of a note will be long-term capital gain if the seller's holding
period is more than one year and will be short-term capital gain if the seller's
holding period is one year or less. The deductibility of capital losses is
subject to certain limitations. Prospective investors should consult with their
own tax advisors concerning the U.S. federal tax consequences of the sale,
exchange or other disposition of a note.
FOREIGN HOLDERS. Interest payments made (or accrued) to a noteholder who is
a nonresident alien, foreign corporation or other non-U.S. person (a 'FOREIGN
PERSON') generally will be considered 'portfolio interest', and generally will
not be subject to United States federal income tax and withholding tax, if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the foreign person and the foreign person (i) is not
actually or constructively a '10 PERCENT SHAREHOLDER' of the trust or the seller
(including a holder of 10% of the outstanding certificates) or a 'controlled
foreign corporation' with respect to which the trust or the seller is a 'related
person' within the meaning of the Code and (ii) provides the indenture trustee
or other person who is otherwise required to withhold U.S. tax with respect to
the notes with an appropriate statement (on Form W-8 BEN or a similar form),
signed under penalties of perjury, certifying that the beneficial owner of the
note is a foreign person and providing the
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foreign person's name and address. If a note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide the relevant signed statement to the withholding
agent; in that case, however, the signed statement must be accompanied by a
Form W-8 BEN or substitute form provided by the foreign person that owns the
note. If such interest is not portfolio interest, then it will be subject to
withholding tax at a rate of 30 percent, unless the foreign person provides a
properly executed (1) IRS Form W-8 BEN (or successor form) claiming an exemption
from or reduction in withholding under the benefit of a tax treaty or (2) IRS
Form W-8 ECI (or successor form) stating that interest paid is not subject to
withholding tax because it is effectively connected with the foreign person's
conduct of a trade or business in the United States. If the interest is
effectively connected income, the foreign person, although exempt from the
withholding tax discussed above, will be subject to United States federal income
tax on such interest at graduated rates.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year and does not otherwise have a 'tax home' within the
United States.
BACKUP WITHHOLDING. Each holder of a note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt noteholder fail to
provide the required certification, the trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
NEW WITHHOLDING REGULATIONS. Recently, the Treasury Department issued new
regulations (the 'NEW REGULATIONS') which make certain modifications to
withholding, backup withholding and information reporting rules. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion of
Federal Tax Counsel, the IRS successfully asserted that one or more of the notes
did not represent debt for federal income tax purposes, the notes might be
treated as equity interests in the trust. If so treated, the trust might be
treated as a publicly traded partnership taxable as a corporation with
potentially adverse tax consequences (and the publicly traded partnership
taxable as a corporation would not be able to reduce its taxable income by
deductions for interest expense on notes recharacterized as equity).
Alternatively, and most likely in the view of Federal Tax Counsel, the trust
would be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the notes as equity interests in such a partnership could have
adverse tax consequences to certain holders. For example, income to certain
tax-exempt entities (including pension funds) would be 'unrelated business
taxable income', income to foreign holders generally would be subject to U.S.
tax and U.S. tax return filing and withholding requirements, and individual
holders might be subject to certain limitations on their ability to deduct their
share of trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The seller and the servicer will
agree, and the certificateholders will agree by their purchase of certificates,
to treat the trust as a partnership for purposes of federal and state income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership being the assets held by the trust, the
partners
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of the partnership being the certificateholders (including the seller in its
capacity as recipient of distributions from the reserve account), and the notes
being debt of the related partnership. However, the proper characterization of
the arrangement involving the trust, the certificates, the notes, the seller and
the servicer is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the seller or the trust. Any such
characterization would not result in materially adverse tax consequences to
certificateholders as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. The following
discussion assumes that the certificates represent equity interests in a
partnership.
INDEXED SECURITIES, ETC. The following discussion assumes that all payments
on the certificates are denominated in U.S. dollars, that principal and interest
are distributed on the certificates, and that a series of securities includes a
single class of certificates. If these conditions are not satisfied with respect
to any given series of certificates, additional tax considerations with respect
to such certificates will be disclosed in the applicable prospectus supplement.
PARTNERSHIP TAXATION. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the receivables (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of receivables. The trust's deductions will
consist primarily of interest accruing with respect to the notes, servicing and
other fees, and losses or deductions upon collection or disposition of
receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
trust agreement and related documents). The trust agreement will provide, in
general, that the certificateholders will be allocated taxable income of the
trust for each month equal to the sum of
(i) the interest that accrues on the certificates in accordance with their
terms for such month, including interest accruing at the applicable
pass through rate for such month and interest on amounts previously
due on the certificates but not yet distributed;
(ii) any trust income attributable to discount on the receivables that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
(iii) prepayment premium payable to the certificateholders for such month;
and
(iv) any other amounts of income payable to the certificateholders for such
month.
Such allocation will be reduced by any amortization by the trust of premium on
receivables that corresponds to any excess of the issue price of certificates
over their principal amount. All remaining taxable income of the trust will be
allocated to the seller. Based on the economic arrangement of the parties, this
approach for allocating trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to certificateholders.
Moreover, even under the foregoing method of allocation, certificateholders may
be allocated income equal to the entire pass through rate plus the other items
described above even though the trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis holders will in
effect be required to report income from the certificates on the accrual basis
and certificateholders may become liable for taxes on trust income even if they
have not received cash from the trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
certificateholders but certificateholders may be purchasing certificates at
different times and at different prices, certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the trust. See ' -- Allocations Between Transferors
and Transferees' below.
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All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute 'unrelated business
taxable income' generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the trust (including fees to
the servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the trust.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each receivable, the trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on certificateholders.
DISCOUNT AND PREMIUM. It is believed that the receivables were not issued
with OID, and, therefore, the trust should not have OID income. However, the
purchase price paid by the trust for the receivables may be greater or less than
the remaining principal balance of the receivables at the time of purchase. If
so, the receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
receivable-by-receivable basis.)
If the trust acquires the receivables at a market discount or premium, the
trust will elect to include any such discount in income currently as it accrues
over the life of the receivables or to offset any such premium against interest
income on the receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the trust are sold or exchanged within a
12-month period. Pursuant to final Treasury regulations issued on May 9, 1997,
if such a termination occurs, the trust will be considered to have contributed
the assets of the trust (the 'old partnership') to a new partnership in exchange
for interests in the partnership. Such interests would be deemed distributed to
the partners of the old partnership in liquidation thereof, which would not
constitute a sale or exchange.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
A certificateholder's tax basis in a certificate will generally equal the
holder's cost increased by the holder's share of trust income (includible in
income) and decreased by any distributions received with respect to such
certificate. In addition, both the tax basis in the certificates and the amount
realized on a sale of a certificate would include the holder's share of the
notes and other liabilities of the trust. A holder acquiring certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of such aggregate tax basis to the certificates
sold (rather than maintaining a separate tax basis in each certificate for
purposes of computing gain or loss on a sale of that certificate).
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the trust will elect to include market discount
in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be
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apportioned among the certificateholders in proportion to the principal amount
of certificates owned by them as of the close of the last day of such month. As
a result, a holder purchasing certificates may be allocated tax items (which
will affect its tax liability and tax basis) attributable to periods before the
actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the trust might be reallocated among the certificateholders. The Bank will be
authorized to revise the trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells its
certificates at a profit (or loss), the purchasing certificateholder will have a
higher (or lower) basis in the certificates than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the trust were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities that
would be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the trust will not make such an
election. As a result, certificateholders might be allocated a greater or lesser
amount of trust income than would be appropriate based on their own purchase
price for the certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the trust will be the calendar year. The trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
trust and will report each certificateholder's allocable share of items of trust
income and expense to holders and the IRS on Schedule K-1. The trust will
provide the Schedule K-1 information to nominees that fail to provide the trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust with
a statement containing certain information on the nominee, the beneficial owners
and the certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the trust. The information referred to above for any
calendar year must be furnished to the trust on or before the following
January 31. Nominees, brokers and financial institutions that fail to provide
the trust with the information described above may be subject to penalties.
The seller will be designated as the tax matters partner in the related
trust agreement and, as such, will be responsible for representing the
certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the trust by the appropriate taxing authorities could
result in an adjustment of the returns of the certificateholders, and, under
certain circumstances, a certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the trust. An adjustment could
also result in an audit of a
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certificateholder's returns and adjustments of items not related to the income
and losses of the trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether the
trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the trust would be engaged in a trade or business in the United States for
such purposes, the trust will withhold as if it were so engaged in order to
protect the trust from possible adverse consequences of a failure to withhold.
The trust expects to withhold on the portion of its taxable income that is
allocable to foreign certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the trust to change
its withholding procedures. In determining a holder's withholding status, the
trust may rely on IRS Form W-8 BEN, IRS Form W-9 or the holder's certification
of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the trust's income. Each foreign holder must obtain a
taxpayer identification number from the IRS and submit that number to the trust
on Form W-8 BEN (or substantially identical form) in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled to
file with the IRS a claim for refund with respect to taxes withheld by the
trust, taking the position that no taxes were due because the trust was not
engaged in a U.S. trade or business. However, interest payments made (or
accrued) to a certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the trust. If these interest payments are
properly characterized as guaranteed payments, then the interest will not be
considered 'portfolio interest.' As a result, certificateholders will be subject
to United States federal income tax and withholding tax at a rate of 30%, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a foreign
holder would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
BACKUP WITHHOLDING. Distributions made on the certificates and proceeds from
the sale of the certificates will be subject to a 'backup' withholding tax of
31% if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
NEW WITHHOLDING REGULATIONS. Recently, the Treasury Department issued the
New Regulations which attempt to unify certification requirements and modify
reliance standards. The New Regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
TRUSTS IN WHICH ALL CERTIFICATES ARE RETAINED BY
THE SELLER OR AN AFFILIATE OF THE SELLER
TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel will deliver its opinion that a trust which issues one
or more classes of notes to investors and all the certificates of which are
retained by seller or an affiliate thereof will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
trust agreement and related documents will be complied with, and on counsel's
conclusions that the trust will constitute a mere security arrangement for the
issuance of debt by the single certificateholder.
TREATMENT OF THE NOTES AS INDEBTEDNESS. The seller will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. Federal Tax
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Counsel will, except as otherwise provided in the related prospectus supplement,
advise the trust that the notes will be classified as debt for federal income
tax purposes. Assuming such characterization of the notes is correct, the
federal income tax consequences to noteholders described above under the heading
'TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE -- Tax Consequences to Holders
of the Notes' would apply to the noteholders.
If, contrary to the opinion of Federal Tax Counsel, the IRS successfully
asserted that one or more classes of notes did not represent debt for federal
income tax purposes, such class or classes of notes might be treated as equity
interests in the trust. If so treated, the trust might be treated as a publicly
traded partnership taxable as a corporation with potentially adverse tax
consequences (and the publicly traded partnership taxable as a corporation would
not be able to reduce its taxable income by deductions for interest expense on
notes recharacterized as equity). Alternatively, and more likely in the view of
Federal Tax Counsel, the trust would most likely be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of notes as equity
interests in such a partnership could have adverse tax consequences to certain
holders of such notes. For example, income to certain tax-exempt entities
(including pension funds) would be 'unrelated business taxable income', income
to foreign holders may be subject to U.S. withholding tax and U.S. tax return
filing requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of trust expenses. In the
event one or more classes of notes were treated as interests in a partnership,
the consequences governing the certificates as equity interests in a partnership
described above under 'TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE -- Tax
Consequences to Holders of the Certificates' would apply to the holders of such
notes.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
If a partnership election is not made, Federal Tax Counsel will deliver its
opinion that the trust will not be classified as an association taxable as a
corporation and that such trust will be classified as a grantor trust under
subpart E, part 1, subchapter J, chapter 1 of subtitle A of the Code. In this
case, owners of certificates (referred to herein as 'GRANTOR TRUST
CERTIFICATEHOLDERS') will be treated for federal income tax purposes as owners
of a portion of the trust's assets as described below. The certificates issued
by a trust that is treated as a grantor trust are referred to herein as 'GRANTOR
TRUST CERTIFICATES.'
CHARACTERIZATION. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
receivables in the trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the receivables in the trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the servicer, provided that such amounts are reasonable compensation for
services rendered to the trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212 expenses
exceed two percent of its adjusted gross income. In addition, Section 68 of the
Code provides that the amount of itemized deductions otherwise allowable for an
individual
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whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
such amount or (ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. Further, Certificateholders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable income. A
Grantor Trust Certificateholder using the cash method of accounting must take
into account its pro rata share of income and deductions as and when collected
by or paid to the servicer. A Grantor Trust Certificateholder using an accrual
method of accounting must take into account its pro rata share of income and
deductions as they become due or are paid to the servicer, whichever is earlier.
If the servicing fees paid to the servicer are deemed to exceed reasonable
servicing compensation, the amount of such excess could be considered as an
ownership interest retained by the servicer (or any person to whom the servicer
assigned for value all or a portion of the servicing fees) in a portion of the
interest payments on the receivables. The receivables would then be subject to
the 'stripped bond' rules of the Code discussed below.
STRIPPED BONDS. If the servicing fees on the receivables are deemed to
exceed reasonable servicing compensation, based on recent guidance by the IRS,
each purchaser of a Grantor Trust Certificate will be treated as the purchaser
of a stripped bond which generally should be treated as a single debt instrument
issued on the day it is purchased for purposes of calculating any original issue
discount. Generally, under recently issued Treasury regulations (the
'SECTION 1286 TREASURY REGULATIONS'), if the discount on a stripped bond is
larger than a de minimis amount (as calculated for purposes of the OID rules of
the Code) such stripped bond will be considered to have been issued with OID.
See 'Original Issue Discount.' The original issue discount on a Grantor Trust
Certificate will be the excess of such certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Certificate as to any
purchaser will be equal to the price paid by such purchaser of the Grantor Trust
Certificate. The stated redemption price of a Grantor Trust Certificate will be
the sum of all payments to be made on such certificate other than 'qualified
stated interest', if any. Based on the preamble to the Section 1286 Treasury
Regulations, Federal Tax Counsel is of the opinion that, although the matter is
not entirely clear, the interest income on the certificates at the sum of the
pass through rate and the portion of the servicing fee rate that does not
constitute excess servicing will be treated as 'qualified stated interest'
within the meaning of the Section 1286 Treasury Regulations and such income will
be so treated in the trustee's tax information reporting. Notice will be given
in the applicable prospectus supplement when it is determined that Grantor Trust
Certificates will be issued with greater than de minimis OID.
ORIGINAL ISSUE DISCOUNT ON STRIPPED BONDS. If the stripped bonds have more
than a de minimis amount of OID, the special rules of the Code relating to
'original issue discount' (currently Sections 1271 through 1273 and 1275) will
be applicable to a Grantor Trust Certificateholder's interest in those
receivables treated as stripped bonds (the 'Stripped Bonds'). Generally, a
Grantor Trust Certificateholder that acquires an interest in a stripped bond
issued or acquired with OID must include in gross income the sum of the 'DAILY
PORTIONS,' as defined below, of the OID on such stripped bond for each day on
which it owns a certificate, including the date of purchase but excluding the
date of disposition. In the case of an original Grantor Trust Certificateholder,
the daily portions of OID with respect to a stripped bond generally would be
determined as follows. A calculation will be made of the portion of OID that
accrues on the stripped bond during each successive monthly accrual period (or
shorter period in respect of the date of original issue or the final payment
date). This will be done, in the case of each full monthly accrual period, by
adding (i) the present value of all remaining payments to be received on the
stripped bond under the prepayment assumption used in respect of the stripped
bonds and (ii) any payments received during such accrual period, and subtracting
from that total the 'adjusted issue price' of the stripped bond at the beginning
of such accrual period. No representation is made that the stripped bonds will
prepay at any prepayment assumption. The 'adjusted issue price' of a stripped
bond at the beginning of the first accrual period is its issue price (as
determined for purposes of the OID rules of the Code) and the 'adjusted issue
price' of a stripped bond at the beginning of a subsequent accrual period is the
'adjusted issue price' at
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the beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period and reduced by the amount of any payment (other
than 'qualified stated interest') made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under either an exact or approximate method set
forth in the OID Regulations, or some other reasonable method, provided that
such method is consistent with the method used to determine the yield to
maturity of the stripped bonds.
With respect to the stripped bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the stripped bonds. Subsequent purchasers that
purchase stripped bonds at more than a de minimis discount should consult their
tax advisors with respect to the proper method to accrue such OID.
MARKET DISCOUNT IF STRIPPED BOND RULES DO NOT APPLY. A Grantor Trust
Certificateholder that acquires an undivided interest in receivables may be
subject to the market discount rules of Sections 1276 through 1278 to the extent
an undivided interest in a receivable is considered to have been purchased at a
'market discount.' Generally, the amount of market discount is equal to the
excess of the portion of the principal amount of such receivable allocable to
such holder's undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Grantor Trust Certificate will be considered
to be zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment or
a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
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A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
PREMIUM. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each receivable based on each
receivable's relative fair market value, so that such holder's undivided
interest in each receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of such receivable that is
allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to such receivable. If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is not
clear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
On December 30, 1997 the IRS issued final regulations (the 'AMORTIZABLE BOND
PREMIUM REGULATIONS') dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code
section 1272(a)(6). Absent further guidance from the IRS, the trustee intends to
account for amortizable bond premium in the manner described above. It is
recommended that prospective purchasers of the certificates consult their tax
advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a Grantor Trust Certificate with market discount, the Grantor Trust
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See ' -- Premium' above. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted
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basis generally will equal the seller's purchase price for the Grantor Trust
Certificate, increased by the OID included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced by principal payments on
the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a 'capital asset' within the meaning of Section 1221, and will be
long-term or short-term depending on whether the Grantor Trust Certificate has
been owned for the long-term capital gain holding period (currently more than
twelve months).
Grantor Trust Certificates will be 'evidences of indebtedness' within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of a
Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
NON-U.S. PERSONS. Generally, to the extent that a Grantor Trust Certificate
evidences ownership in underlying receivables that were issued on or before
July 18, 1984, interest or OID paid by the person required to withhold tax under
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty. Accrued OID recognized by the owner on the sale or
exchange of such a Grantor Trust Certificate also will be subject to federal
income tax at the same rate. Generally, such payments would not be subject to
withholding to the extent that a Grantor Trust Certificate evidences ownership
in receivables issued after July 18, 1984, by natural persons if such Grantor
Trust Certificateholder complies with certain identification requirements
(including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to
receivables of where the obligor is not a natural person in order to qualify for
the exemption from withholding.
As used herein, a 'U.S. PERSON' means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia, an estate, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States, or a trust if a court
within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
NEW WITHHOLDING REGULATIONS. Recently, the Treasury Department issued the
New Regulations which attempt to unify certification requirements and modify
reliance standards. The New Regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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FASIT PROVISIONS
The Small Business and Job Protection Act of 1996 added sections 860H
through 860L to the Code (the 'FASIT PROVISIONS'), which provide for a new type
of entity for United States federal income tax purposes known as a 'financial
asset securitization investment trust' (a 'FASIT'). Federal Tax Counsel will
deliver its opinion that a trust for which a FASIT election is made will be
treated as a FASIT for federal income tax purposes assuming compliance with the
terms of the trust agreement (including the making of a timely FASIT election)
and related documents. The FASIT provisions of the Code became effective on
September 1, 1997. On February 4, 2000, the IRS and Treasury issued proposed
Treasury regulations on FASITs. The regulations generally would not be effective
until final regulations are filed with the federal register. However, it appears
that certain anti-abuse rules would apply as of February 4, 2000. Accordingly,
definitive guidance cannot be provided with respect to many aspects of the tax
treatment of the trust or the holders of FASIT regular interests (such holders,
'FASIT Regular Noteholders'). Moreover, the qualification as a FASIT of any
trust for which a FASIT election is made (a 'FASIT Trust') depends on the
trust's ability to satisfy the requirements of the FASIT provisions on an
ongoing basis, including, without limitation, the requirements of any final
Treasury regulations that may be promulgated in the future under the FASIT
provisions or as a result of any change in applicable law. Thus, no assurances
can be made regarding the continuing qualification as a FASIT of any FASIT Trust
for which a FASIT election is made at any particular time after the issuance of
securities by the FASIT Trust. In general, the FASIT legislation will enable a
trust to be treated as a pass through entity not subject to United States
federal entity-level income tax (except with respect to certain prohibited
transactions) and to issue securities that would be treated as debt for United
States federal income tax purposes. While the FASIT provisions of the Code
permit the addition of assets to a FASIT Trust during the life of the FASIT
Trust, no assets other than Subsequent Receivables will be added to the trust
after the initial issuance of the trust's securities and such Subsequent
Receivables will be added only during the Funding Period, if any. A receivable
may be removed from the trust solely for a breach of a representation or
warranty relating to such receivable as set forth in the related sale and
servicing agreement.
Qualification as a FASIT. A trust will qualify under the Code as a FASIT in
which FASIT Regular Notes will constitute the 'regular interests' and the
certificate issued by the trust (the 'FASIT OWNERSHIP SECURITY') will constitute
the 'ownership interest', respectively, if (i) a FASIT election is in effect,
(ii) certain tests concerning (A) the composition of the FASIT's assets and
(B) the nature of the noteholders' interests in the FASIT are met on a
continuing basis, and (iii) the trust is not a regulated investment company as
defined in section 851(a) of the Code.
Asset Composition. In order for the trust to be eligible for FASIT status,
substantially all of the assets of the trust must consist of 'permitted assets'
as of the close of the third month beginning after the closing date and at all
times thereafter (the 'FASIT QUALIFICATION TEST'). Permitted assets include
(i) cash or cash equivalents, (ii) debt instruments with fixed terms that would
qualify as regular interests if issued by a Real Estate Mortgage Investment
Conduit as defined in section 860D of the Code ('REMIC') (generally, instruments
that provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ('IO') type rate), (iii) foreclosure property,
(iv) certain hedging instruments (generally, interest and currency rate swaps
and credit enhancement contracts) that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments issued
by the holder of the FASIT's ownership interest or by any person related to such
holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the following: (i) one or
more classes of regular interests or (ii) a single class of ownership interest
that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a FASIT regular interest if (i) it
is designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder
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to a specified principal amount, (iv) the issue price of the interest does not
exceed 125% of its stated principal amount, (v) the yield to maturity of the
interest is less than the applicable Treasury rate published by the IRS plus 5%,
and (vi) if it pays interest, such interest is payable at either (a) a fixed
rate with respect to the principal amount of the regular interest or (b) a
permissible variable rate with respect to such principal amount.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a 'High-Yield Interest.' In addition, if
an interest in a FASIT fails to meet the requirement of clause (vi), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest. A High-Yield
Interest may be held only by domestic C corporations that are fully subject to
corporate income tax ('ELIGIBLE CORPORATIONS'), other FASITs, and dealers in
securities who acquire such interests as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from such interest. In addition, the FASIT provisions
contain an anti-abuse rule that imposes corporate income tax on income derived
from a FASIT Regular Note that is held by a pass-through entity (other than
another FASIT) that issues debt or equity securities backed by the FASIT Regular
Note and that have the same features as High-Yield Interests.
Anti-Abuse Rule. Under proposed Treasury regulations, the Commissioner of
Internal Revenue (the 'Commissioner') may make appropriate adjustments with
regard to the FASIT and any arrangement or transaction involving the FASIT if a
principal purpose of forming or using the FASIT is to achieve results
inconsistent with the intent of the FASIT provisions and the FASIT regulations.
This determination would be based on all of the facts and circumstances,
including a comparison of the purported business purpose for a transaction and
the claimed tax benefits resulting from the transaction.
Consequences of the Failure of the Issuer to Qualify as a FASIT. If a FASIT
Trust fails to comply with one or more of the Code's ongoing requirements for
FASIT status during any taxable year, the proposed Treasury regulations provide
that its FASIT status would be lost for that year and the Issuer will be unable
to elect FASIT status in future years without the approval of the Commissioner.
If FASIT status is lost, under proposed Treasury regulations the entity
classification of the former FASIT (the 'New Arrangement') is determined under
general federal income tax principles. The holder of the FASIT Ownership
Security is treated as exchanging the New Arrangement's assets for an amount
equal to their value and gain recognized is treated as gain from a prohibited
transaction that is subject to the 100 percent tax, without exception. Loss, if
any, is disallowed. In addition, the holder of the FASIT Ownership Security must
recognize cancellation of indebtedness income, on a regular interest by regular
interest basis, in an amount equal to the adjusted issue price of each regular
interest outstanding immediately before the cessation of FASIT status over its
fair market value. If the holder of the FASIT Ownership Security has a
continuing economic interest in the New Arrangement, the characterization of
this interest is determined under general federal income tax principles. Holders
of regular interests are treated as exchanging their regular interest for
interest in the New Arrangement, the classification of which is determined under
general federal income tax principles. Gain is recognized to the extent the new
interest either does not qualify as debt or differs from the regular interest
either in kind or extent. The basis of the interest in the New Arrangement
equals the basis in the regular interest increased by any gain recognized on the
exchange.
Tax Treatment of FASIT Regular Notes. Payments received by Holders of FASIT
Regular Notes generally should be accorded the same tax treatment under the Code
as payments received on other taxable corporate debt instruments. Holders of
FASIT Regular Notes must report income from such Notes under an accrual method
of accounting, even if they otherwise would have used the cash receipts and
disbursements method. Except in the case of FASIT Regular Notes issued with
original issue discount or acquired with market discount or premium, interest
paid or accrued on a FASIT Regular Note generally will be treated as ordinary
income to the Holder and a
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principal payment on such Note will be treated as a return of capital to the
extent that the Holder's basis is allocable to that payment. FASIT Regular Notes
issued with original issue discount or acquired with market discount or premium
generally will treat interest and principal payments on such securities in the
same manner described for notes. See 'Certain Federal Income Tax
Consequences -- Trusts for which a Partnership Election is Made -- Tax
Consequences to Holders of the Notes,' above.
Under proposed Treasury regulations, if a non-U.S. person holds (either
directly or through a vehicle which itself is not subject to U.S. federal income
tax such as a partnership or a trust) a FASIT Regular Note and a 'conduit
debtor' pays or accrues interest on a debt instrument held by such FASIT, any
interest received or accrued by the non-U.S. FASIT Regular Note holder is
treated as received or accrued from the conduit debtor. The proposed Treasury
regulations state that a debtor is a conduit debtor if the debtor is a U.S.
person or the United States branch of a non-U.S. person and the non-U.S. regular
interest holder is (1) a '10 percent shareholder' of the debtor, (2) a
'controlled foreign corporation' and the debtor is a related person with respect
to the controlled foreign corporation or (3) related to the debtor. As set forth
above, the proposed Treasury regulations would not be effective until final
regulations are filed with the federal register.
If a FASIT Regular Note is sold or exchanged, the holder thereof generally
will recognize gain or loss upon the sale in the manner described above for
notes. See 'Certain Federal Income Tax Consequences -- Trusts for which a
Partnership Election is Made -- Tax Consequences to Holders of the Notes -- Sale
or Other Disposition.' In addition, if a FASIT Regular Note becomes wholly or
partially worthless as a result of default and delinquencies of the underlying
assets, the holder of such note should be allowed to deduct the loss sustained
(or alternatively be able to report a lesser amount of income).
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership Security
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT Ownership Security determines its taxable income by taking into account
all assets, liabilities and items of income, gain, deduction, loss and credit of
a FASIT. In general, the character of the income to the holder of a FASIT
Ownership Security will be the same as the character of such income of the
FASIT, except that any tax-exempt interest income taken into account by the
holder of a FASIT Ownership Security is treated as ordinary income. In
determining that taxable income, the holder of a FASIT Ownership Security must
determine the amount of interest, original issue discount, market discount and
premium recognized with respect to the FASIT's assets and the FASIT Regular
Notes issued by the FASIT according to a constant yield methodology and under an
accrual method of accounting. In addition, holders of FASIT Ownership Securities
are subject to the same limitations on their ability to use losses to offset
income from their FASIT Security as are the holders of High-Yield Interests. See
'Certain Federal Income Tax Consequences -- FASIT Provisions -- Interests in a
FASIT.'
Losses on dispositions of a FASIT Ownership Security generally will be
disallowed where, within six months before or after the disposition, the seller
of such security acquires any other FASIT Ownership Security. In addition, if
any security that is sold or contributed to a FASIT by the holder of the related
FASIT Ownership Security was required to be marked-to-market under Code
section 475 by such holder, then section 475 will continue to apply to such
securities, except that the amount realized under the mark-to-market rules will
be a greater of the securities' value under present law or the securities' value
after applying special valuation rules contained in the FASIT provisions. Those
special valuation rules generally require that the value of debt instruments
that are not traded on an established securities market be determined by
calculating the present value of the reasonably expected payments under the
instrument using a discount rate of 120% of the applicable federal rate,
compounded semiannually.
The Holder of a FASIT Ownership Security will be subject to a tax equal to
100% of the net income derived by the FASIT from any 'prohibited transactions.'
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation.
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Any offering for which a FASIT election is made generally will be structured to
avoid application of the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration. Holders of FASIT Notes
and Ownership Securities will be subject to backup withholding to the same
extent holders of notes would be subject. See 'Certain Federal Income Tax
Consequences -- Trusts for which a Partnership Election is Made -- Foreign
Holders' and ' -- Backup Withholding.' For purposes of reporting and tax
administration, holders of record of FASIT Notes and Ownership Securities
generally will be treated in the same manner as holders of notes.
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CERTAIN STATE TAX CONSEQUENCES
The activities of servicing and collecting the receivables will be
undertaken by the servicer. Because of the variation in each state's tax laws
based in whole or in part upon income, it is impossible to predict tax
consequences to holders of notes and certificates in all of the state taxing
jurisdictions in which they are already subject to tax. Noteholders and
certificateholders are urged to consult their own tax advisors with respect to
state tax consequences arising out of the purchase, ownership and disposition of
notes and certificates.
* * *
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit or other plan (such as an individual
retirement account and certain types of Keogh Plans) that is subject to Title I
of ERISA or to Section 4975 of the Code from engaging in certain transactions
involving 'plan assets' with persons that are 'parties in interest' under ERISA
or 'disqualified person' under the Code with respect to the plan. Certain
governmental plans, although not subject to ERISA or the Code, are subject to
federal, state or local laws ('SIMILAR LAW') that impose similar requirements
(such plans subject to ERISA, Section 4975, or Similar Law referred to herein as
'PLANS'). A violation of these 'prohibited transaction' rules may generate
excise tax and other liabilities under ERISA and the Code or under Similar Law
for such persons.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the
securities -- for example:
Prohibited Transaction Class Exemption ('PTE') 96-23, which exempts certain
transactions effected on behalf of a Plan by an 'in-house asset manager';
PTE 95-60, which exempts certain transactions between insurance company
general accounts and parties in interest;
PTE 91-38, which exempts certain transactions between bank collective
investment funds and parties in interest;
PTE 90-1, which exempts certain transactions between insurance company
pooled separate accounts and parties in interest; or
PTE 84-14, which exempts certain transactions effected on behalf of a Plan
by a 'qualified professional asset manager.'
There can be no assurance that any of these exemptions will apply with respect
to any Plan's investment in the securities, or that such an exemption, if it did
apply, would apply to all prohibited transactions that may occur in connection
with such investment. Furthermore, these exemptions would not apply to
transactions involved in operation of a Trust if, as described below, the assets
of the trust were considered to include Plan assets.
ERISA also imposes certain duties on persons who are fiduciaries of Plans
subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that such a Plan's investments be made in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of such Plan. Plan
fiduciaries must determine whether the acquisition and holding of securities and
the operations of the trust would result in prohibited transactions if Plans
that purchase the securities were deemed to own
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an interest in the underlying assets of the trust under the rules discussed
below. There may also be an improper delegation of the responsibility to manage
Plan assets if Plans that purchase the securities are deemed to own an interest
in the underlying assets of the trust.
Pursuant to Department of Labor Regulation ss.2510.3-101 (the 'PLAN ASSETS
REGULATION'), in general when a Plan acquires an equity interest in an entity
such as the trust and such interest does not represent a 'publicly offered
security' or a security issued by an investment company registered under the
Investment Company Act of 1940, as amended, the Plan's assets include both the
equity interest and an undivided interest in each of the underlying assets of
the entity, unless it is established either that the entity is an 'operating
company' or that equity participation in the entity by 'benefit plan investors'
is not 'significant.' In general, an 'equity interest' is defined under the Plan
Assets Regulation as any interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The treatment in this context of notes and certificates of a
trust will be discussed in the related prospectus supplement. However, it is
anticipated that the certificates will be considered equity interests in the
trust for purposes of the Plan Assets Regulation, and that the assets of the
trust may therefore constitute plan assets if certificates are acquired by
Plans. In such event, the fiduciary and prohibited transaction restrictions of
ERISA and section 4975 of the Code would apply to transactions involving the
assets of the trust.
As a result, except in the case of unsubordinated certificates with respect
to which the Exemption is available (as described below), certificates generally
shall not be transferred to a Plan or a person using Plan assets to acquire the
certificates. Each transferee of certificates to which the Exemption is not
applicable will be deemed to represent that the proposed transferee is not a
Plan and is not acquiring the certificates on behalf of or with the assets of a
Plan, including assets that may be held in an insurance company's separate or
general accounts where assets in such accounts may be deemed 'plan assets' for
purposes of ERISA.
Unless otherwise specified in the related prospectus supplement, the notes
may be purchased by a Plan. A fiduciary of a Plan must determine that the
purchase of a note is consistent with its fiduciary duties under ERISA and does
not result in a nonexempt prohibited transaction as defined in Section 406 of
ERISA or Section 4975 of the Code. However, the notes may not be purchased with
the assets of a Plan if the seller, an underwriter, the indenture trustee, the
trustee or any of their affiliates
has investment or administrative discretion with respect to that Plan
assets;
has authority or responsibility to give, or regularly gives, investment
advice with respect to that Plan assets for a fee and pursuant to an
agreement or understanding that such advice
-- will serve as a primary basis for investment decisions with respect
to that Plan assets and
-- will be based on the particular investment needs for that Plan; or
is an employer maintaining or contributing to that Plan.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. However, any such governmental or church
plan which is qualified under section 401 (a) of the Code and exempt from
taxation under Section 501 (a) of the Code is subject to the prohibited
transaction rules in Section 503 of the Code.
A fiduciary of a Plan considering the purchase of securities of a given
series should consult its tax and/or legal advisors regarding whether the assets
of the related trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
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SENIOR CERTIFICATES ISSUED BY TRUSTS
Unless otherwise specified in the related prospectus supplement, the
following discussion applies only to nonsubordinated certificates (referred to
herein as 'SENIOR CERTIFICATES') issued by a Trust.
The U.S. Department of Labor (the 'DOL') has granted to the lead underwriter
named in the prospectus supplement an exemption (the 'EXEMPTION') from certain
of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption include
motor vehicle installment loans such as the receivables. The Exemption will
apply to the acquisition, holding and resale of the Senior Certificates by a
Plan, provided that certain conditions (certain of which are described below)
are met.
Among the conditions which must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior 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 Senior Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust;
(3) The Senior Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's Corporation, Moody's
Investors Service, Inc., Duff & Phelps Inc. or Fitch IBCA, Inc.;
(4) The trustee is not an affiliate of any other member of the Restricted
Group (as defined below);
(5) The sum of all payments made to the underwriters in connection with the
distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior 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; and 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 applicable agreement
and reimbursement of the servicer's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Senior Certificates is an 'accredited
investor' as defined in Rule 501 (a) (1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Exemption, which extends exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage loans
or other secured receivables (the 'OBLIGATIONS') supporting payments to
certificateholders, and having a value equal to no more than twenty-five percent
(25%) of the total principal amount of the certificates being offered by the
trust, to be transferred to the trust within a 90-day or three-month period
following the closing date (the 'PRE-FUNDING PERIOD'), instead of requiring that
all such Obligations be either identified or transferred on or before the
closing date. The relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered (the
'PRE-FUNDING LIMIT') must not exceed twenty-five percent (25%).
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(2) All Obligations transferred after the closing date (the 'ADDITIONAL
OBLIGATIONS') must meet the same terms and conditions for eligibility as
the original Obligations used to create the trust, which terms and
conditions have been approved by a rating agency.
(3) The transfer of such Additional Obligations to the trust during the
Pre-Funding Period must not result in the certificates to be covered by
the Exemption receiving a lower credit rating from a rating agency upon
termination of the Pre-Funding Period than the rating that was obtained
at the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the Obligations in the trust
at the end of the Pre-Funding Period must not be more than 100 basis
points lower than the average interest rate for the Obligations
transferred to the trust on the closing date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which
were transferred to the trust:
(i) the characteristics of the Additional Obligations must be monitored
by an insurer or other credit support provider that is independent
of the depositor; or
(ii) an independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to each rating
agency rating the certificates, the related underwriter and the
related trustee) stating whether or not the characteristics of the
Additional Obligations conform to the characteristics described in
the related prospectus or prospectus supplement and/or pooling and
servicing agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were applicable
to the Obligations transferred to the trust as of the closing date.
(6) The Pre-Funding Period must end no later than three months or 90 days
after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the
pooling and servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments.
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding Limit for
the trust; and
(iv) that the amounts remaining in the pre-funding account at the end
of the Pre-Funding Period will be remitted to certificateholders
as repayments of principal.
(9) The related pooling and servicing agreement must describe the permitted
investments for the pre-funding account and/or capitalized interest
account and, if not disclosed in the related prospectus supplement, the
terms and conditions for eligibility of Additional Obligations.
The Exemption would also provide relief from certain self-dealing/conflict
of interest or prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust when the fiduciary (or its
affiliate) is an obligor on receivables held in the trust only if, among other
requirements,
(i) in the case of the acquisition of Senior Certificates in connection
with the initial issuance, at least fifty (50) percent of the Senior
Certificates are acquired by persons independent of the Restricted
Group (as defined below),
(ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent (5%) or less of the fair market value of the obligations
contained in the trust,
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(iii) the Plan's investment in Senior Certificates does not exceed
twenty-five (25) percent of all of the Senior Certificates outstanding
at the time of the acquisition, and
(iv) immediately after the acquisition, no more than twenty-five (25)
percent of the assets of any Plan with respect to which the fiduciary
has discretionary authority or renders investment advice are invested
in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption
does not apply to Plans sponsored by the seller, any underwriter, the
trustee, the servicer, any obligor with respect to receivables
included in the trust constituting more than five percent of the
aggregate unamortized principal balance of the assets in the trust,
or any affiliate of such parties (the 'RESTRICTED GROUP').
Any Plan fiduciary which proposes to cause a Plan to purchase securities
should consult with counsel concerning the impact of ERISA and the Code, the
applicability of the Exemption (as amended) and the potential consequences in
their specific circumstances, prior to making such investment. Moreover, each
Plan fiduciary should determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the securities is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
The Small Business Job Protection Act of 1996 added new Section 401 (c) of
ERISA relating to the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the tax code. Under Section 401 (c), the
Department of Labor is required to issue 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 tax 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 tax 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 plan assets of any Plan invested in a separate account. Plan
investors considering the purchase of securities on behalf of an insurance
company general account should consult their legal advisors regarding the effect
of the general account regulations on such purchase.
As of the date hereof, the DOL has issued proposed regulations under Section
401 (c). It should be noted that if the general account regulations are adopted
substantially in the form in which proposed, the general account regulations may
not exempt the assets of insurance company general accounts from treatment as
'plan assets' after December 31, 1998. The general account regulations should
not, however, adversely affect the applicability of PTCE 95-60.
PLAN OF DISTRIBUTION
The seller may sell notes and/or certificates, or cause the related trust to
sell notes and/or certificates,
through one or more underwriters or dealers,
directly to one or more purchasers or
through agents.
If underwriters are used in the sale of securities, the seller will agree to
sell, or cause the related trust to sell, to the underwriters named in the
related prospectus supplement the notes
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and/or certificates of the trust specified in an underwriting agreement. Each of
the underwriters will severally agree to purchase the principal amount of each
class of notes and/or certificates of the related trust set forth in the related
prospectus supplement and the underwriting agreement.
Each prospectus supplement will either --
set forth the price at which each class of notes and/or certificates, as
the case may be, being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such notes and/or certificates; or
specify that the related notes and/or certificates, as the case may be, are
to be resold by the underwriters in negotiated transactions at varying
prices to be determined at the time of such sale.
After the initial public offering of any such notes and/or certificates,
such public offering prices and such concessions may be changed.
The seller will indemnify the underwriters of securities against certain
civil liabilities, including liabilities under the Securities Act, or contribute
to payments the several underwriters may be required to make in respect thereof.
Dealers and agents may also be entitled to such indemnification and
contribution.
Each trust may, from time to time, invest the funds in its trust accounts in
investments acquired from such underwriters or agents or from the seller.
Under each underwriting agreement with respect to a given trust, the closing
of the sale of any class of securities subject to such underwriting agreement
will be conditioned on the closing of the sale of all other such classes of
securities of that trust (some of which may not be registered or may not be
publicly offered).
The place and time of delivery for the securities in respect of which this
prospectus is delivered will be set forth in the related prospectus supplement.
LEGAL OPINIONS
Certain legal matters relating to the securities of any trust will be passed
upon for the trust, the seller and the servicer by Brown & Wood, LLP, New York,
New York. Certain other legal matters will be passed upon for the seller by
Michael J. Broker, Esq., Vice-President and Banking Counsel for the Bank.
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GLOSSARY OF TERMS FOR THE PROSPECTUS
Set forth below is a list of the defined terms used in this prospectus,
which are also used in the prospectus supplement.
'ADDITIONAL OBLIGATIONS' means, with respect to the Exemption, all
Obligations transferred to a trust after its closing date.
'ADVANCES' means, with respect to a delinquent receivable and a payment
date, the excess of (a) the product of the principal balance of that receivable
as of the first day of the related Collection Period and one-twelfth of its
contract rate of interest, over (b) the interest actually received by the
servicer with respect to that receivable from the obligor or from the payment of
the Purchase Amount during or with respect to such Collection Period.
'ADMINISTRATOR' means the Bank, in its capacity as administrator of the
trust under an administration agreement.
'AMORTIZABLE BOND PREMIUM REGULATIONS' means the final regulations issued on
December 30, 1997 by the IRS dealing with amortizable bond premium.
'BANK' means USAA Federal Savings Bank and its successors.
'BENEFIT PLAN INVESTOR' means any:
'employee benefit plans' (as defined in Section 3(3) of ERISA, including
without limitation governmental plans, foreign pension plans and church
plans;
'plans' described in Section 4975(e) (1) of the Code, including individual
retirement accounts and Keogh plans; or
entities whose underlying assets include plan assets by reason of a plan's
investment in such entity, including without limitation, as applicable, an
insurance company general account.
'BOOK-ENTRY SECURITIES' means the notes and certificates that are held in
the U.S. through DTC and in Europe through Clearstream or Euroclear.
'CERTIFICATE BALANCE' means with respect to each class of certificates and
as the context so requires, (i) with respect to all certificates of such class,
an amount equal to, initially, the initial certificate balance of such class of
certificates and, thereafter, an amount equal to the initial certificate balance
of such class of certificates, reduced by all amounts distributed to
certificateholders of such class of certificates and allocable to principal or
(ii) with respect to any certificate of such class, an amount equal to,
initially, the initial denomination of such certificate and, thereafter, an
amount equal to such initial denomination, reduced by all amounts distributed in
respect of such certificate and allocable to principal.
'CLEARSTREAM' means Clearstream Banking, societe anonyme, a professional
depository under the laws of Luxembourg.
'CLOSING DATE' means that date specified as such in the prospectus
supplement on which the trust issues its securities.
'CODE' means the Internal Revenue Code of 1986, as amended.
'COLLECTION PERIOD' means with respect to securities of each trust, the
period specified in the related prospectus supplement with respect to
calculating payments and proceeds of the related receivables.
'CONTROLLING CLASS' means, with respect to any trust, the Class A Notes
described in the prospectus supplement as long as any Class A Notes are
outstanding, and thereafter, in order of seniority, each other class of notes,
if any, described in the prospectus supplement as long as they are outstanding.
'CUT-OFF DATE' means the date specified as such in the applicable prospectus
supplement.
'DAILY PORTION' is computed as specified under 'Certain Federal Income Tax
Consequences -- Trusts Treated as a Grantor Trust -- Stripped Bonds and Stripped
Coupons -- Original Issue Discount.'
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'DEFAULTED RECEIVABLE' means a receivable (i) that the servicer determines
is unlikely to be paid in full or (ii) with respect to which at least 5% of a
scheduled payment is 120 or more days delinquent as of the end of a calendar
month.
'DEFINITIVE CERTIFICATES' means with respect to any class of certificates
issued in book-entry form, such certificates issued in fully registered,
certificated form to certificateholders or their respective nominees, rather
than to DTC or its nominee.
'DEFINITIVE NOTES' means with respect to any class of notes issued in
book-entry form, such notes issued in fully registered, certificated form to
noteholders or their respective nominees, rather than to DTC or its nominee.
'DEFINITIVE SECURITIES' means collectively, the Definitive Notes and the
Definitive Certificates.
'DOL' means the United States Department of Labor.
'DTC' means The Depository Trust Company and any successor depository
selected by the trust.
'ELIGIBLE CORPORATION' means, with respect to FASITs, a domestic
C corporation that is fully subject to corporate income tax.
'ELIGIBLE DEPOSIT ACCOUNT' means either --
a segregated account with an Eligible Institution; or
a segregated trust account with the corporate trust department of a
depository institution organized under the laws of the U.S. or any one of
the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), having corporate trust powers and acting as trustee for
funds deposited in such account, so long as any of the securities of such
depository institution have a credit rating from each Rating Agency in one
of its generic rating categories which signifies investment grade.
'ELIGIBLE INSTITUTION' means --
the corporate trust department of the indenture trustee or the related
trustee, as applicable; or
a depository institution organized under the laws of the U.S. or any one of
the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), (1) which has either (A) a long-term unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term unsecured debt rating
or certificate of deposit rating acceptable to the Rating Agencies and
(2) whose deposits are insured by the FDIC.
'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended.
'EUROCLEAR' means a professional depository operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation.
'EVENTS OF DEFAULT' under the related indenture will consist of the events
specified under 'Description of the Notes -- The Indenture' in this prospectus.
'EVENTS OF SERVICING TERMINATION' under each sale and servicing agreement or
pooling and servicing agreement will consist of the events specified under
'Description of the Transfer and Servicing Agreements -- Events of Servicing
Termination' in this prospectus.
'EXEMPTION' means the exemption granted to the lead underwriter named in the
prospectus supplement by the DOL and described under 'ERISA Considerations.'
'FASIT' means a financial asset securitization investment trust.
'FASIT PROVISIONS' means sections 860H through 860L of the Code.
'FASIT QUALIFICATION TEST' is the requirement for FASIT status eligibility
that substantially all of the assets of the trust must consist of 'permitted
assets' as of the close of the third month beginning after the closing date and
at all times thereafter.
'FASIT REGULAR NOTEHOLDERS' means holders of FASIT regular interests.
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'FEDERAL TAX COUNSEL' means the special federal tax counsel to each trust
specified in the related prospectus supplement.
'FOREIGN PERSON' means a nonresident alien, foreign corporation or other
non-U.S. person.
'FUNDING PERIOD' the period specified in the related prospectus supplement
during which the seller will sell any Subsequent Receivables to the trust, which
period may be as frequently as daily.
'GRANTOR TRUST CERTIFICATEHOLDERS' means owners of certificates issued by a
trust that is treated as a grantor trust.
'GRANTOR TRUST CERTIFICATES' means certificates issued by a trust that is
treated as a grantor trust.
'INDENTURE' means the indenture by and between the Trust, as issuer of the
notes, and the indenture trustee, identified in the prospectus supplement.
'IO' means interest-only.
'IRS' means the Internal Revenue Service.
'MOTOR VEHICLE LOANS' means motor vehicle installment loans secured by new
and used automobiles and light-duty trucks.
'NEW REGULATIONS' means the regulations recently issued by the Treasury
Department which make certain modifications to withholding, backup withholding
and information reporting rules.
'OBLIGATIONS' means, with respect to the Exemption, mortgage loans or other
secured receivables.
'OID' means original issue discount.
'OID REGULATIONS' means those Treasury regulations relating to OID.
'PAYMENT DATE' means the date specified in each related prospectus
supplement for the payment of principal of and interest on the securities.
'PERMITTED INVESTMENTS' means:
direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America or its agencies;
demand deposits, time deposits, certificates of deposit or bankers'
acceptances of certain depository institutions or trust companies having
the highest rating from the applicable Rating Agency rating the notes or
certificates;
commercial paper having, at the time of such investment, a rating in the
highest rating category from the applicable Rating Agency rating the notes
or certificates;
investments in money market funds having the highest rating from the
applicable Rating Agency rating the notes or certificates;
repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or its
agencies, in either case entered into with a depository institution or
trust company having the highest rating from the applicable Rating Agency
rating the notes or certificates; and
any other investment acceptable to the applicable Rating Agencies.
Permitted Investments are generally limited to obligations or securities which
mature on or before the next payment date.
'PLAN ASSETS REGULATION' means a regulation, 29 C.F.R. Section 2510.3-101,
issued by the DOL.
'POOLING AND SERVICING AGREEMENT' means the pooling and servicing agreement
between the trustee and the Bank, as seller and servicer, and the trustee
identified in the prospectus supplement.
'PRE-FUNDING LIMIT' means, with respect to the Exemption, the ratio of the
amount allocated to the pre-funding account to the total principal amount of the
certificates being offered.
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'PRE-FUNDING PERIOD' means, with respect to the Exemption, a 90-day or
three-month period following the closing date during which, subject to certain
conditions, Additional Obligations may be transferred to the trust.
'PTCE' means a Prohibited Transaction Class Exemption under ERISA.
'PURCHASE AMOUNT' means a price at which the seller or the servicer must
purchase a receivable from a trust, equal to the unpaid principal balance of the
receivable plus accrued and unpaid interest thereon to the date of purchase at
the weighted average interest rate borne by the trust's securities.
'RATING AGENCY' means a nationally recognized rating agency providing, at
the request of the seller, a rating on the securities issued by the applicable
trust.
'RECEIVABLES TRANSFER AND SERVICING AGREEMENTS' means, collectively,
(i) each sale and servicing agreement under which the trust will purchase
receivables from the seller and the servicer will agree to service such
receivables, each trust agreement under which the trust will be created and
certificates will be issued and each administration agreement under which the
Bank will undertake certain administrative duties or, (ii) in the case of a
trust that is a grantor trust, the pooling and servicing agreement.
'RECORD DATE' means the business day immediately preceding the payment date
or, if definitive securities are issued, the last day of the preceding calendar
month.
'REMIC' means a Real Estate Mortgage Investment Conduit as defined in
section 860D of the Code.
'RESTRICTED GROUP' means, with respect to the Exemption, Plans sponsored by
the seller, any underwriter, the trustee, the servicer, any obligor with respect
to receivables included in the trust constituting more than five percent of the
aggregate unamortized principal balance of the assets in the trust, or any
affiliate of such parties.
'SALE AND SERVICING AGREEMENT' means the sale and servicing agreement by and
between the Bank, as seller and servicer, and the trust, as purchaser,
identified in the related prospectus supplement.
'SEC' means the Securities and Exchange Commission.
'SECTION 1286 TREASURY REGULATIONS' means recently issued Treasury
regulations under which, if the discount on a stripped bond is larger than a de
minimis amount (as calculated for purposes of the OID rules of the Code), such
stripped bond will be considered to have been issued with OID.
'SELLER' means the Bank as seller of receivables to a trust.
'SENIOR CERTIFICATES' means the nonsubordinated certificates issued by a
trust.
'SERVICER' means the Bank acting in its capacity as servicer of the
receivables under the applicable sale and servicing agreement or pooling and
servicing agreement.
'SIMILAR LAW' means federal, state or local laws that impose requirements
similar to ERISA or the Code.
'SHORT-TERM NOTE' means a note that has a fixed maturity date of not more
than one year from the issue date of such note.
'SUBSEQUENT RECEIVABLES' means additional receivables sold by the seller to
the applicable trust during a Funding Period after the closing date.
'SUBSEQUENT TRANSFER DATE' means each date specified as a transfer date in
the related prospectus supplement on which Subsequent Receivables will be sold
by the seller to the applicable trust.
'TAX CODE' means the Internal Revenue Code of 1986, as amended.
'TRUSTEE' means the trustee of the trust identified in the related
prospectus supplement.
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'TRUST AGREEMENT' means the trust agreement by and between the trustee and
the Bank, as depositor, identified in the related prospectus supplement.
'U.S. PERSON' means a citizen or resident of the United States, a
corporation or a partnership organized in or under the laws of the United States
or any political subdivision thereof, an estate or trust, the income of which
from sources outside the United States is includible in gross income for federal
income tax purposes regardless of its connection with the conduct of a trade or
business within the United States, or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust.
'USAA' means United Services Automobile Association.
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____________________________________ ___________________________________
____________________________________ ___________________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF A TIME SUBSEQUENT TO THE DATE OF
SUCH INFORMATION. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS
CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Reading These Documents..................................... S-3
Summary of Terms of the Securities.......................... S-4
Risk Factors................................................ S-9
The Trust................................................... S-11
The Receivables Pool........................................ S-12
How You Can Compute Your Portion of the Amount Outstanding
on the Notes or Certificates............................... S-17
Maturity and Prepayment Considerations...................... S-18
Description of the Notes.................................... S-26
Description of the Certificates............................. S-27
Application of Available Funds.............................. S-28
Description of the Sale and Servicing Agreement............. S-29
Certain Federal Income Tax Consequences..................... S-32
Certain State Tax Consequences.............................. S-32
ERISA Considerations........................................ S-33
Underwriting................................................ S-34
Legal Opinions.............................................. S-35
Glossary of Terms........................................... S-36
PROSPECTUS
Reading This Prospectus and the Accompanying Prospectus
Supplement................................................. 3
Where You Can Find Additional Information................... 3
Incorporation of Certain Documents by Reference............. 4
Summary..................................................... 5
Risk Factors................................................ 8
The Trusts.................................................. 14
USAA Federal Savings Bank................................... 15
The Bank's Portfolio of Motor Vehicle Loans................. 15
The Receivables Pools....................................... 19
Maturity and Prepayment Considerations...................... 20
Use of Proceeds............................................. 21
Principal Documents......................................... 21
Payments on the Securities.................................. 22
Certain Information Regarding the Securities................ 23
The Indenture............................................... 30
Description of the Receivables Transfer and Servicing
Agreements................................................. 36
Some Important Legal Issues Relating to the Receivables..... 46
Certain Federal Income Tax Consequences..................... 49
Trusts for which a Partnership Election is Made............. 49
Trusts in which All Certificates are Retained by the Seller
or an Affiliate of the Seller.............................. 55
Trusts Treated as Grantor Trusts............................ 56
FASIT Provisions............................................ 61
Certain State Tax Consequences.............................. 65
ERISA Considerations........................................ 65
Plan of Distribution........................................ 69
Legal Opinions.............................................. 70
Glossary of Terms for the Prospectus........................ 71
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$483,406,781
USAA AUTO
OWNER TRUST 2000-1
$118,000,000 6.734%
AUTO LOAN BACKED NOTES, CLASS A-1
$128,000,000 6.90%
AUTO LOAN BACKED NOTES, CLASS A-2
$136,000,000 6.95%
AUTO LOAN BACKED NOTES, CLASS A-3
$83,279,000 6.98%
AUTO LOAN BACKED NOTES, CLASS A-4
$18,127,781 7.72%
AUTO LOAN BACKED CERTIFICATES, CLASS B
[USAA LOGO]
USAA FEDERAL SAVINGS BANK
SELLER AND SERVICER
PROSPECTUS SUPPLEMENT
AUGUST 23, 2000
CHASE SECURITIES INC.
DEUTSCHE BANC ALEX. BROWN
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
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