As filed with the Securities and Exchange Commission on February 22, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
USAA FEDERAL SAVINGS BANK
(ORIGINATOR OF THE TRUSTS DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
UNITED STATES 0749 74-2291652
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
--------------------------
10750 MCDERMOTT FREEWAY, SAN ANTONIO, TEXAS 78288
(210) 498-2265
(Address, including zip code, and telephone number, including area code, or
registrant's principal executive offices)
--------------------------
MICHAEL J. BROKER, ESQ.
VICE PRESIDENT AND BANKING COUNSEL
10750 MCDERMOTT FREEWAY, SAN ANTONIO, TEXAS 78288
(210) 498-2265
(Name, address, including zip code and telephone number, including area
code, of agent for service)
--------------------------
Copies to:
RENWICK D. MARTIN LAURA PALMA
BROWN & WOOD LLP SIMPSON THACHER & BARTLETT
ONE WORLD TRADE CENTER 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10048 NEW YORK, NEW YORK 10017
(212) 839-5319 (212) 455-2000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.|_|_______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.|_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ---------------------------------------------------- ------------------ ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Asset Backed Notes and Certificates................ $1,000,000 100% $1,000,000 $264
============================================================================================================================
(1) Estimated solely for purposes of calculating the Registration Fee.
</TABLE>
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus supplement and
the attached prospectus are not an offer to sell these securities and they are
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to completion, dated ___________, 200__.
Prospectus Supplement to Prospectus Dated _____________, 200_
$__________________
USAA AUTO OWNER TRUST _______
[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-__ OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE __ 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 UNDERWRITERS ARE OFFERING THE FOLLOWING SECURITIES BY THIS PROSPECTUS
SUPPLEMENT:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS B
NOTES NOTES NOTES CERTIFICATES
----- ----- ----- ------------
<S> <C> <C> <C> <C>
Principal Amount.................... $ $ $ $
Per Annum Interest Rate............. % % % %
Final Scheduled Payment Date........
Initial Public Offering Price(1).... $ % $ % $ % $ %
Underwriting Discount............... $ % $ % $ % $ %
Proceeds to Seller(1)(2)............ $ % $ % $ % $ %
---------------
(1) The price of the securities will also include interest accrued on the securities,
if any, from _________________.
(2) Before deducting expenses payable by the seller estimated to be $___________.
</TABLE>
o The trust will pay interest and principal on the securities on the ___th
day of each month. The first payment date will be ________________.
o The trust will pay principal sequentially to the earliest maturing class of
securities then outstanding until paid in full.
o The 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]
The date of this prospectus supplement is _____________.
<PAGE>
TABLE OF CONTENTS
<PAGE>
READING THESE DOCUMENTS.............................S-5
SUMMARY OF TERMS OF THE SECURITIES..................S-6
RISK FACTORS.......................................S-12
THE TRUST..........................................S-15
Limited Purpose and Limited Assets..............S-15
Capitalization of the Trust.....................S-16
The Owner Trustee...............................S-16
THE RECEIVABLES POOL...............................S-16
The Bank's Delinquency, Loan Loss and
Recovery Information..........................S-20
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE NOTES OR CERTIFICATES..........S-21
Notes...........................................S-21
Certificates....................................S-21
The Factors Described Above Will Decline
as the Trust Makes Payments on the
Securities....................................S-22
MATURITY AND PREPAYMENT CONSIDERATIONS.............S-22
Weighted Average Life of the Securities.........S-24
DESCRIPTION OF THE NOTES...........................S-28
Payments of Interest............................S-28
Payments of Principal...........................S-29
Optional Prepayment.............................S-29
DESCRIPTION OF THE CERTIFICATES....................S-29
Distributions...................................S-30
Subordination of Certificates...................S-30
Optional Prepayment.............................S-31
APPLICATION OF AVAILABLE FUNDS.....................S-31
Sources of Funds of Distributions...............S-31
Priority of Distributions.......................S-32
DESCRIPTION OF THE SALE AND SERVICING AGREEMENT....S-33
Accounts........................................S-33
Servicing Compensation and Expenses.............S-33
Rights Upon Event of Servicing Termination......S-33
Waiver of Past Events of Servicing Termination..S-34
Deposits to the Collection Account..............S-34
Reserve Account.................................S-36
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............S-37
CERTAIN STATE TAX CONSEQUENCES.....................S-37
ERISA CONSIDERATIONS...............................S-37
The Notes.......................................S-37
The Certificates................................S-38
UNDERWRITING.......................................S-38
LEGAL OPINIONS.....................................S-41
GLOSSARY OF TERMS..................................S-41
<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-3 in
this document and on page 4 in the prospectus to locate the referenced sections.
The Glossary of Terms on page S-__ of this prospectus supplement and the
Glossary of Terms on page __ 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.
<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 ____, a Delaware [common law] [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 payment of the securities.
OFFERED SECURITIES
The following securities are being offered by this prospectus supplement:
$____________ Class A-1 ____% Asset Backed Notes
$____________ Class A-2 ____% Asset Backed Notes
$____________ Class A-3 ____% Asset Backed Notes
$____________ Class B ____% Asset Backed Certificates
CLOSING DATE
The trust expects to issue the securities on __________________.
SELLER AND SERVICER
USAA Federal Savings Bank.
OWNER TRUSTEE
__________________________.
INDENTURE TRUSTEE
__________________________.
PAYMENT DATES
On the ___th day of each month (or if the ___th 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 _________________.
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
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 (or the closing date, in the case
of the first payment date) to the current payment date).
CLASS A-2 NOTES; CLASS A-3 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 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, _____) 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 after the notes have been paid
in full;
(4) REGULAR PRINCIPAL PAYMENT-- An amount equal to the sum of
o the principal collections on the receivables received
during the prior calendar month and
o 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 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;
and
(iv) on the certificates until they are paid in full;
If payment of the notes is accelerated after an event of
default, all of the funds remaining after clause (2) will be
paid as principal PRO RATA on all classes of the notes until
they are paid in full and then 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;
(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; and
(7) any amounts remaining after the above distributions will be paid
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 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 $______________ 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 lesser of (a) __% of the outstanding principal balance of the receivables
and (b) __% of the principal balance of the receivables as of
_____.
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 funds on deposit in the reserve
account in excess of the required balance to the seller.
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 ___% or less of the
aggregate principal balance of the receivables at the time they were sold to the
trust. 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-3 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.
PROPERTY OF THE TRUST
The property of the trust will include the following:
the receivables and the collections on the receivables on or after
________;
security interests in the vehicles financed by the receivables;
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 ________________ is as follows:
o Aggregate Principal
Balance.................... $
o Number of
Receivables................
o Average Principal
Balance.................... $
(Range)................ $ to $
o Average Original
Amount Financed............ $
(Range)................ $ to $
o Weighted Average
Contract Rate %
(Range)................ % to %
o Weighted Average
Original Term.............. months
(Range)................ months to
months
o Weighted Average
Remaining Term............. months
(Range)................ month to
months
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 __% of the principal balance of the receivables
at the beginning of the previous month. 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 at least two nationally recognized rating agencies;]
[the Class A-2 Notes and Class A-3 Notes] be rated in the [highest]
long-term rating category by at least [two] nationally recognized
rating agencies; and
the certificates be rated "____" or its equivalent by at least [two]
nationally recognized rating agencies.
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 the securities.
MINIMUM DENOMINATIONS
NOTES $1,000 and integral multiples thereof
CERTIFICATES $1,000 and integral multiples thereof
REGISTRATION, CLEARANCE AND SETTLEMENT
NOTES book-entry through DTC/Clearstream/ Euroclear
CERTIFICATES book-entry through DTC
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.
INVESTOR REPRESENTATIONS
- ------------------------
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.
TAX-RELATED INVESTMENT RESTRICTIONS ON CERTIFICATES
- ---------------------------------------------------
CERTIFICATES The certificates may not be purchased by persons who are
not U.S. Persons for federal income tax purposes.
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
NOTES The notes are generally eligible for purchase by employee
benefit plans, 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 in the prospectus.
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.
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of these securities.
CERTIFICATES ARE SUBJECT TO GREATER
CREDIT RISK BECAUSE THE CERTIFICATES
ARE SUBORDINATE TO THE NOTES The certificates bear greater credit
risk than the notes because payments of
interest and principal on the
certificates are subordinated, to the
extent described below, 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, 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 MAY RESULT FROM AN
EVENT OF DEFAULT UNDER THE
INDENTURE
An event of default under the
indenture may result in
o losses on your notes or
certificates if the receivables
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
o 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
LIMITED CONTROL OVER ACTIONS OF THE
TRUST AND CONFLICTS BETWEEN THE
NOTEHOLDERS AND THE CERTIFICATEHOLDERS Because the trust has pledged its
MAY OCCUR property to the indenture trustee to
secure payment on the notes, the
indenture trustee may, and at the
direction of the holders of the
specified percentage of the notes will,
take one or more of the other 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.
GEOGRAPHIC CONCENTRATION
MAY RESULT IN MORE RISK TO YOU The servicer's records indicate that the
billing addresses of the obligors of
the receivables as of ________, were in
the following states:
PERCENTAGE
OF
AGGREGATE
PRINCIPAL
BALANCE
-------
[____].................... %
[____].................... %
[____].................... %
[____].................... %
No other state, by those billing
addresses, constituted more than 5% of
the balance of the receivables as of
_____________. Economic conditions or
other factors affecting these states in
particular could adversely affect the
delinquency, credit loss or
repossession experience of the trust.
<PAGE>
THE TRUST
LIMITED PURPOSE AND LIMITED ASSETS
USAA Auto Owner Trust _____-__ is a [common law] [statutory] business trust
formed under the laws of the State of Delaware by a trust agreement dated as of
__________ between USAA Federal Savings Bank (the "BANK") and __________, as the
owner trustee. The trust will not engage in any activity other than:
o acquiring, holding and managing the assets of the trust,
including the receivables, and the proceeds of those assets;
o issuing the securities;
o making payments on the securities; and
o 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 notes and the
certificates. The proceeds from the issuance of the securities will be used by
the trust (1) to purchase the receivables from the seller under a sale and
servicing agreement to be dated as of ______________ among the trust, the seller
and the servicer, and (2) to fund the initial deposit to the Reserve Account.
The trust property will also include:
o all monies received on the receivables on or after ___________
(the "CUT-OFF DATE");
o security interests in the financed vehicles;
o 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;
o the seller's rights to certain documents and instruments
relating to the receivables;
o such amounts as from time to time may be held in the accounts
maintained for the trust;
o certain payments and proceeds with respect to the receivables
held by the servicer;
o certain rebates of premiums and other amounts relating to
certain insurance policies and other items financed under the
receivables; and
o 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 would 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:
Class A-1 Notes.......................................... $
-------------
Class A-2 Notes..........................................
Class A-3 Notes..........................................
Certificates.............................................
Total.................................................... $
=============
THE OWNER TRUSTEE
___________ will be the owner trustee under the trust agreement.
_______________is a ________________ and its principal offices are located at
_________________________________. 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 contracts. The pool will consist of the receivables which the seller
sells 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:
o has a remaining maturity, as of the Cut-off Date, of at least ____ months
and not more than ___ months;
o with respect to loans secured by new financed vehicles, had an original
maturity of at least ____ months and not more than ____ months; with
respect to loans secured by used financed vehicles, had an original
maturity of at least _____ months and not more than ____ months;
o 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 ____% 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;
o is secured by a financed vehicle that, as of the Cut-off Date, had not
been repossessed without reinstatement;
o 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;
o has no payment more than ____ days past due as of the Cut-off Date; and
o has a remaining principal balance, as of the Cut-off Date, of at least
$___________.
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 _______________.
The composition of the receivables as of the Cut-off Date is as
follows:
o Aggregate Principal
Balance.......................................... $
o Number of
Receivables......................................
o Average Principal
Balance.......................................... $
(Range)....................................... $ to $
o Average Original
Amount Financed.................................. $
(Range)....................................... $ to $
o Weighted Average
Contract Rate.................................... %
(Range)....................................... % to %
o Weighted Average
Original Term.................................... months
(Range)....................................... months to months
o Weighted Average
Remaining Term................................... months
(Range)....................................... months to months
o Percentage of Aggregate Principal
Balance of Receivables for
New/Used Vehicles................................ % / %
The geographical distribution and distribution by Contract Rate of the
receivables as of the Cut-off Date are set forth in the following tables.
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUT-OFF DATE
PERCENTAGE PERCENTAGE
OF OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL NUMBER OF PRINCIPAL PRINCIPAL
STATE (1) RECEIVABLES BALANCE BALANCE(2) STATE (1) RECEIVABLES BALANCE BALANCE (2)
- --------- ----------- ------- --------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama................. Montana...........
Alaska.................. Nebraska..........
Arizona................. Nevada............
Arkansas................ New Hampshire.....
California.............. New Jersey........
Colorado................ New Mexico........
Connecticut............. New York..........
Delaware................ North Carolina....
District of Columbia.... North Dakota......
Florida................. Ohio..............
Georgia................. Oklahoma..........
Hawaii.................. Oregon............
Idaho................... Pennsylvania......
Illinois................ Rhode Island......
Indiana................. South Carolina....
Iowa.................... South Dakota......
Kansas.................. Tennessee.........
Kentucky................ Texas.............
Louisiana............... Utah..............
Maine................... Vermont...........
Maryland................ Virginia..........
Massachusetts........... Washington........
Michigan................ West Virginia.....
Minnesota............... Wisconsin.........
Mississippi............. Wyoming...........
Missouri................
- --------------
(1) Based on the billing addresses of the obligors as of the Cut-off Date.
(2) May not add to 100% due to rounding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES AS OF THE CUT-OFF DATE
PERCENTAGE OF
AGGREGATE
NUMBER OF PRINCIPAL
CONTRACT RATE RECEIVABLES PRINCIPAL BALANCE BALANCE (1)
- ----------------------------------------------- ----------- ----------------- ------------
<S> <C> <C> <C>
1.90 to 1.99%..................................
2.00 to 2.49...................................
2.50 to 2.99...................................
3.00 to 3.49...................................
3.50 to 3.99...................................
4.00 to 4.49...................................
4.50 to 4.99...................................
5.00 to 5.49...................................
5.50 to 5.99...................................
6.00 to 6.49...................................
6.50 to 6.99...................................
7.00 to 7.49...................................
7.50 to 7.99...................................
8.00 to 8.49...................................
8.50 to 8.99...................................
9.00 to 9.49...................................
9.50 to 9.99...................................
10.00 to 10.49.................................
10.50 to 10.99.................................
11.00 to 11.49.................................
11.50 to 11.99.................................
12.00 to 12.49.................................
12.50 to 12.99.................................
13.00 to 13.49.................................
13.50 to 13.99.................................
14.00 to 14.49.................................
14.50 to 14.99.................................
15.00 to 15.49.................................
15.50 to 15.99.................................
16.00 to 16.49.................................
16.50 to 16.99.................................
17.00 to 17.49.................................
17.50 to 17.99.................................
18.00 to 18.49.................................
18.50 to 18.99.................................
19.00 to 19.49.................................
19.50 to 19.99.................................
20.00..........................................
Totals.........................................
- --------------
(1) May not add to 100.00% due to rounding.
</TABLE>
<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
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 10% 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 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.
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE
AT DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------- -------------------- -------------------- -------------------- --------------------
DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER
(IN 000S) OF LOANS (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> <C> <C>
Outstandings.... $3,661,825 283,810 $2,802,144 234,281 $2,076,318 186,560 $1,687,922 159,812 $1,454,843 145,246
Delinquencies over
30 days(1)(2)... $16,927 1,689 $12,297 1,366 $7,028 871 $8,634 1,082 $580 2,338
Delinquencies over
30 days (%)(3).. 0.46% 0.60% 0.44% 0.58% 0.34% 0.47% 0.51% 0.68% 0.34% 0.40%
(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.
</TABLE>
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN 000S)
<S> <C> <C> <C> <C> <C>
Number of Loans(1) .......................... 283,810 234,281 186,560 159,812 145,246
Period Ending Outstandings................... $3,661,825 $2,802,144 $2,076,318 $1,687,922 $1,454,843
Average Outstandings(2) ..................... $3,281,001 $2,375,294 $1,867,280 $1,527,686 $1,298,116
Number of Gross Charge-Offs ................. 1,438 874 797 805 422
Gross Charge-Offs(3)......................... $16,066 $9,311 $6,157 $4,131 $2,244
Gross Charge-Offs as a % of Period End
Outstandings............................... 0.44% 0.33% 0.30% 0.24% 0.15%
Gross Charge-Offs as a % of Average
Outstandings............................... 0.49% 0.39% 0.33% 0.27% 0.17%
Recoveries(4)................................ $7,296 $4,856 $2,158 $1,068 $683
Net Charge-Offs(5)........................... $8,770 $4,455 $3,999 $3,063 $1,561
Net Charge-Offs as a % of Period End 0.24% 0.16% 0.19% 0.11% 0.11%
Outstandings................................
Net Charge-Offs as a % of Average Outstandings 0.27% 0.19% 0.21% 0.20% 0.12%
__________
(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) 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.
(5) Net charge-offs means gross charge-offs minus recoveries of loans
previously charged off.
</TABLE>
The data presented in the foregoing tables are for illustrative
purposes only. Delinquency and loan loss experience may be influenced by a
variety of economic, social and other factors. The mix of the credit quality of
the obligors will vary from time to time and will affect losses and
delinquencies. We cannot assure you that the delinquency and loan loss
information of the Bank, or that of the trust with respect to its receivables,
in the future will be similar to that set forth above.
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 delivers 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--
o the original denomination of your note; and
o 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--
o the original denomination of your certificate; and
o the factor relating to the certificates computed by the servicer in the
manner described above.
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--
o the outstanding principal amount of the applicable class of notes; or
o 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
o on the Class A-2 Notes until the Class A-1 Notes have been paid in full;
o on the Class A-3 Notes until the Class A-2 Notes have been paid in full;
or
o on the certificates until the Class A-3 Notes have been paid in full.
However, if the notes are accelerated after an Event of Default, principal
payments will be applied PRO RATA all classes of the notes. See "Application of
Available Funds" in this prospectus supplement.
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 FINAL
SCHEDULED PAYMENT DATES. 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 more quickly 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.
RISKS OF SLOWER OR FASTER REPAYMENTS. Noteholders and
certificateholders should consider--
o 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
o 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.
<PAGE>
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 table (the "ABS Table") captioned "Percent of Initial Note
Principal Amount or Initial Certificate Balance at Various ABS Percentages" has
been prepared on the basis of the characteristics of the receivables. The ABS
Table assumes that --
o the receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on the receivables is made on the last day
of each month and each month has 30 days;
o 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);
o the balance in the Reserve Account on each payment date is equal to the
Specified Reserve Balance; and
o the servicer does not exercise its option to purchase the receivables.
The ABS Table indicates the projected weighted average life of each
class of notes and the certificates and sets 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 Table also assumes 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
__________________.
<TABLE>
<CAPTION>
CONTRACT ORIGINAL TERM
AGGREGATE RATE OF TO MATURITY REMAINING TERM TO
POOL PRINCIPAL BALANCE INTEREST (IN MONTHS) MATURITY (IN MONTHS)
- -------------------------------- ----------------- -------- ----------- --------------------
<S> <C> <C> <C> <C>
1.............................
2.............................
3.............................
4.............................
5.............................
6.............................
7.............................
8.............................
9.............................
10............................
11............................
12............................
13............................
14............................
15............................
16............................
17............................
18............................
</TABLE>
The actual characteristics and performance of the receivables will
differ from the assumptions used in constructing the ABS Table. 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 Table 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.
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES
---------------------------- ---------------------------- ----------------------------
PAYMENT DATE % % % % % % % % % % % %
- ------------ --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
Weighted
Average
Life(1)........
Weighted
Average Life
to Call (1)(2)
Optional Call
Date
- ----------
(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.
</TABLE>
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.
PERCENT OF INITIAL
CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
CLASS B CERTIFICATES
-----------------------------------
PAYMENT DATE % % % %
- ------------------------- --- --- --- ---
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
Weighted Average Life(1)....
Weighted Average Life to
Call (1)(2)
Optional Call Date
- ---------
(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.
DESCRIPTION OF THE NOTES
The trust will issue the notes under an indenture to be dated as of
__________ between the trust and _______________, as indenture trustee. We
will file a copy of the indenture in its execution form for the notes 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:
[o 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.]
o 30/360. Interest on the Class A-2 Notes and Class A-3 Notes will accrue
from and including the th day of the previous month (or the closing date,
in the case of the first payment date) to but excluding the th of the
current month and be calculated on the basis of a 360-day year of twelve
30-day months.
o UNPAID INTEREST ACCRUES. Interest accrued as of any payment date but not
paid on such payment date will be due on the next payment date, together
with interest on such amount 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" in this prospectus supplement.
THE TRUST WILL PAY INTEREST PRO RATA TO NOTEHOLDERS IF IT DOES NOT HAVE
ENOUGH FUNDS AVAILABLE TO PAY ALL INTEREST DUE ON THE NOTES. The amount
available for interest payments on the notes could be less than the amount of
interest payable on the notes on any payment date. In that event, the holders of
each class of notes will receive their ratable share of the aggregate amount
available to be distributed in respect of interest on the notes. Each such
class' ratable share of the amount available to pay interest will be based on
the amount of interest due on such class relative to the total amount of
interest due to the noteholders.
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" 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
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
payments of principal will be made PRO RATA to the holders of each class of
notes and 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 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 __% or less of the aggregate
principal balance of the receivables 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
- --
o the unpaid principal amount of your notes plus accrued and
unpaid interest on your notes; plus
o interest on any past due interest at the rate of interest on
your notes (to the extent lawful).
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
notes and 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 ______, 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--
o in the case of the first payment date, from and including the
closing date to but excluding the _____th day of the following
calendar month; or
o otherwise, from and including the _____th day of the calendar
month preceding the payment date to but excluding the _____th
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 occurrence of an Event of Default which has resulted in an
acceleration of the notes, 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.
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, 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" 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 __% or less of
the aggregate principal balance of the receivables as of the Cut-off Date, you
will receive an amount in respect of your certificates equal to the sum of:
o the outstanding certificate balance of your certificates
together with accrued and unpaid interest at the rate of
interest for the certificates; and
o interest on any past due interest at the rate of interest for
the certificates, to the extent lawful.
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:
o collections received on the receivables during the prior
calendar month,
o net recoveries received during the prior calendar month on
receivables that were charged off as losses in prior months,
o the aggregate amount of Advances remitted by the servicer,
o proceeds of repurchases of receivables by the seller or
purchases of receivables by the servicer because of certain
breaches of representations or covenants, and
o 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 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 calendar month and (ii) the aggregate principal balance
(net of liquidation proceeds received during that month 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 order of priority:
(i) the Class A-1 Notes until they are paid in full; and
(ii) the Class A-2 Notes until they are paid in full;
(iii) the Class A-3 Notes until they are paid in full; and
(iv) the certificates until they are paid in full;
however, 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 (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;
(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; and
(7) 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 (4), 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 notes and the certificates. 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".
ACCOUNTS
In addition to the Collection Account, the following accounts will be
established--
o the indenture trustee will establish a distribution account for
the benefit of the noteholders;
o the owner trustee will establish a distribution account for the
benefit of the certificateholders; and
o the servicer will establish the Reserve Account in the name of
the indenture trustee on behalf of the noteholders and the
certificateholders.
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 in the
following order 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:
o the amount, if any, by which (a) the Total Required Payment
exceeds (b) the Available Funds for that payment date; and
o 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 sum of (i) all principal collected on the receivables during
the related Collection Period and (ii) the aggregate principal
balance (net of liquidation proceeds received during that
Collection Period applied to principal) of all receivables that
were designated as defaulted receivables during that Collection
Period; 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 --
o the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods;
o all interest payable on the notes, including any accrued
interest thereon; and
o the amount necessary to reduce the outstanding principal amount
of all the notes to zero.
Consequently, 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 the amount equal to the excess, if any, of --
o 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
o the Specified Reserve Balance with respect to that payment date.
The "Specified Reserve Balance" will be the lesser of (a) __% of the
outstanding principal balance of the receivables and (b) __% of the principal
balance of the receivables as of the Cut-off Date.
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 specified in the sale and servicing agreement with respect
to the Collection Period preceding such payment date, including:
o the aggregate amount of collections on the receivables;
o the aggregate amount of receivables designated as defaulted
receivables;
o the aggregate Advances to be made by the servicer; and
o the aggregate Purchase Amount of receivables to be repurchased
by the seller or to be purchased by 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.
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 $_____________.
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. The amount 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 or the
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--
o enhance the likelihood that you will receive the amounts due on
your notes or certificates; and
o 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 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 Benefit Plan
Investors. 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 --
o 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
o 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 Benefit Plan Investor 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
Benefit Plan Investor. In such case, certain exemptions from the prohibited
transaction rules could be applicable to such acquisition and holding by a
Benefit Plan Investor depending on the type and circumstances of the Benefit
Plan Investor 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. Benefit Plan Investors
may not acquire the certificates. An insurance company using the assets of its
general account may purchase certificates on the condition that --
o 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
o 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 Benefit Plan Investors 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 Benefit Plan
Investor that acquires and holds the notes without such Benefit Plan Investor
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--
o is not a Benefit Plan Investor and is not acquiring its certificates on
behalf of any such Benefit Plan Investor; or
o 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.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, the seller has agreed to cause the trust 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 and
Class A-3 Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3
NOTE UNDERWRITERS NOTES NOTES NOTES
- ------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
............................................
............................................
............................................
............................................
Total..................................
</TABLE>
The seller has been advised by the underwriters of the notes 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 and the Class A-3 Notes,
the public offering prices may change.
Subject to the terms and conditions set forth in the underwriting
agreement, the seller has agreed to cause the trust to sell to each of the
underwriters named below, and each of those underwriters has severally agreed to
purchase, the initial certificate balance of the certificates set forth below
opposite its name.
CERTIFICATE
BALANCE OF
CERTIFICATE UNDERWRITERS CERTIFICATES
- ------------------------ ------------
Total.......................................
The seller has been advised by the underwriters of the certificates
that they propose initially to offer the certificates to the public at the price
set forth on the cover page of this prospectus supplement. After the initial
public offering of the certificates, the public offering price may change.
The underwriting discounts and commissions, the selling concessions
that the underwriters of the notes and the certificates may allow to certain
dealers, and the discounts that such dealers may reallow to certain other
dealers, expressed as a percentage of the principal amount of each class of
notes or as a percentage of the certificate balance of the certificates and as
an aggregate dollar amount, shall be as follows:
<TABLE>
<CAPTION>
UNDERWRITING NET PROCEEDS SELLING
DISCOUNT AND TO THE CONCESSIONS REALLOWANCE
COMMISSIONS SELLER(1) NOT TO EXCEED NOT TO EXCEED
----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Class A-1 Notes.................
Class A-2 Notes.................
Class A-3 Notes.................
Certificates....................
Total for the
notes and certificates....
- --------------
(1) Plus accrued interest, if any, from ___________________ and before deducting other expenses estimated
at $___________________________.
</TABLE>
Until the distribution of the notes and the certificates 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 and the certificates. As an
exception to these rules, the underwriters are permitted to engage in certain
transactions that stabilize the price of the notes and the certificates. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the notes and the certificates.
If the underwriters create a short position in the notes or the
certificates in connection with this offering (i.e., they sell more notes or
certificates than are set forth on the cover page of this prospectus
supplement), the underwriters may reduce that short position by purchasing notes
or certificates, as the case may be, 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 or
certificates in the open market to reduce the underwriters' short position or to
stabilize the price of such notes or certificates, they may reclaim the amount
of the selling concession from any underwriter or selling group member who sold
those notes or certificates, as the case may be, 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 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 the
transactions described above may have on the price of the notes or the
certificates. 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, once 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 and the certificates expect to make a market in such
securities but will not be obligated to do so. We cannot assure you that a
secondary market for the notes or the certificates will develop. 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 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 the 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. Certain
legal matters relating to the notes and the certificates will be passed upon for
the underwriters by Simpson Thacher & Bartlett.
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 TABLE" means the table captioned "Percent of Initial Note
Principal Amount or Initial Certificate Balance at Various ABS Percentages"
beginning on page S-__ 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):
o all payments collected on the receivables;
o all liquidation proceeds in respect of receivables which were
designated as defaulted receivables in prior Collection Periods;
o all Advances made by the servicer of interest due on the
receivables;
o the Purchase Amount of each receivable that was repurchased by
the seller or purchased by the servicer under an obligation
which arose during the related Collection Period; and
o 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:
o 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;
o 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;
o 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;
o 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
o 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.
"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 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, $____________ and, thereafter, means the initial certificate balance
of the certificates, reduced by all amounts allocable to principal previously
distributed to the certificateholders.
"CLEARSTREAM" means Clearstream Banking, societe anonyme, a
professional depository under the laws of Luxembourg.
"CLOSING DATE" means _________________.
"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
calendar month ending on _________________, 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 _________________.
"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.
"DTC" means The Depository Trust Company and any successor depository
selected by the 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 _________________, a ________________, 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.
"OWNER TRUSTEE" means _________________, a Delaware _________________,
as owner trustee under the trust agreement under which the trust is formed.
"PAYMENT DATE" means the date on which the trust will pay interest and
principal on the notes and certificates, which will be the __________ day of
each month or, if any such day is not a Business Day, on the next Business Day,
commencing _________________.
"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.
"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.
The "Reserve Account Excess Amount", with respect to any payment date,
means the amount equal to the excess, if any, of --
o 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
o the Specified Reserve Balance with respect to that payment date.
"RESERVE INITIAL DEPOSIT" means the $_________________ 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 ___%
and the aggregate principal balance of the receivables as of the first day of
the related Collection Period.
"SPECIFIED RESERVE BALANCE" means the lesser of (a) ___% of the
outstanding principal balance of the receivables and (b) ___% of the principal
balance of the receivables as of the Cut-off Date.
"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.
The "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 interest on accrued interest;
(3) all interest distributable on the certificates, including any
accrued interest and interest on accrued interest;
(4) the sum of (i) all principal collected on the receivables during
the related Collection Period and (ii) the aggregate principal
balance (net of liquidation proceeds received during that
Collection Period applied to principal) of all receivables that
were designated as defaulted receivables during that Collection
Period; 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 --
o the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods;
o all interest payable on the notes, including any accrued
interest thereon; and
o the amount necessary to reduce the outstanding principal amount
of the notes to zero.
Information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities, and it is not soliciting, in affect, to buy
these securities in any state where the offer of sale is not permitted.
Subject to completion, dated ___________ , 200__.
Prospectus Supplement to Prospectus Dated _____________, 200_
$____________________
USAA AUTO GRANTOR TRUST _______
[USAA LOGO]
USAA FEDERAL SAVINGS BANK
SELLER AND SERVICER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BEFORE YOU PURCHASE THE UNDERWRITERS ARE OFFERING THE FOLLOWING
ANY OF THESE CERTIFICATES BY THIS PROSPECTUS SUPPLEMENT:
CERTIFICATES, BE
SURE YOU READ THIS CLASS A CLASS B
PROSPECTUS CERTIFICATES CERTIFICATES
SUPPLEMENT AND THE ------------ ------------
ATTACHED PROSPECTUS Certificate Balance.................... $ $
ESPECIALLY THE RISK Per Annum Interest Rate................ % %
FACTORS BEGINNING ON Final Scheduled Payment Date...........
PAGE S-__ OF THIS Initial Public Offering Price(1)....... $ % $ %
PROSPECTUS SUPPLEMENT Underwriting Discount.................. $ % $ %
AND ON PAGE __ OF THE Proceeds to Seller(1)(2)............... $ % $ %
PROSPECTUS. _______________
A security is not a (1) The price of the certificates will include interest accrued on the
deposit and neither the certificates, if any, from _________________.
certificates nor the (2) Before deducting expenses payable by the seller estimated to be
underlying motor vehicle $______________.
loans are insured or
guaranteed by the FDIC
or any other governmental
authority. o The trust will distribute interest and principal on the
certificates on the ___th day of each month. The first payment date
These certificates are will be ________________.
issued by the trust. The o The Class B Certificates are subordinated to the Class A Certificates.
certificates 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
certificates unless it is
accompanied by the
prospectus.
</TABLE>
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]
The date of this prospectus supplement is _____________.
<PAGE>
TABLE OF CONTENTS
READING THESE DOCUMENTS..................................S-3
SUMMARY OF TERMS OF THE CERTIFICATES.....................S-4
RISK FACTORS.............................................S-9
THE TRUST...............................................S-10
THE RECEIVABLES POOL....................................S-10
Criteria Applicable to Selection of
Receivables........................................S-11
The Bank's Delinquency, Loan Loss and
Recovery Information...............................S-15
HOW YOU CAN COMPUTE YOUR PORTION
OF THE AMOUNT OUTSTANDING ON THE CERTIFICATES.........S-16
The Factors Described Above Will Decline
as the Trust Makes Payments on the
Certificates.....................................S-16
MATURITY AND PREPAYMENT CONSIDERATIONS..................S-16
Weighted Average Life of the Certificates............S-17
DESCRIPTION OF THE CERTIFICATES.........................S-21
General..............................................S-21
Distributions on Certificates........................S-21
Statements to Certificateholders.....................S-24
Subordination of Class B Certificates................S-24
Optional Redemption..................................S-24
Accounts.............................................S-25
Servicing Compensation and Expenses..................S-25
Rights Upon Event of Servicing Termination...........S-25
Waiver of Past Events of Servicing Termination.......S-25
Reserve Account......................................S-25
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................S-26
CERTAIN STATE TAX CONSEQUENCES..........................S-27
ERISA CONSIDERATIONS....................................S-27
Class A Certificates.................................S-27
Class B Certificates.................................S-27
UNDERWRITING............................................S-28
LEGAL OPINIONS..........................................S-30
GLOSSARY OF TERMS.......................................S-30
<PAGE>
READING THESE DOCUMENTS
We provide information on the certificates in two documents that offer
varying levels of detail:
1. Prospectus - provides general information, some of which may not apply
to the certificates.
2. Prospectus Supplement - provides a summary of the specific terms of
the certificates.
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 certificates 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-3
in this document and on page 4 in the prospectus to locate the referenced
sections.
The Glossary of Terms on page S-__ of this prospectus supplement and the
Glossary of Terms on page __ in the prospectus list definitions of certain
terms used in this prospectus supplement or the prospectus.
You should rely only on information on the certificates provided in this
prospectus supplement and the attached 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.
<PAGE>
SUMMARY OF TERMS OF THE CERTIFICATES
THE FOLLOWING SUMMARY IS A SHORT DESCRIPTION OF THE MAIN TERMS OF THE
OFFERING OF THE CERTIFICATES. 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 CERTIFICATES, YOU WILL NEED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS IN THEIR ENTIRETY.
<PAGE>
ISSUER
USAA Auto Grantor Trust ____ will acquire, in exchange for the issuance of its
certificates, 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 certificates. The
trust will be solely liable for the payment of the certificates.
OFFERED CERTIFICATES
The following certificates are being offered by this prospectus supplement:
$____________ Class A ____% Asset Backed Certificates
$____________ Class B ____% Asset Backed Certificates
CLOSING DATE
The trust expects to issue the certificates on __________________.
SELLER AND SERVICER
USAA Federal Savings Bank.
TRUSTEE
___________________.
PAYMENT DATES
On the ___th day of each month (or if the ___th day is not a business day, the
next business day), the trust will distribute interest and principal on the
certificates.
FIRST PAYMENT DATE
The first payment date will be _________________.
RECORD DATES
On each payment date, the trust will distribute interest and principal to the
holders of the certificates as of the related record date. The record date for
the certificates will be the day immediately preceding the payment date. If
definitive certificates are issued for the certificates, the record date will
be the last day of the month immediately preceding the payment date.
INTEREST RATES
The trust will distribute interest on each class of certificates at the per
annum rates specified on the cover of this prospectus supplement.
INTEREST ACCRUAL
"30/360", accrued from the __th day of the previous month (or the closing date
in the case of the first payment date) to the __th day of the current month.
This means that, if there are no outstanding shortfalls in the payment of
interest, the interest due on a class of certificates on each payment date
will be the product of:
1. the outstanding certificate balance of that class;
2. the interest rate for that class; and
3. 30 (or in the case of the first payment date, _____) 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
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 distribute 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) ____ CLASS A CERTIFICATE INTEREST -- accrued and unpaid
interest on the Class A Certificates distributable to the
holders of those certificates;
(3) ____ CLASS B CERTIFICATE INTEREST -- accrued and unpaid
interest on the Class B Certificates distributable to the
holders of those certificates;
(4) CLASS A PRINCIPAL - principal in the amount described in this
prospectus supplement to the Class A Certificateholders;
(5) CLASS B PRINCIPAL - principal in the amount described in this
prospectus supplement to the Class B Certificateholders;
(6) any remaining amount will be deposited in the reserve account
until the amount on deposit in the reserve account equals the
required amount; and
(7) any remaining amount will be distributed to the seller.
FOR A MORE DETAILED DESCRIPTION OF THE FUNDS AVAILABLE TO THE TRUST TO MAKE
DISTRIBUTIONS, THE PRIORITY OF DISTRIBUTIONS AND THE ALLOCATION OF FUNDS ON
EACH PAYMENT DATE, YOU SHOULD REFER TO "DESCRIPTION OF THE CERTIFICATES" IN
THIS PROSPECTUS SUPPLEMENT.
CREDIT ENHANCEMENT
The credit enhancement for the certificates will be as follows:
SUBORDINATION OF PRINCIPAL AND INTEREST
- ---------------------------------------
Payments of interest on the Class B Certificates will be subordinated to
payments of interest on the Class A Certificates. Payments of principal on the
Class B Certificates will be subordinated to payments of interest and
principal on the Class A Certificates.
RESERVE ACCOUNT
- ---------------
On the closing date, the seller will deposit $______________ to the reserve
account for the trust.
On each payment date, if collections on the receivables are insufficient to
distribute the first five items listed in "Priority of Distributions" above,
the trustee will withdraw funds from the reserve account, to the extent
available, to distribute such amounts in full.
The balance required to be on deposit in the reserve account will be the
lesser of (a) _______ % of the outstanding principal balance of the
receivables and (b) __% of the principal balance of the receivables as of
_________.
On each payment date, the trust will distribute funds on deposit in the
reserve account in excess of the required balance to the seller.
FOR A MORE DETAILED DESCRIPTION OF THE DEPOSITS TO AND WITHDRAWALS FROM THE
RESERVE ACCOUNT, YOU SHOULD REFER TO "DESCRIPTION OF THE CERTIFICATES --
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 __% or less of the
aggregate principal balance of the receivables as of _________. The purchase
price will equal the outstanding principal balance of the receivables plus
accrued and unpaid interest thereon at the weighted average interest rate for
the certificates. The trust will apply such payment to the payment of the
certificates in full.
FINAL SCHEDULED PAYMENT DATES
The trust is required to distribute the entire principal amount of each class
of certificates, to the extent not previously paid, on the respective Final
Scheduled Payment Dates specified on the cover page of this prospectus
supplement.
PROPERTY OF THE TRUST
The property of the trust will include the following:
the receivables and the collections on the receivables on or after
___________;
security interests in the vehicles financed by the receivables;
bank accounts (other than the reserve account); 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 ________________ is as follows:
o Aggregate Principal
Balance................ $
o Number of
Receivables............
o Average Principal
Balance................ $
(Range)............ $ to $
o Average Original
Amount Financed........ $
(Range)............ $ to $
o Weighted Average
Contract Interest
Rate................... %
(Range)............ % to
%
o Weighted Average
Original Term.......... months
(Range)............ months to
months
o Weighted Average
Remaining Term......... Months
(Range)............ month to
months
SERVICER OF THE RECEIVABLES
The trust will pay the servicer a servicing fee on each payment date equal to
1/12 of ___% of the principal balance of the receivables at the beginning of
the previous month. 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 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 certificates that:
the Class A Certificates be rated in the [highest] long-term rating
category by at least two nationally recognized rating agencies; and
[the Class B Certificates] be rated "____" or its equivalent by at least
[two] nationally recognized rating agencies.
A rating is not a recommendation to purchase, hold or sell the certificates,
inasmuch as such rating does not comment as to market price or suitability for
a particular investor. The ratings of the certificates address the likelihood
of the payment of principal and interest on the certificates according to
their terms. A rating agency rating the certificates may lower or withdraw its
rating in the future, in its discretion, as to any class of the certificates.
MINIMUM DENOMINATIONS
$1,000 and integral multiples thereof
REGISTRATION, CLEARANCE AND SETTLEMENT
Book-entry through DTC/Clearstream/
Euroclear
TAX STATUS
OPINIONS OF COUNSEL
- -------------------
Brown & Wood LLP will deliver its opinion that for federal income tax purposes
the trust will be characterized as a grantor trust and not as an association
(or a publicly traded partnership) taxable as a corporation.
ERISA CONSIDERATIONS
CLASS A
CERTIFICATES ______ The Class A Certificates are generally eligible for
purchase by employee benefit plans, subject to the
considerations discussed under "ERISA Considerations" in
this prospectus supplement and the prospectus.
CLASS B
CERTIFICATES ______ The Class B 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 Class B Certificates subject to the
considerations discussed under "ERISA Considerations" in
this prospectus supplement and in the prospectus.
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.
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of these certificates.
CLASS B CERTIFICATES ARE
SUBJECT TO GREATER CREDIT RISK
BECAUSE THE CLASS B
CERTIFICATES ARE SUBORDINATE TO The Class B Certificates bear greater credit
THE CLASS A CERTIFICATES __________ risk than the Class A Certificates
because payments of interest and principal
on the Class B Certificates are subordinated
to payments of interest and principal on the
Class A Certificates.
GEOGRAPHIC CONCENTRATION MAY
RESULT IN MORE RISK TO YOU The servicer's records indicate that the
billing addresses of the obligors of the
receivables as of ____________ were in the
following states:
PERCENTAGE OF
AGGREGATE
PRINCIPAL
BALANCE
-------------
[ ]............... %
[ ]............... %
[ ]............... %
[ ]............... %
No other state, by those billing addresses,
constituted more than 5% of the balance of
the receivables as of _____________.
Economic conditions or other factors
affecting these states in particular could
adversely affect the delinquency, credit
loss or repossession experience of the
trust.
<PAGE>
THE TRUST
The seller will establish the USAA Auto Grantor Trust _____ by assigning
the receivables to the trust in exchange for the % Automobile Loan
Pass-Through Certificates, Class A (the "CLASS A CERTIFICATES") and the %
Automobile Loan Pass-Through Certificates, Class B (the "CLASS B
CERTIFICATES"). Each certificate will represent a fractional undivided
interest in the trust. The trust property will include a pool of [fixed rate
simple interest] motor vehicle installment loans for the purchase of new and
used automobiles and light-duty trucks. The trust property will also include:
o all monies received on the receivables on or after _____ (the
"CUT-OFF DATE");
o security interests in the financed vehicles;
o 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;
o the seller's rights to certain documents and instruments relating
to the receivables;
o such amounts as from time to time may be held in the accounts
maintained for the trust;
o certain payments and proceeds with respect to the receivables held
by the servicer;
o certain rebates of premiums and other amounts relating to certain
insurance policies and other items financed under the receivables;
and
o any proceeds of the above items.
The trust will be formed for this transaction pursuant to the pooling and
servicing agreement and prior to formation will have had no assets or
obligations. After formation, the trust will not engage in any activity other
than acquiring and holding the receivables, issuing the certificates,
distributing payments thereon and as otherwise described herein and as
provided in the pooling and servicing agreement. The trust will not acquire
any contracts or assets other than the trust property described above.
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 contracts. 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:
o has a remaining maturity, as of the Cut-off Date, of at least ____
months and not more than ___ months;
o with respect to loans secured by new financed vehicles, had an
original maturity of at least ____ months and not more than ____
months; with respect to loans secured by used financed vehicles, had
an original maturity of at least _____ months and not more than ____
months;
o 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 ____% 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;
o is secured by a financed vehicle that, as of the Cut-off Date, had
not been repossessed without reinstatement;
o 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;
o has no payment more than ____ days past due as of the Cut-off Date;
and
o has a remaining principal balance, as of the Cut-off Date, of at
least $___________.
No selection procedures believed by the seller to be adverse to the
certificateholders were utilized in selecting the receivables. No receivable
has a scheduled maturity later than ____________________ .
The composition of the receivables as of the Cut-off Date is as follows:
o Aggregate Principal
Balance................ $
o Number of
Receivables............
o Average Principal
Balance................ $
(Range)................ $ to $
o Average Original
Amount Financed........ $
(Range)................ $ to $
o Weighted Average
Contract Rates......... %
(Range)................ % to
%
o Weighted Average
Original Term.......... months
(Range)................ months to
months
o Weighted Average
Remaining Term......... Months
(Range)................ month to
months
The geographical distribution and distribution by Contract Rate of the
receivables pool as of the Cut-off Date are set forth in the following tables.
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE
PERCENTAGE OF OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL NUMBER OF PRINCIPAL PRINCIPAL
STATE (1) RECEIVABLES BALANCE BALANCE (2) STATE (1) RECEIVABLES BALANCE BALANCE (2)
- -------------- ----------- --------- ------------ ------------- ------------ --------- -----------
Alabama........ Montana.......
Alaska......... Nebraska......
Arizona........ Nevada........
Arkansas....... New Hampshire.
California..... New Jersey....
Colorado....... New Mexico....
Connecticut.... New York......
Delaware....... North Carolina
District of
Columbia....... North Dakota..
Florida........ Ohio..........
Georgia........ Oklahoma......
Hawaii......... Oregon........
Idaho.......... Pennsylvania..
Illinois....... Rhode Island..
Indiana........ South Carolina
Iowa........... South Dakota..
Kansas......... Tennessee.....
Kentucky....... Texas.........
Louisiana...... Utah..........
Maine.......... Vermont.......
Maryland....... Virginia......
Massachusetts.. Washington....
Michigan....... West Virginia.
Minnesota...... Wisconsin.....
Mississippi.... Wyoming.......
Missouri.......
- --------------
(1) Based on the billing addresses of the obligors as of the Cut-off Date.
(2) May not add to 100% due to rounding.
</TABLE>
<PAGE>
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES
AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
<S> <C> <C> <C>>
PERCENTAGE OF
AGGREGATE
NUMBER OF PRINCIPAL
CONTRACT RATE RECEIVABLES PRINCIPAL BALANCE BALANCE (1)
- ------------- ----------- ----------------- -------------
1.90 to 1.99%..........................
2.00 to 2.49...........................
2.50 to 2.99...........................
3.00 to 3.49...........................
3.50 to 3.99...........................
4.00 to 4.49...........................
4.50 to 4.99...........................
5.00 to 5.49...........................
5.50 to 5.99...........................
6.00 to 6.49...........................
6.50 to 6.99...........................
7.00 to 7.49...........................
7.50 to 7.99...........................
8.00 to 8.49...........................
8.50 to 8.99...........................
9.00 to 9.49...........................
9.50 to 9.99...........................
10.00 to 10.49.........................
10.50 to 10.99.........................
11.00 to 11.49.........................
11.50 to 11.99.........................
12.00 to 12.49.........................
12.50 to 12.99.........................
13.00 to 13.49.........................
13.50 to 13.99.........................
14.00 to 14.49.........................
14.50 to 14.99.........................
15.00 to 15.49.........................
15.50 to 15.99.........................
16.00 to 16.49.........................
16.50 to 16.99.........................
17.00 to 17.49.........................
17.50 to 17.99.........................
18.00 to 18.49.........................
18.50 to 18.99.........................
19.00 to 19.49.........................
19.50 to 19.99.........................
20.00..................................
Totals.................................
- --------------
(1) May not add to 100.00% due to rounding.
</TABLE>
<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 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 10% of outstandings as of any of the dates shown in the
following tables. The Bank believes that the inclusion of variable rate motor
vehicle loans and the 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>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------- -------------------- -------------------- ------------------- ----------------------
DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER DOLLARS NUMBER
(IN OF (IN OF (IN OF (IN OF (IN OF
000S) LOANS 000S) LOANS 000S) LOANS 000S) LOANS 000S) LOANS
---------------------- -------------------- -------------------- ------------------- ----------------------
Outstandings. $3,661,825 283,810 $2,802,144 234,281 $2,076,318 186,560 $1,687,922 159,812 $1,454,843 145,246
Delinquencies
over
30 days(1)(2) $16,927 1,689 $12,297 1,366 $7,028 871 $8,634 1,082 $580 2,338
Delinquencies
over
30 days (%)(3) 0.46% 0.60% 0.44% 0.58% 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>
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN 000S)
Number of Loans(1) .................. 283,810 234,281 186,560 159,812 145,246
Period Ending Outstandings........... $3,661,825 $2,802,144 $2,076,318 $1,687,922 $1,454,843
Average Outstandings(2) ............. $3,281,001 $2,375,294 $1,867,280 $1,527,686 $1,298,116
Number of Gross Charge-Offs ......... 1,438 874 797 805 422
Gross Charge-Offs(3)................. $16,066 $9,311 $6,157 $4,131 $2,244
Gross Charge-Offs as a % of Period End 0.44% 0.33% 0.30% 0.24% 0.15%
Outstandings.............................
Gross Charge-Offs as a % of Average 0.49% 0.39% 0.33% 0.27% 0.17%
Outstandings.............................
Recoveries(4)........................ $7,296 $4,856 $2,158 $1,068 $683
Net Charge-Offs(5)................... $8,770 $4,455 $3,999 $3,063 $1,561
Net Charge-Offs as a % of Period End 0.24% 0.16% 0.19% 0.11% 0.11%
Outstandings.............................
Net Charge-Offs as a % of Average 0.27% 0.19% 0.21% 0.20% 0.12%
Outstandings.............................
</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 still 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) 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.
(5) 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. 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
obligations will vary from time to time and will affect losses and
delinquencies. We cannot assure you that the delinquency and loan loss
experience of the trust with respect to its receivables will be similar to
that set forth above.
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE CERTIFICATES
The servicer will provide to you in each report which it delivers to you
a factor which you can use to compute your portion of the certificate balance
outstanding on your class of certificates.
HOW THE SERVICER COMPUTES THE FACTOR FOR YOUR CLASS OF CERTIFICATES. The
servicer will compute a separate factor for each class of certificates. The
factor for a class of certificates will be a seven-digit decimal which the
servicer will compute prior to each distribution with respect to that class of
certificates indicating the remaining certificate balance of that class of
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 (expressed as a decimal) of the initial certificate balance of that
class of certificates.
YOUR PORTION OF THE OUTSTANDING CERTIFICATE BALANCE OF YOUR CERTIFICATES.
For each certificate you own, your portion of your class certificates is the
product of--
o the original denomination of your certificate; and
o the factor relating to your class certificates computed by the
servicer in the manner described above.
THE FACTORS DESCRIBED ABOVE WILL DECLINE AS THE TRUST MAKES PAYMENTS ON THE
CERTIFICATES
The factor for each class of certificates above will initially be
1.0000000. They will then decline to reflect reductions, as applicable, in the
outstanding certificate balance of the applicable class of 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 certificates is set forth under "Maturity and Prepayment
Considerations" in the prospectus. In addition, on each payment date, no
principal payments will be made on the Class B Certificates until the amount
of interest and principal due on the Class A Certificates has been paid.
Since the rate of payment of principal of each class of certificates
depends on the rate of payment (including prepayments) of the principal
balance of the receivables, final payment of either class of certificates
could occur significantly earlier than the Final Scheduled Payment Date.
WE CANNOT ASSURE YOU THAT YOUR CERTIFICATES WILL BE REPAID ON THE FINAL
SCHEDULED PAYMENT DATE. We expect that final payment of each class of
certificates will occur on or prior to the Final Scheduled Payment Date.
However, we cannot assure you that sufficient funds will be available to pay
each class of certificates in full on or prior to the Final Scheduled Payment
Date. If sufficient funds are not available, the final distribution in respect
of each class of certificates could occur later than such date.
THE LEVEL OF PREPAYMENTS OF THE RECEIVABLES AND REQUIRED PURCHASES BY THE
SELLER AND THE SERVICER ARE UNPREDICTABLE AND MAY AFFECT PAYMENTS ON THE
CERTIFICATES. 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 and thus the outstanding certificate balances of
the certificates more quickly than expected and thereby reduce anticipated
aggregate interest payments on the certificates. The certificateholders alone
will bear any reinvestment risks resulting from a faster or slower incidence
of prepayment of receivables. 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.
RISKS OF SLOWER OR FASTER REPAYMENTS. You should consider--
o in the case of 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
o in the case of 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 CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the receivables on the weighted average life of the
certificates 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 certificates will
depend on the rate of payment (including prepayments) of the principal balance
of the receivables. For this reason, final payment on the certificates could
occur significantly earlier than the Final Scheduled Payment Date. The
certificateholders will exclusively bear any reinvestment risk associated with
early payment of their certificates.
The table (the "ABS TABLE") captioned "Percent of Initial Certificate
Balance" at Various ABS Percentages" has been prepared on the basis of the
characteristics of the receivables. The ABS Table assumes that --
o the receivables prepay in full at the specified constant percentage
of ABS monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on the receivables is made on the
last day of each month and each month has 30 days;
o payments on the certificates are made on each payment date (and each
payment date is assumed to be the ____day of the applicable month);
o the balance in the Reserve Account on each payment date is equal to
the Specified Reserve Account Balance; and
o the servicer does not exercise its option to purchase the
receivables.
The ABS Table indicates the projected weighted average life of each class
of certificates and sets forth the percent of the initial certificate balance
of each class of certificates that is projected to be outstanding after each
of the payment dates shown at various constant ABS percentages.
The ABS Table also assumes 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 ________________.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CONTRACT ORIGINAL TERM REMAINING TERM
AGGREGATE RATE OF TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE INTEREST (IN MONTHS) (IN MONTHS)
1........................
2........................
3........................
4........................
5........................
6........................
7........................
8........................
9........................
10.......................
11.......................
12.......................
13.......................
14.......................
15.......................
16.......................
17.......................
18.......................
</TABLE>
The actual characteristics and performance of the receivables will
differ from the assumptions used in constructing the ABS Table. 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 Table 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 certificates.
<PAGE>
PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
CLASS A CERTIFICATES AND
CLASS B CERTIFICATES
PAYMENT DATE % % % %
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
Weight Average Life (1)
Weight Average Life
to Optional
Repurchase (1)(2)
- ----------
(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 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.
DESCRIPTION OF THE CERTIFICATES
We have filed a form of the pooling and servicing agreement as an exhibit
to the registration statement of which the prospectus is a part. A copy of the
pooling and servicing agreement will be filed 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 pooling and servicing agreement and the certificates. The
following summary is a supplement to the description of the general terms and
provisions of the certificates of any series and the related pooling and
servicing 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.
GENERAL
The certificates will be Book-Entry Securities. Definitive Certificates
for the certificates will be issued only in the limited circumstances
specified under "Certain Information Regarding the Securities--Definitive
Securities" in the prospectus. Distributions on the certificates on a payment
date will be made to persons who were the holders of record on the Record
Date. You may purchase certificates in denominations of $1,000 and integral
multiples thereof.
DISTRIBUTIONS ON CERTIFICATES
DEPOSITS TO COLLECTION ACCOUNT. The servicer will establish the
Collection Account as described under "Description of the Receivables Transfer
and Servicing Agreements--Accounts" 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 pooling
and servicing agreement is not met.
On or before the __th day of each month or, if such __th day is not a
Business Day, the preceding Business Day, the servicer will inform the trustee
of the following amounts with respect to the preceding Collection Period:
(1) the amount of aggregate collections on the receivables, including
all liquidation proceeds and recoveries;
(2) the aggregate amount of Advances to be remitted by the servicer;
(3) the aggregate Purchase Amount for the receivables to be repurchased
by the seller or purchased by the servicer;
(4) the aggregate amount to be withdrawn from the Reserve Account;
(5) the aggregate amount to be distributed as principal and interest on
the certificates; and
(6) the Servicing Fee.
On or before the Business Day preceding each payment date:
(a) the servicer will cause all collections on the receivables,
liquidation proceeds and recoveries to be deposited into the
Collection Account and will deposit into the Collection Account all
Purchase Amounts for the receivables to be purchased by the servicer
on that date;
(b) the seller will deposit into the Collection Account all Purchase
Amounts of receivables to be repurchased by the seller on that date;
and
(c) the servicer will deposit all Advances for the payment date into the
Collection Account.
On each payment date the servicer will allocate collections and Advances
for the preceding calendar month (the "COLLECTION PERIOD") to Available
Interest and Available Principal. The amounts represented by those terms are
more precisely described in the section "Glossary of Terms" in this prospectus
supplement. In general, Available Interest for a Collection Period includes
interest collections on the receivables (including the interest portion of
Purchased Amounts and liquidation proceeds on receivables designated as
defaulted receivables in that Collection Period) and recoveries on receivables
that were designated as defaulted receivables prior to that Collection Period,
MINUS reimbursements to the servicer of its outstanding Advances. Available
Principal for a Collection Period includes principal collections on the
receivables (including the principal portion of Purchased Amounts and
liquidation proceeds on receivables designated as defaulted receivables in
that Collection Period). 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
at the end of a Collection Period.
The servicer will be entitled to receive reimbursements of its
outstanding Advances as described under the section entitled "Description of
the Receivables Transfer and Servicing Agreements--Advances" in the
prospectus. We refer you to that section.
DISTRIBUTIONS. On each payment date the trustee will make the following
deposits and distributions, to the extent of Available Interest and any
available funds in the Reserve Account (net of investment earnings) remaining
after such reimbursements (and, to the extent indicated in clause (2) below,
the Class B Percentage of Available Principal), in the following order of
priority:
(1) to the servicer, first from Available Interest and then, if
necessary, from any such funds in the Reserve Account, any unpaid
Servicing Fee for the related Collection Period and all unpaid
Servicing Fees from prior Collection Periods;
(2) to the distribution account for the Class A Certificateholders,
first from Available Interest, then, if necessary, from any such
funds in the Reserve Account, and finally, if necessary, from the
Class B Percentage of Available Principal, interest distributable on
the Class A Certificates for such payment date; and
(3) to the distribution account for the Class B Certificateholders,
first from Available Interest and then, if necessary, from any such
funds in the Reserve Account, the interest distributable on the
Class B Certificates for such payment date.
The interest distributable on a class of certificates on a payment date
will accrue on its certificate balance at the applicable per annum rate set
forth on the cover of this prospectus supplement 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. Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Interest accrued
as of any payment date but not paid on such payment date will be due on the
next payment date, together with interest on such amount at the applicable
interest rate (to the extent lawful).
On each payment date, the trustee will make the following deposits and
distributions, to the extent of the portion of Available Principal, Available
Interest and any such funds in the Reserve Account (to be applied in that
order of priority) remaining after the application of clauses (1), (2) and (3)
above, in the following order of priority:
(4) to the distribution account for the Class A Certificateholders, the
Class A Principal Distribution for such payment date;
(5) to the distribution account for the Class B Certificateholders, the
Class B Principal Distribution for such payment date;
(6) to the Reserve Account, any amounts remaining, until the amount on
deposit in the Reserve Account equals the Specified Reserve Account
Balance; and
(7) to the seller, any amounts remaining.
On each payment date, the trustee will distribute (i) to the Class A
Certificateholders, all amounts on deposit in the distribution account for the
Class A Certificateholders and (ii) to the Class B Certificateholders, all
amounts on deposit in the distribution account for the Class B
Certificateholders.
The CLASS A PRINCIPAL DISTRIBUTION for a payment date will equal the sum
of (i) the Class A Percentage of the Available Principal plus the Class A
Percentage of Realized Losses, (ii) the Class A Percentage of the Available
Principal for any prior payment date and the Class A Percentage of Realized
Losses for any prior payment date, in each case only to the extent, if any,
that they have not already been distributed to the Class A Certificateholders
and (iii) if that payment date is the Final Scheduled Payment Date, the
additional amount, if any, needed to reduce the certificate balance of the
Class A Certificates to zero.
The CLASS B PRINCIPAL DISTRIBUTION for a payment date will equal the sum
of (i) the Class B Percentage of the Available Principal plus the Class B
Percentage of Realized Losses, (ii) the Class B Percentage of the Available
Principal for any prior payment date and the Class B Percentage of Realized
Losses for any prior payment date, in each case only to the extent, if any,
that they have not already been distributed to the Class B Certificateholders
and (iii) if that payment date is the Final Scheduled Payment Date, the
additional amount, if any, needed to reduce the certificate balance of the
Class B Certificates to zero.
The CLASS B PERCENTAGE is ___% and the CLASS A PERCENTAGE is _____%.
REALIZED LOSSES for any Collection Period will be the excess of the
aggregate principal balance of those receivables that were designated as
defaulted receivables during that Collection Period OVER liquidation proceeds
received with respect to such receivables during such Collection Period and
allocable to principal.
STATEMENTS TO CERTIFICATEHOLDERS
On each payment date, the trustee will include with each distribution to
each certificateholder a statement setting forth the applicable information
under the heading "Certain Information Regarding the Securities--Reports to
Securityholders" in the prospectus.
The statements for each Collection Period will be delivered to DTC for
further distribution to beneficial owners of the certificates in accordance
with DTC procedures. Copies of such statements may be obtained by beneficial
owners of certificates by a request in writing addressed to the trustee at its
corporate trust office at _____________.
SUBORDINATION OF CLASS B CERTIFICATES
The rights of the Class B Certificateholders to receive distributions of
interest are subordinated to the rights of Class A Certificateholders to
receive payments of interest and principal. In addition, on each payment date
the Class B Certificateholders will not receive a distribution of principal
until the Class A Certificateholders have received their distribution of
principal. This subordination is effected by the allocation of funds set forth
under "--Distributions on Certificates" above.
OPTIONAL REDEMPTION
If the servicer exercises its option to purchase the receivables when the
aggregate principal balance of the receivables declines to 10% or less of the
aggregate principal balance of the receivables as of the Cut-off Date, you
will receive an amount in respect of your certificates equal to the sum of:
o the outstanding certificate balance of your certificates together
with accrued and unpaid interest at the rate of interest for your
certificates; and
o interest on any past due interest at the rate of interest for your
certificates, to the extent lawful.
See "Description of the Receivables Transfer and Servicing Agreements --
Termination" in the prospectus.
ACCOUNTS
In addition to the Collection Account,
o the trustee will establish a distribution account for the benefit of
the Class A Certificateholders;
o the trustee will establish a distribution account for the benefit of
the Class B Certificateholders; and
o the seller will establish and will maintain the Reserve Account at
an Eligible Institution in the name of _______________ (the
"Collateral Agent") on behalf of the certificateholders.
The Reserve Account and the funds in the Reserve Account will not be
property of the trust, but will be pledged to the Collateral Agent for the
benefit of certificateholders.
SERVICING COMPENSATION AND EXPENSES
On each payment date the servicer is entitled to receive the Servicing
Fee, together with any portion of the Servicing Fee that remains unpaid from
prior payment dates. The Servicing Fee will be paid only to the extent of
Available Interest for 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 trustee or holders of
certificates evidencing not less than 25% of the aggregate principal balance
of the receivables may remove the servicer without the consent of any of the
other certificateholders.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, holders of certificates
evidencing at least a majority of the aggregate principal balance of the
receivables, subject to the exceptions provided in the pooling 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 certificateholders.
RESERVE ACCOUNT
DEPOSITS TO THE RESERVE ACCOUNT. The Reserve Account will be funded by a
deposit by the seller on the closing date in the amount of $________________.
The amount on deposit in the Reserve Account may increase from time to time up
to the Specified Reserve Account Balance by deposits of funds withdrawn from
the Collection Account to the extent available as described under
"--Distribution on the Certificates -- Distributions" above. The "SPECIFIED
RESERVE ACCOUNT BALANCE" will equal the lesser of (a) ____% of the outstanding
principal balance of the receivables and (b) ____% of the principal balance of
the receivables as of the Cut-off Date.
WITHDRAWALS FROM THE RESERVE ACCOUNT. On each payment date, the amount
available in the Reserve Account will equal the lesser of (a) the amount on
deposit in the Reserve Account and (b) the Specified Reserve Account Balance.
The funds on deposit in the Reserve Account may be deposited into the
Collection Account to the extent described under "-- Distributions on the
Certificates -- Distributions" above. Funds on deposit in the Reserve Account
in excess of the Specified Reserve Account Balance will be paid to the seller.
INVESTMENT. Amounts on deposit in the Reserve Account will be invested by
the Collateral Agent 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 certificates
confirms that such actions will not adversely affect its ratings of the
certificates, 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--
o enhance the likelihood that you will receive the amounts due on your
certificates; and
o decrease the likelihood that you will experience losses on your
certificates.
However, the amounts on deposit in the Reserve Account are limited to the
Specified Reserve Account Balance. If the amount required 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 certificateholders could result. Depletion of the Reserve Account
ultimately could result in losses on your certificates.
After the payment in full, or the provision for such payment of all
accrued and unpaid interest on the certificates and the outstanding
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 trust will be a
grantor trust and will not be treated as an association (or a publicly traded
partnership) taxable as a corporation. See "Certain Federal Income Tax
Consequences -- Trusts Treated as Grantor Trusts" in the prospectus.
CERTAIN STATE TAX CONSEQUENCES
The tax discussion in the prospectus does not address the tax treatment
of the trust, the certificates or the 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 state tax consequences to you,
particularly in the case of financial institutions, of purchasing, holding and
disposing of your certificates.
ERISA CONSIDERATIONS
For a general discussion of ERISA considerations in respect of the
certificates, we refer you to the section entitled "ERISA Considerations" in
the prospectus.
CLASS A CERTIFICATES
The U.S. Department of Labor has granted an individual administrative
exemption to [name of lead underwriter] (Prohibited Transaction Exemption
____, as amended, Exemption Application No. ________, 55 Fed. Reg. ___ (1990))
(the "Exemption") from some of the prohibited transaction rules of ERISA and
the related excise tax provisions of Section 4975 of the Code with respect to
the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of specified receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption. The Exemption applies to motor vehicle installment loans such as
the receivables owned by the trust. A "Plan" is an employee benefit or other
plan or arrangement (such as an individual retirement plan or Keogh plan) that
is subject to ERISA, Section 4975 of the Code or a Similar Law.
For a general description of the Exemption and the conditions that must
be satisfied for the Exemption to apply, see "ERISA Considerations -- Senior
Certificates Issued by Trusts" in the prospectus.
Before purchasing a Class A Certificate, a fiduciary of a Plan must
satisfy itself that (i) the Class A Certificates are "certificates" for
purposes of the Exemption and (ii) the general and specific conditions and
requirements in the Exemption would be met in the case of the Class A
Certificates.
Prospective Plan investors are encouraged to consult with their legal
advisors concerning the impact of ERISA and the Code and the applicability of
the Exemption, and the potential consequences in their specific circumstances,
before making an investment in any of the certificates. Moreover, each Plan
fiduciary is encouraged to determine whether, under the general fiduciary
standards of investment prudence and diversification, an investment in the
Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
CLASS B CERTIFICATES
Because the characteristics of the Class B Certificates will not meet the
requirements of the Exemption and may not meet any other exemption issued
under ERISA, a Plan may be engaging in a prohibited transaction or may incur
excise taxes or civil penalties if it purchases and holds Class B
Certificates. Consequently, transfers of the Class B Certificates will not be
registered by the trustee unless the trustee receives a deemed representation
from the transferee of the Class B Certificate that:
o the transferee is not a Plan or a person acting on behalf of a Plan
or using a Plan's assets to effect the transfer; or
o if the purchaser is an insurance company, the purchaser is an
insurance company which is purchasing the certificates with funds
contained in an "insurance company general account" (as defined in
Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTE
95-60")) and that the purchase and holding of the certificates are
covered under Sections I and III of PTE 95-60.
This representation will be deemed to have been made to the trustee by
the transferee's acceptance of a Class B Certificate. If the representation is
not true, the attempted transfer or acquisition shall be void AB INITIO.
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 certificate balances of Class A Certificates and Class B Certificates
set forth opposite its name below:
CERTIFICATE CERTIFICATE
BALANCE OF BALANCE OF
CLASS A CLASS B
UNDERWRITERS CERTIFICATES CERTIFICATES
------------------------------------------ ------------ ------------
.........................................
.........................................
.........................................
.........................................
Total................................
The seller has been advised by the underwriters that they propose to
offer the certificates to the public initially at the applicable prices set
forth on the cover page of this prospectus supplement. After the initial
public offering of the Class A Certificates and Class B Certificates, the
public offering prices may change.
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
certificate balance of each class of certificates and as an aggregate dollar
amount, shall be as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
UNDERWRITING SELLING
DISCOUNT AND NET PROCEEDS CONCESSIONS REALLOWANCE
COMMISSIONS TO SELLER(1) NOT TO EXCEED NOT TO EXCEED
Class A Certificates......
Class B Certificates......
Total..................
</TABLE>
- ----------------
(1) Plus interest accrued on the certificates, if any, from ________ and
before deducting other expenses estimated at $___________.
Until the distribution of the certificates is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the certificates. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize
the price of the certificates. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the
certificates.
If the underwriters create a short position in the certificates in
connection with this offering (i.e., they sell more certificates than are set
forth on the cover page of this prospectus supplement), the underwriters may
reduce that short position by purchasing certificates, as the case may be, 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
certificates in the open market to reduce the underwriters' short position or
to stabilize the price of such certificates, they may reclaim the amount of
the selling concession from any underwriter or selling group member who sold
those certificates, as the case may be, 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 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 the
transactions described above may have on the price of the certificates. 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, once commenced, will not be discontinued without notice.
The certificates are new issues of securities and there currently is no
secondary market for the certificates. The underwriters for the certificates
expect to make a market in such securities but will not be obligated to do so.
We cannot assure you that a secondary market for the Class A Certificates or
the Class B Certificates will develop. If a secondary market for the Class A
Certificates or the Class B Certificates does develop, it might end at any
time or it might not be sufficiently liquid to enable you to resell any of
your certificates.
The trustee and the Collateral Agent may, from time to time, invest the
funds in the Collection Account and the Reserve Account, as applicable, 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 closing of the sale of each class of the certificates is conditioned
on the closing of the sale of the other class of 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 the 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
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 underwriters by Simpson Thacher & Bartlett.
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 Certificates".
"ABS TABLE" means the table captioned "Percent of Initial Certificate
Balance at Various ABS Percentages" beginning on page S-__ of this prospectus
supplement.
"AVAILABLE INTEREST" means, with respect to any payment date, the excess
of (a) the sum of:
o Interest Collections for such payment date; and
o all Advances made by the servicer for such payment date,
OVER (b) the amount of Outstanding Advances to be reimbursed on or with
respect to such payment date.
"AVAILABLE PRINCIPAL" means, with respect to any payment date, the sum of
the following amounts with respect to the preceding Collection Period:
o that portion of all collections on the receivables allocable to
principal in accordance with the terms of the receivables and the
servicer's customary servicing procedures;
o to the extent attributable to principal, the Purchase Amount
received with respect to each receivable repurchased by the seller
or purchased by the servicer under an obligation which arose during
that Collection Period; and
o all liquidation proceeds, to the extent allocable to principal,
received during such Collection Period.
Available Principal on any payment date will exclude all payments and proceeds
of any receivables the Purchase Amount of which has been distributed on a
prior payment date.
"BOOK-ENTRY SECURITIES" means securities that are held in the U.S.
through DTC and in Europe through Clearstream or Euroclear.
"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 or the State
of Texas are authorized by law, regulation or executive order to be closed.
"CERTIFICATES" means, collectively, the Class A Certificates and the
Class B Certificates.
"CERTIFICATE BALANCE" means, with respect to a class of certificates, the
original certificate balance for that class as reduced by all prior
distributions of principal to the holders of record of that class of
certificates. The original certificate balance of each class of certificates
is set forth on the cover of this prospectus supplement.
"CLASS A CERTIFICATEHOLDERS" means the holders of record of Class A
Certificates.
"CLASS A CERTIFICATES" means the __% Automobile Loan Pass-Through
Certificates, Class A.
"CLASS A PERCENTAGE" means _____%.
"CLASS A PRINCIPAL DISTRIBUTION" means, with respect to any payment date,
the sum of (i) the Class A Percentage of the Available Principal plus the
Class A Percentage of Realized Losses, (ii) the Class A Percentage of the
Available Principal for any prior payment date and the Class A Percentage of
Realized Losses for any prior payment date, in each case only to the extent,
if any, that they have not already been distributed to the Class A
Certificateholders and (iii) if that payment date is the Final Scheduled
Payment Date, the additional amount, if any, needed to reduce the certificate
balance of the Class A Certificates to zero.
"CLASS B CERTIFICATEHOLDERS" means the holders of record of Class B
Certificates.
"CLASS B CERTIFICATES" means the __% Automobile Loan Pass-Through
Certificates, Class B.
"CLASS B PERCENTAGE" means _____%.
"CLASS B PRINCIPAL DISTRIBUTION" means, with respect to any payment date,
the sum of (i) the Class B Percentage of the Available Principal plus the
Class B Percentage of Realized Losses, (ii) the Class B Percentage of the
Available Principal for any prior payment date and the Class B Percentage of
Realized Losses for any prior payment date, in each case only to the extent,
if any, that they have not already been distributed to the Class B
Certificateholders and (iii) if that payment date is the Final Scheduled
Payment Date, the additional amount, if any, needed to reduce the certificate
balance of the Class B Certificates to zero.
"CLEARSTREAM" means Clearstream Bank, societe anonyme, a professional
depository under the laws of Luxembourg.
"CLOSING DATE" means ___________________.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL AGENT" means _______________________________________ and its
successors and assigns as the collateral agent to which the funds and
investments in the Reserve Account have been pledged for the benefit of the
certificateholders.
"COLLECTION ACCOUNT" means an account established pursuant to the pooling
and servicing agreement, held in the name of the trustee, into which the
servicer is required to deposit collections on the receivables and other
amounts.
"COLLECTION PERIOD" means, with respect to a payment date, the calendar
month preceding that payment date, or in the case of the initial payment date,
the period from the Cut-off Date to ____________________________________ .
"CONTRACT RATE" means the per annum interest rate borne by a receivable.
"CUT-OFF DATE" means the date as of which the seller will transfer the
receivables to the trust, which is ________________________ .
"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, such certificates issued in fully registered, certificated form
to certificateholders or their respective nominees, rather than to DTC or its
nominee.
"DTC" means The Depository Trust Company and any successor depository
selected by the 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" means ___________________.
"INTEREST COLLECTIONS" mean, with respect to any payment date, the sum of
the following amounts with respect to the preceding Collection Period:
(1) that portion of all collections on the receivables allocable to
interest in accordance with the terms of the receivables and the
servicer's customary servicing procedures;
(2) all liquidation proceeds, to the extent allocable to interest,
received during such Collection Period;
(3) all recoveries received during such Collection Period; and
(4) to the extent attributable to interest, the Purchase Amount
with respect to each receivable repurchased by the seller or
purchased by the servicer under an obligation which arose during
such Collection Period.
Interest Collections for any payment date shall exclude all payments and
proceeds of any receivables the Purchase Amount of which has been distributed
on a prior payment date.
"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.
"PAYMENT DATE" means the date on which the trust will distribute interest
and principal on the certificates, which will be the _____ day of each month
or, if any such day is not a Business Day, on the next Business Day,
commencing ________________________.
"PLAN" means an employee benefit or other plan or arrangement (such as an
individual plan or Keogh plan) that is subject to ERISA, Section 4975 of the
Code or a Similar Law.
"REALIZED LOSSES" means, for any Collection Period, the excess of the
aggregate principal balance of those receivables that were designated as
defaulted receivables during that Collection Period OVER liquidation proceeds
received with respect to those receivables during that 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 certificates are issued as Definitive
Certificates, the last day of the preceding month.
"RECOVERIES" means, with respect to any Collection Period after a
Collection Period in which a receivable becomes a defaulted receivable, all
monies received by the servicer with respect to such defaulted receivable
during that Collection Period, net of any fees, costs and expenses incurred by
and reimbursed to the servicer in connection with the collection of such
defaulted receivable and any payments required by law to be remitted to the
obligor.
"RESERVE ACCOUNT" means the account which the seller will establish in
the name of the Collateral Agent into which the seller will deposit the
Reserve Initial Deposit. The trustee will make the other deposits into and
withdrawals from the Reserve Account as specified in this prospectus
supplement.
"RESERVE INITIAL DEPOSIT" means the $______________ 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 __% and
the aggregate principal balance of the receivables as of the first day of the
related Collection Period.
"SPECIFIED RESERVE ACCOUNT BALANCE" means the lesser of--
o __% of the outstanding principal balance of the receivables; and
o __% of the principal balance of the receivables as of the Cut-off
Date.
"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 but may
do so in the future.
Information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 22, 2000
(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 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 --
o 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;
o 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
o 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 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 , 2000
<PAGE>
TABLE OF CONTENTS
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.......................................10
THE TRUSTS.........................................18
The Receivables................................18
The Trustee....................................19
USAA FEDERAL SAVINGS BANK..........................19
THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS........20
THE RECEIVABLES POOLS..............................25
We Will Provide More Specific Information
About the Receivables in the Prospectus
Supplement ....................................26
MATURITY AND PREPAYMENT CONSIDERATIONS.............26
USE OF PROCEEDS....................................27
PRINCIPAL DOCUMENTS................................27
PAYMENTS ON THE SECURITIES.........................29
CERTAIN INFORMATION REGARDING THE SECURITIES.......30
Fixed Rate Securities..........................30
Floating Rate Securities.......................30
Book-Entry Registration........................31
Definitive Securities..........................37
Reports to Securityholders.....................37
THE INDENTURE......................................39
The Indenture Trustee..........................45
DESCRIPTION OF THE RECEIVABLES TRANSFER AND
SERVICING AGREEMENTS...............................46
Sale and Assignment of Receivables.............46
Accounts.......................................48
Servicing Procedures...........................49
Collections....................................49
Advances.......................................50
Servicing Compensation and Expenses............50
Distributions..................................51
Credit and Payment Enhancement.................51
Net Deposits...................................52
Statements to Trustees and Trusts..............52
Evidence as to Compliance......................52
Certain Matters Regarding the Servicer.........53
Events of Servicing Termination................54
Rights Upon Event of Servicing Termination.....55
Waiver of Past Events of Servicing Termination.55
Amendment......................................55
Payment of Notes...............................56
Termination....................................56
List of Certificateholders.....................57
Administration Agreement.......................57
Duties of Trustee..............................57
The Trustee....................................58
SOME IMPORTANT LEGAL ISSUES RELATING TO
THE RECEIVABLES....................................58
Security Interest in the Receivables...........58
Security Interests in the Financed Vehicles....59
Enforcement of Security Interests in
Financed Vehicles..............................60
Other Matters..................................61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............61
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS
MADE ..........................................62
Tax Characterization of the Trust as a
Partnership....................................62
Tax Consequences to Holders of the Notes.......62
Tax Consequences to Holders of the
Certificates ..................................65
TRUSTS IN WHICH ALL CERTIFICATES ARE
RETAINED BY THE SELLER OR AN AFFILIATE
OF THE SELLER .................................70
Tax Characterization of the Trust..............70
TRUSTS TREATED AS GRANTOR TRUSTS...............71
Tax Characterization of the Trust as a
Grantor Trust..................................71
FASIT PROVISIONS...............................76
CERTAIN STATE TAX CONSEQUENCES.....................79
ERISA CONSIDERATIONS...............................80
Senior Certificates Issued by Trusts...........82
Special Considerations Applicable to
Insurance Company General Accounts.............85
PLAN OF DISTRIBUTION...............................86
LEGAL OPINIONS.....................................86
GLOSSARY OF TERMS FOR THE PROSPECTUS...............87
<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:
o this prospectus provides general information, some of which may
not apply to a particular series of securities, including your
securities, and
o 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 __.
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:
o the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 (telephone
1-800-732-0330),
o the SEC's regional office at Citicorp Center, 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661, and
o 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.
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:
o you received this prospectus and
o you request such copies from USAA Federal Savings Bank, 10750
McDermott Freeway, San Antonio, Texas 78288 (Telephone:
210-___-____).
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.
<PAGE>
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:
o its principal amount;
o its interest rate, which may be fixed or variable or a
combination;
o the timing, amount and priority or subordination of payments of
principal and interest;
o the method for calculating the amount of principal payments;
o its final payment date;
o whether and when it may be redeemed prior to its final payment
date; and
o how losses on the receivables are allocated among the classes of
securities.
Some classes of securities may be entitled to:
o principal payments with disproportionate, nominal or no interest
payments or
o 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:
o the rights to receive payments made on the receivables after the
cut-off date specified in the related prospectus supplement;
o security interests in the vehicles financed by the receivables;
and
o 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:
o an account into which collections are deposited;
o an account to fund post-closing purchases of additional
receivables; or
o 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. A trust may,
during a period specified in the prospectus supplement, use principal
collections on its receivables to purchase additional receivables.
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:
o subordination of one or more classes of securities;
o a reserve account;
o overcollateralization (i.e., the amount by which the principal
amount of the receivables exceeds the principal amount of all of
the trust's securities);
o 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);
o letter of credit or other credit facility;
o surety bond;
o liquidity arrangements;
o swaps (including currency swaps) and other derivative
instruments and interest rate protection agreements;
o repurchase or put obligations;
o yield supplement accounts or agreements;
o guaranteed investment contracts;
o guaranteed rate agreements; or
o 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.
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:
o the notes will be characterized as debt unless otherwise stated
in the prospectus supplement and
o 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.
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the securities.
INTERESTS OF OTHER PERSONS IN
THE RECEIVABLES COULD REDUCE
THE FUNDS AVAILABLE TO MAKE
PAYMENTS ON YOUR SECURITIES Financing statements under the Uniform
Commercial Code will be filed
reflecting the sale of the receivables
by us to the trust. Our accounting
records and computer 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:
o we might fail to perfect our
security interest in a
financed vehicle;
o 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;
o 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;
o holders of some types of liens,
such as tax liens or mechanics
liens, may have priority over the
trust's security interest; and
o 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 TO EXPERIENCE
LOSSES ON ITS RECEIVABLES Federal and state consumer protection
laws impose 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 the
funds that the trust would otherwise
have to make payments on your
securities.
ONLY THE ASSETS OF THE TRUST
ARE AVAILABLE TO PAY YOUR
SECURITIES Neither the seller nor any of its
affiliates is 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 USAA FEDERAL
SAVINGS BANK CEASES TO BE THE
SERVICER If we were to cease acting as servicer,
the processing of payments on the
receivables and information relating 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 PAYMENTS ON YOUR
SECURITIES OR CAUSE YOU TO INCUR
A LOSS The seller intends that each transfer
of receivables by it to a trust under a
sale and servicing agreement or a
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 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.
SUBORDINATION MAY CAUSE SOME
CLASSES OF SECURITIES TO BEAR
ADDITIONAL CREDIT RISK The rights of the holders of any class
of securities to 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:
o interest payments on any date on
which interest is due may first be
allocated to the more senior
classes;
o principal payments on the
subordinated classes might not
begin until principal of the more
senior classes is repaid in full;
o principal payments on the more
senior classes may be made on a
payment date before interest
payments on the subordinated
classes are made;
o subordinated classes bear the risk
of losses on the receivables and
the resulting cash shortfalls
before the more senior classes do;
and
o 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
ADVERSELY AFFECT
THE AVERAGE LIFE OF
AND RATE OF RETURN ON
YOUR SECURITIES Faster than expected prepayments on the
receivables will cause the trust to
make payments on its 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:
o prepayments in whole or in part by
the obligor;
o liquidations due to default;
o partial payments with proceeds
from physical damage, credit life
and disability insurance policies;
o required purchases of receivables
by the servicer or repurchases of
receivables by the seller for
specified breaches of their
representations or covenants; and
o 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 BECAUSE THE
SERVICER WILL HOLD COLLECTIONS
AND COMMINGLE THEM WITH ITS
OWN FUNDS The servicer will generally be
permitted to hold with its own funds
(1) collections it receives from
obligors 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 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 REMOVAL OF THE
SERVICER UPON A DEFAULT ON ITS
SERVICING OBLIGATIONS Generally, the holders of a majority of
a trust's senior class of securities
(or the applicable trustee acting on
their behalf) can remove the servicer
if the servicer --
o does not deliver to the applicable
trustee the available funds for
application to a required payment
after a grace period after notice
or discovery;
o defaults on a servicing obligation
which materially and adversely
affects the trust after a grace
period after notice; or
o 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 SECURITIES There may be no secondary market for
the 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
A TRUST'S AUTO LOANS MAY ADVERSELY
AFFECT YOUR SECURITIES Adverse economic conditions or other
factors 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 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 WILL BE ABLE TO EXERCISE YOUR
RIGHTS AS SECURITYHOLDER ONLY THROUGH
THE CLEARING AGENCY AND YOUR ABILITY
TO TRANSFER YOUR SECURITIES MAY BE
LIMITED The securities will be delivered to you
in book-entry form through the
facilities of The Depository Trust
Company ("DTC") or Clearstream
(formerly Cedelbank) or Euroclear.
Consequently, your securities will not
be 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 SECURITIES DUE TO POTENTIAL
COMPUTER PROGRAM PROBLEMS
BECAUSE OF THE YEAR 2000 ISSUE The year 2000 issue results from the
custom of writing computer programs
using two digits to define a year.
Computer programs that have
time-sensitive software may recognize a
date using "00" as the year 1900 rather
than the year 2000. 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.
<PAGE>
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 on or 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. To the extent provided in the prospectus
supplement, a trust may use principal collections on its receivables to
purchase additional receivables ("ADDITIONAL RECEIVABLES") from the seller over
a specified period (a "REVOLVING PERIOD").
The property of each trust will also include:
o security interests in the financed vehicles;
o 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;
o the seller's rights to certain documents and instruments
relating to the receivables;
o such amounts as from time to time may be held in one or
more accounts maintained for the trust;
o any credit or payment enhancement specified in the
prospectus supplement;
o certain payments and proceeds with respect to the
receivables held by the servicer;
o certain rebates of premiums and other amounts relating to
certain insurance policies and other items financed under
the receivables; and
o 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:
o the trustee ceases to be eligible to continue as trustee
under the trust agreement or the pooling and servicing
agreement, as applicable, or
o the trustee becomes insolvent.
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 3.2 million policyholders. In addition,
approximately 370,000 customers of USAA's financial services subsidiaries are
eligible to become insured by the USAA group of property and casualty insurance
companies.
USAA and its various property and casualty insurance subsidiaries
provide personal 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 1998 direct written premiums. USAA markets its products and services
principally through a direct mail and telecommunication program. USAA's
insurance financial strength has been rated "Aaa" and "AAA" by Moody's
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.
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:
o is an active USAA insurance policyholder or is eligible to be
one; and
o 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:
o is current and has been active more than twelve months;
o has not been more than 30 days delinquent on more than two
occasions in the most recent 12 month period;
o has had no record of bankruptcy, closed account or collection
problems; and
o 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:
o has not been more than 30 days delinquent;
o has a term greater than one year and has been outstanding for
more than one year; and
o 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
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:
o stability of the applicant with specific regard to the
applicant's occupation and length of employment;
o 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;
o a debt service to gross monthly income ratio test; and
o 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:
o for a new financed vehicle, the manufacturer's suggested retail
price plus taxes and title and license fees on the financed
vehicle or
o 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.
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:
o 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;
o the extension will result in the obligor's payments being
brought current;
o 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
o 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 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:
o is secured by a new or used automobile or light-duty truck;
o was originated in the U.S.;
o has a fixed or variable interest rate;
o 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
o 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--
o 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
o 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--
o 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
o 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.
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:
o the portion of the receivables secured by new vehicles and
by used vehicles;
o the aggregate principal balance of all of the receivables;
o the average principal balance of the receivables and the
range of principal balances;
o the number of receivables;
o the average original amount financed and the range of
original amounts financed;
o the weighted average contract rate of interest and the
range of such rates;
o the weighted average original term and the range of
original terms;
o the weighted average remaining term and the range of
remaining terms;
o the scheduled weighted average life; and
o 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:
o Prepayments by obligors, who may repay at any time without
penalty.
o 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.
o 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.
o Partial prepayments, including those related to rebates of
extended warranty contract costs and insurance premiums.
o Liquidations of the receivables due to default.
o 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 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 --
o if by the trust, to the purchase of the receivables from
the seller;
o if the trust has a pre-funding account, to make the deposit
into that account;
o if the trust has a yield supplement account, to make the
deposit into that account;
o if the trust has a reserve account, to make the initial
deposit into that account; and
o 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 o Creates the trust
o Provides for issuance
of certificates and payments
to certificateholders
o Establishes rights and
duties of trustee
o Establishes rights of
certificateholders
Indenture Trust, as issuer of the notes, o Provides for issuance
and indenture trustee of the notes, the terms of
the notes and payments to
noteholders
o Establishes rights and
duties of indenture trustee
o Establishes rights of
noteholders
Sale and Servicing Agreement Bank, as seller and servicer, and o Effects sale of
a trust as purchaser receivables to the trust
o Contains representations
and warranties of seller
concerning the receivables
o Contains servicing
obligations of servicer
o Provides for compensation
to servicer
o Directs how cash flow
will be applied to expenses
of the trust and payments on
its securities
</TABLE>
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 Agreement Trustee and Bank, as seller and o Creates the trust
servicer
o Effects sale of
receivables to the trust
o Contains representations
and warranties of seller
concerning the receivables
o Contains servicing
obligations of servicer
o Provides for
compensation to servicer
o Provides for issuance
of certificates and payments
to certificateholders
o Directs how cash flow
will be applied to expenses
of the trust and payments to
certificateholders
o Establishes rights and
duties of trustee
o 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
o the timing, amount and priority of payments of principal
and interest on each class of the securities,
o their interest rates or the formula for determining their
interest rates,
o the method of determining the amount of their principal
payments,
o the priority of the application of the trust's available
funds to its expenses and payments on its securities, and
o 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
o principal payments with disproportionate, nominal or no
interest payments or
o interest payments with disproportionate, nominal or no
principal payments or
o 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.
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 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):
o 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
o 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 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 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.
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:
o 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;
o 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
o 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 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.
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.
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.
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 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:
o 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;
o 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;
o 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;
o certain events of bankruptcy, insolvency, receivership or
liquidation of the applicable trust or its property as
specified in the indenture; or
o 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:
o 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
o 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.
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:
o 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),
o 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
o 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.
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 --
o such holder previously has given to the applicable
indenture trustee written notice of a continuing Event of
Default;
o 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;
o such holder or holders have offered such indenture trustee
reasonable indemnity;
o such indenture trustee has for 60 days after such notice,
request and offer of indemnity failed to institute such
proceeding; and
o 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.
o 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 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.
o 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 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 the purpose of adding to the covenants of
the trust, curing any ambiguity, correcting or supplementing any provision
which may be inconsistent with any other provision or making any other
provision with respect to matters arising under the related indenture which
will not be inconsistent with other provisions of the indenture PROVIDED that
such action will not materially adversely affect the interests of the
noteholders.
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:
o such action will not, as evidenced by an opinion of
counsel, materially adversely affect the interest of any
noteholder;
o 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
o 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:
o 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;
o impair the right to institute suit for the enforcement of
certain provisions of the related indenture regarding
payment;
o 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;
o 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;
o 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;
o 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;
o 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);
o 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
o 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.
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
- --
o 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;
o 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;
o 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;
o 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;
o 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;
o 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;
o 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;
o each receivable requires that the obligor thereunder obtain
comprehensive and collision insurance covering the financed
vehicle; and
o 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 note
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 the
trust for payment to such noteholders will be deposited and from which all
distributions 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. However, if 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 which are
not late fees or certain other similar fees or charges 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 and third, to the payment of principal.
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 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.
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 --
o 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;
o 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
o 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 (i) upon a determination that the Bank's
performance of such duties is no longer permissible under applicable law or
(ii) in the event of the appointment of a successor servicer without the
consent of any securityholder upon 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. 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 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
corporation 50% or more of the voting stock 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:
o 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;
o 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 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);
o the occurrence of certain insolvency events specified in
the sale and servicing agreement or pooling and servicing
agreement with respect to the servicer; and
o 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 to that effect or (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 together with an officer's certificate of the servicer to that effect.
The Receivables Transfer and Servicing Agreements may also be amended by the
seller, the servicer, the related trustee and any related indenture 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 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 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 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.
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.
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 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 or a similar form), signed under penalties of perjury, certifying
that the beneficial owner of the note is a foreign person and providing the
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 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 1001 (or successor form) claiming an exemption
from or reduction in withholding under the benefit of a tax treaty or (2) IRS
Form 4224 (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 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.
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 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 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, 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 (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 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 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 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.
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 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.
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. Although the FASIT provisions of the Code became
effective on September 1, 1997, no Treasury regulations or other administrative
guidance have been issued with respect to those provisions. 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"). 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.
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 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.
CONSEQUENCES OF THE FAILURE OF THE TRUST TO QUALIFY AS A FASIT. If a
trust fails to comply with one or more of the Code's ongoing requirements for
FASIT status during any taxable year, the Code provides that its FASIT status
may be lost for that year and thereafter. If FASIT status is lost, the
treatment of the former FASIT and interests therein for United States federal
income tax purposes is uncertain. Although the Code authorizes the Treasury to
issue regulations that address situations where a failure to meet the
requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the FASIT's income for the period of time in which
the requirements for FASIT status are not satisfied. It is possible that if the
trust did not qualify as a FASIT it would be treated as either a grantor trust,
partnership or a publicly traded partnership.
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 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.
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. 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.
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:
o Prohibited Transaction Class Exemption ("PTE") 96-23, which
exempts certain transactions effected on behalf of a Plan by an
"in-house asset manager";
o PTE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest;
o PTE 91-38, which exempts certain transactions between bank
collective investment funds and parties in interest;
o PTE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or
o 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 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
o has investment or administrative discretion with respect to that
Plan assets;
o 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
o 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.
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%).
(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,
(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 will agree to sell, or cause the related trust to sell, to
the underwriters named in the related prospectus supplement the notes 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--
o 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
o 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.
Each trust may, from time to time, invest the funds in its trust
accounts in investments acquired from such underwriters 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.
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.
"ADDITIONAL RECEIVABLES" means, with respect to a trust with a
Revolving Period, receivables acquired by a trust during that Revolving Period.
"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:
o "employee benefit plans" (as defined in Section 3(3) of
ERISA, including without limitation governmental plans,
foreign pension plans and church plans;
o "plans" described in Section 4975(e) (1) of the Code,
including individual retirement accounts and Keogh plans;
or
o 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."
"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--
o a segregated account with an Eligible Institution; or
o 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--
o the corporate trust department of the indenture trustee or
the related trustee, as applicable; or
o 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.
"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:
o direct obligations of, and obligations fully guaranteed as
to timely payment by, the United States of America or its
agencies;
o 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;
o 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;
o investments in money market funds having the highest rating
from the applicable Rating Agency rating the notes or
certificates;
o 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
o 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.
"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.
"REVOLVING PERIOD" means the period, if one is specified in the
prospectus supplement, during which the trust uses principal collections on the
receivables to purchase additional receivables.
"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.
"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.
<PAGE>
(This page intentionally left blank)
<PAGE>
(This page intentionally left blank)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the offering of the securities being
registered herein are estimated as follows:
Registration Fee .............................................$264
Legal Fees and Expenses ......................................$
Accounting Fees and Expenses .................................$
Blue Sky Fees and Expenses ...................................$
Rating Agency Fees ...........................................$
Trustee's Fees and Expenses ..................................$
Printing .....................................................$
Miscellaneous ................................................$
-----------
Total....................................................$
===========
- ----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to each of following documents filed as an exhibit
to this Registration Statement which document is incorporated herein by
reference:
Article VI of the By-Laws of USAA Federal Savings Bank (Exhibit 3.2
hereto).
Reference is also made to 12 C.F.R.ss.545.121.
For the undertaking with respect to indemnification, see Item 17
herein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
EXHIBITS DESCRIPTION
-------- -----------
1.1 Form of Underwriting Agreement*
3.1 Charter of the Registrant - filed as Exhibit 3.1 to Registration
Statement No. 333-37471 and incorporated herein by reference.
3.2 By-Laws of the Registrant - filed as Exhibit 3.2 to Registration
Statement No. 333-37471 and incorporated herein by reference.
4.1 Form of Pooling and Servicing Agreement between the Registrant and the
Trustee (including forms of certificates).*
4.2 Form of Indenture between the trust and the indenture trustee
(including forms of notes).*
4.3 Form of Trust Agreement between the Trustee and the Registrant
(including form of certificates).*
4.4 Form of Certificate of Trust for trusts.*
5.1 Opinion of Brown & Wood with respect to legality.*
5.2 Opinion of Richards, Layton & Finger with respect to legality.*
8.1 Opinion of Brown & Wood with respect to federal income tax matters.*
23.1 Consent of Brown & Wood (included as part of Exhibits 5.1 and 8.1).*
23.2 Consent of Richards, Layton & Finger (included as part of Exhibit
5.2).*
24.1 Power of Attorney (included as part of signature page).*
25. Form of Statement of Eligibility under the Trust Indenture Act of
1939 of ____________.*
99.1 Form of Sale and Servicing Agreement between the Registrant and
the trust.*
99.2 Form of Administration Agreement among the trust, the Administrator
and the Indenture Trustee.*
*To be filed by amendment.
(b) Financial Statements:
Not applicable.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, as amended, each
such post-effective amendment shall be deemed to be a
new registration statement relating to the securities
offered therein , and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will by governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the
Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Antonio, State of Texas on the 18th day of
February, 2000.
USAA FEDERAL SAVINGS BANK
By /s/ Mark H. Wright
-------------------------------------
Mark H. Wright
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Rosemary M. Elizalde
-------------------------------------
Rosemary M. Elizalde
Vice President
Senior Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Mark H. Wright, Rosemary M.
Elizalde and Michael J. Broker, or any of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or any of their substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the
Registrant Statement has been signed by the following persons in the capacities
and on the dates indicated.
<PAGE>
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Robert G. Davis Chairman February 18, 2000
- ---------------------------
Robert G. Davis
/s/ Charles E. Bishop Director February 18, 2000
- ---------------------------
Charles E. Bishop
/s/ Arthur R. Emerson Director February 18, 2000
- ---------------------------
Arthur R. Emerson
Director
- ---------------------------
Carlos R. Montemayor
/s/ James E. Olson Director February 18, 2000
- ---------------------------
James E. Olson
/s/ Jane B. Phipps Director February 18, 2000
- ---------------------------
Jane B. Phipps
Director
- ---------------------------
David M. Robinson
/s/ Mark H. Wright Director February 18, 2000
- ---------------------------
Mark H. Wright
