<PAGE> 1
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 18, 1997)
$415,000,000
AAMES CAPITAL ACCEPTANCE CORP.
TRANSFEROR
AAMES CAPITAL CORPORATION
SERVICER
AAMES CAPITAL OWNER TRUST 1997-1
ADJUSTABLE RATE ASSET-BACKED BONDS, SERIES 1997-1
DUE JUNE 15, 2029
------------------
The Aames Capital Owner Trust 1997-1 (the "Bond Issuer") is hereby offering
$415,000,000 aggregate principal amount of its Adjustable Rate Asset-Backed
Bonds, Series 1997-1 (the "Bonds"). The Bonds will be issued pursuant to
an indenture, dated as of March 1, 1997 (the "Indenture"), between the
Bond Issuer and Bankers Trust Company of California, N.A., as trustee
(the "Indenture Trustee"), and will be secured by a trust estate
(the "Trust Estate") consisting primarily of (i) a pool (the
"Mortgage Pool") of adjustable rate mortgage loans secured
by first liens on one- to four-family residential
properties, including units in condominium and
planned unit developments (the "Mortgage
Loans"), (ii) funds on deposit in the
Prefunding Account and Capitalized
Interest Account and (iii) the
Financial Guaranty Insurance
Policy, as described herein.
(continued on following page)
[FSA LOGO]
------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-13 HEREOF AND ON PAGE 20 OF THE
PROSPECTUS BEFORE PURCHASING ANY BONDS.
------------------
THE BONDS WILL CONSTITUTE NON-RECOURSE OBLIGATIONS OF THE BOND ISSUER ONLY, AND
THE PROCEEDS OF THE ASSETS IN THE TRUST ESTATE WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE BONDS. THE BONDS WILL NOT REPRESENT AN INTEREST IN OR
RECOURSE OBLIGATION OF THE BOND ISSUER AND WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF ANY OTHER PERSON OR ENTITY.
NEITHER THE BONDS NOR THE MORTGAGE LOANS WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Bonds will be offered by the Underwriters named below (the
"Underwriters") from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of the related sale.
Proceeds from the sale of the Bonds are anticipated to be approximately
$413,962,500, before deducting expenses payable by the Bond Issuer, which are
estimated to be $350,000. The Bonds are offered by the Underwriters, when, as
and if issued and delivered to and accepted by them, subject to prior sale and
to approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify any offer and to
reject orders in whole or in part. It is expected that the Bonds will be
delivered in book-entry form only through the Same-Day Funds Settlement System
of The Depository Trust Company, Cedel Bank, societe anonyme and the Euroclear
System on or about March 26, 1997. The Bonds will be offered in Europe and the
United States of America.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
PRUDENTIAL SECURITIES INCORPORATED
------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 18, 1997.
<PAGE> 2
(continued from front cover)
The Mortgage Loans identified for inclusion in the Mortgage Pool as of the
date of issuance of the Bonds will be collectively referred to herein as the
"Initial Mortgage Loans." The aggregate of the principal balances of the Initial
Mortgage Loans, determined as of the Statistical Calculation Date, totaled
approximately $340,346,661 (the "Initial Pool Balance"). The Transferor expects
the Aggregate Principal Balance of the Initial Mortgage Loans as of the
applicable Cut-off Dates to be approximately $335,635,753, after application of
all payments of principal received in respect of the Initial Mortgage Loans
before the applicable Cut-off Dates. Other Mortgage Loans satisfying the
criteria described herein that are acquired during the Funding Period through
the application of amounts on deposit in the Prefunding Account will be
collectively referred to herein as the "Additional Mortgage Loans." As more
fully described herein, the final Mortgage Pool will be comprised entirely of
Mortgage Loans bearing interest at rates that are subject to periodic
adjustment. The Mortgage Loans will have been originated or acquired by Aames
Capital Corporation ("ACC"), a California corporation and a wholly owned
subsidiary of Aames Financial Corporation ("AFC"). On or prior to the date the
Bonds are issued, ACC will convey its interest in each Mortgage Loan to Aames
Capital Acceptance Corp. (the "Transferor"), a Delaware corporation that is also
a wholly owned subsidiary of AFC, who in turn will convey such interests to the
Bond Issuer. The Bond Issuer will then pledge all of its interest in the
Mortgage Loans, without recourse, to the Indenture Trustee pursuant to the
Indenture as collateral for the Bonds.
The Bonds will constitute non-recourse obligations of the Bond Issuer. ACC
will have limited obligations arising in respect of certain representations and
warranties on the Mortgage Loans in connection with the conveyance thereof to
the Transferor. ACC will also act as servicer of the Mortgage Loans (in such
capacity, the "Servicer") and, in such capacity, will have limited obligations
that arise pursuant to certain representations and warranties and to its
contractual servicing obligations under that certain agreement (the "Servicing
Agreement") to be entered into among the Servicer, the Bond Issuer and the
Indenture Trustee, including any obligation it may have to advance delinquent
interest payments on the Mortgage Loans.
The Bonds will be unconditionally and irrevocably guaranteed as to payment
of interest due to Bondholders and as to ultimate collection of the Bond
Balance, in each case pursuant to the terms of the Financial Guaranty Insurance
Policy issued by Financial Security Assurance Inc. See "Description of the
Bonds -- The Financial Guaranty Insurance Policy" herein.
The stated maturity for the Bonds (determined on the basis of the
assumptions described herein under "Prepayment and Yield Considerations") is the
Payment Date occurring in June 2029 (the "Final Maturity Date").
The yield to maturity on the Bonds will be affected by, among other things,
the rate of payment of principal (including by reason of prepayments, defaults
and liquidations) of the Mortgage Loans and the timing and receipt of such
payments as described herein and in the Prospectus. See "Risk Factors -- Yield,
Maturity and Prepayment Considerations" and "Maturity, Prepayment and Yield
Considerations" in the Prospectus and "Risk Factors -- Risks Associated with
Prepayment of the Mortgage Loans" and "-- Yield Considerations Relating to
Excess Cash" and "Prepayment and Yield Considerations" herein.
The Bonds are subject to optional redemption in full by the Bond Issuer
after the Bond Balance is less than 20% of the Original Bond Balance. In
addition, the Servicer and the Financial Guaranty Insurer will have rights,
under the limited circumstances described herein, to acquire all of the Mortgage
Loans from the Indenture Trustee and thereby effect a redemption of the Bonds.
See "Description of the Bonds -- Redemption of the Bonds" herein.
No election will be made to treat the Trust Estate as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes.
There is currently no secondary market for the Bonds. The Underwriters
intend to make a secondary market for the Bonds, but has no obligation to do so.
There can be no assurance that a secondary market for the Bonds will develop or,
if one does develop, that it will provide investors with a satisfactory level of
liquidity or that it will continue.
ii
<PAGE> 3
It is a condition to the issuance of the Bonds that they be rated "Aaa" by
Moody's Investors Service, Inc. and "AAA" by Standard and Poor's, a division of
The McGraw-Hill Companies, Inc.
THE BONDS OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE A SEPARATE
SERIES OF SECURITIES BEING OFFERED PURSUANT TO THE PROSPECTUS OF ACC AND THE
TRANSFEROR, DATED MARCH 18, 1997, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART
AND THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF BONDS MAY NOT BE CONSUMMATED UNLESS THE PROSPECTIVE
INVESTOR HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
Reference is made to the Index of Principal Terms herein for the location
in this Prospectus Supplement of the definitions of certain capitalized terms
used herein, and reference is also made to the Index of Principal Terms in the
Prospectus for the location in the Prospectus of the definitions of certain
capitalized terms used but not otherwise defined herein.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE BONDS, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE RELATED
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS ACTING AS
UNDERWRITERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
FOR UNITED KINGDOM PURCHASERS: THE BONDS MAY NOT BE OFFERED OR SOLD IN THE
UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY BUSINESS IS TO BUY OR SELL
SECURITIES, WHETHER AS PRINCIPAL OR AGENT (EXCEPT IN CIRCUMSTANCES THAT DO NOT
CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THE PUBLIC OFFERS OF
SECURITIES REGULATION 1995), AND THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
MAY ONLY BE ISSUED OR PASSED ON TO ANY PERSON IN THE UNITED KINGDOM IF THAT
PERSON IS OF THE KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT
1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996.
iii
<PAGE> 4
REPORTS TO BONDHOLDERS
Monthly and annual reports concerning the Bonds and the assets included in
the Trust Estate will be sent by the Indenture Trustee to all Bondholders. See
"Description of the Mortgage Loans -- Reports to Bondholders" herein. So long as
any Bond is in book-entry form, such reports will be sent to Cede & Co., as the
nominee of The Depository Trust Company ("DTC") and as the Bondholder of record
pursuant to the Indenture described herein. DTC will supply such reports to all
persons acquiring beneficial ownership interests in the Bonds. See "Description
of the Bonds -- Book-Entry Registration and Definitive Bonds" herein and
"Description of the Securities -- Form of Securities -- Book-Entry Registration"
in the Prospectus.
AVAILABLE INFORMATION
ACC and the Transferor have filed a Registration Statement under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") pursuant to which the Bonds are being offered. The
Registration Statement and amendments thereof and the exhibits thereto may be
inspected at the Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Electronic filings made through the Electronic Data Gathering, Analysis, and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents filed with the Commission by or on behalf of the Bond
Issuer are incorporated by reference herein. See "Incorporation of Certain
Documents by Reference" in the Prospectus. In addition, the consolidated
financial statements of Financial Security Assurance Inc. and Subsidiaries for
the year ended December 31, 1995, included as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1995, and the unaudited consolidated
financial statements of Financial Security Assurance Inc. and Subsidiaries for
the quarterly periods ended March 31, 1996, June 30, 1996 and September 30,
1996, included as an exhibit to the Quarterly Report on Form 10-Q for the
periods ended March 31, 1996, June 30, 1996 and September 30, 1996,
respectively, each of which has been filed with the Commission by Financial
Security Assurance Holdings Ltd., are hereby incorporated by reference in this
Prospectus Supplement. All financial statements of Financial Security Assurance
Inc. and Subsidiaries included in documents filed by Financial Security
Assurance Holdings Ltd. pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the date of this Prospectus
Supplement and prior to the termination of the offering of the Bonds shall be
deemed to be incorporated by reference in this Prospectus Supplement and to be
part of this Prospectus Supplement from the respective dates of the filing of
such documents.
The Bond Issuer will provide to any person, including any person acquiring
a beneficial ownership interest in the Bonds, to whom this Prospectus Supplement
is delivered a copy of the above-referenced financial statements incorporated by
reference herein without charge upon written or oral request to: Aames Capital
Owner Trust 1997-1 c/o Aames Capital Acceptance Corp., 3731 Wilshire Boulevard,
10th Floor, Los Angeles, California 90010, (213) 351-6100.
S-1
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ---------------------------------------- ----
<S> <C>
REPORTS TO BONDHOLDERS.................. S-1
AVAILABLE INFORMATION................... S-1
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................. S-1
SUMMARY OF TERMS........................ S-3
RISK FACTORS............................ S-13
Risk of Limitations on Adjustments
of the Bond Interest Rate........ S-13
Risks Associated with Underwriting
Standards........................ S-13
Risks Associated with Geographic
Concentration of Mortgaged
Properties....................... S-14
Risks Associated with Damaged
Mortgaged Properties............. S-15
Risks Associated with Prepayment of
the Mortgage Loans............... S-15
The Additional Mortgage Loans and
the Prefunding Account........... S-16
Yield Considerations Relating to
Excess Cash...................... S-17
Other Yield Considerations.......... S-17
Environmental Statutes Affecting
Security Interests............... S-17
Risks Associated with Certain
Origination Fees................. S-18
Dissolution of Bond Issuer from
Insolvency of Transferor......... S-18
Book-Entry Registration............. S-18
DESCRIPTION OF THE BONDS................ S-19
General............................. S-19
Book-Entry Registration and
Definitive Bonds................. S-20
Assignment of Mortgage Loans........ S-23
Payments on the Bonds............... S-25
Bond Account........................ S-29
Prefunding Account.................. S-30
Capitalized Interest Account........ S-31
Overcollateralization Feature....... S-31
Reports to Bondholders.............. S-33
The Financial Guaranty Insurance
Policy........................... S-33
The Financial Guaranty Insurer
Premium.......................... S-34
Redemption of the Bonds............. S-34
Payments to the Bond Issuer......... S-35
The Indenture Trustee............... S-35
Voting.............................. S-35
<CAPTION>
CAPTION PAGE
- ---------------------------------------- ----
<S> <C>
Bond Events of Default.............. S-35
THE BOND ISSUER......................... S-36
THE MORTGAGE LOANS...................... S-36
General............................. S-36
Conveyance of Additional Mortgage
Loans............................ S-38
PREPAYMENT AND YIELD CONSIDERATIONS..... S-38
Projected Prepayments and Yields for
the Bonds........................ S-39
ORIGINATION OF THE MORTGAGE LOANS....... S-42
The Originators..................... S-42
Underwriting of Mortgage Loans...... S-43
SERVICING OF THE MORTGAGE LOANS......... S-43
General............................. S-43
Customary Servicing Procedures...... S-43
The Servicing Agreement............. S-44
Sub-Servicers....................... S-49
Servicing and Other Compensation;
Payment of Expenses.............. S-49
Servicer's Mortgage Loan Delinquency
and Foreclosure Experience....... S-50
THE FINANCIAL GUARANTY INSURANCE POLICY
AND THE FINANCIAL GUARANTY INSURER.... S-51
The Financial Guaranty Insurer...... S-51
The Financial Guaranty Insurance
Policy........................... S-53
Credit Enhancement Does Not Apply to
Prepayment Risk.................. S-54
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.......................... S-54
ERISA CONSIDERATIONS.................... S-55
USE OF PROCEEDS......................... S-56
LEGAL INVESTMENT CONSIDERATIONS......... S-56
UNDERWRITING............................ S-56
REPORT OF EXPERTS....................... S-57
LEGAL MATTERS........................... S-57
RATING OF THE BONDS..................... S-57
INDEX OF PRINCIPAL TERMS................ S-58
ANNEX A: DESCRIPTION OF THE MORTGAGE
POOL.................................. A-1
ANNEX B: GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES...... B-1
</TABLE>
S-2
<PAGE> 6
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus.
Securities Offered......... Adjustable Rate Asset-Backed Bonds, Series 1997-1
(the "Bonds"). The Bonds represent non-recourse
obligations of the Bond Issuer. Proceeds of the
assets in the Trust Estate will be the sole
source of payments on the Bonds.
Original Bond Balance...... $415,000,000.
Bond Issuer................ Aames Capital Owner Trust 1997-1, a Delaware
business trust established by the Transferor
pursuant to a trust agreement, dated as of March
1, 1997 (the "Trust Agreement"), between the
Transferor and Wilmington Trust Company as owner
trustee. After the Closing Date, substantially
all of the beneficial ownership interest in the
Bond Issuer will be held by Aames Capital
Corporation ("ACC"), a California corporation and
a wholly owned subsidiary of Aames Financial
Corporation ("AFC"). The Transferor will retain
only a negligible interest in the Bond Issuer
after the Closing Date, but will have primary
responsibility for managing the affairs and
operations of the Bond Issuer. The principal
office of the Bond Issuer is located in Los
Angeles, California. The Bond Issuer does not
have, nor is it expected in the future to have,
any significant assets, other than the assets
included in the Trust Estate. See "The Bond
Issuer" herein.
The Transferor............. Aames Capital Acceptance Corp., a Delaware
corporation and a wholly owned limited purpose
finance subsidiary of AFC. The principal office
of the Transferor is located in Los Angeles,
California.
The Mortgage Loans were originated or acquired by
ACC. On or prior to the date the Bonds are
issued, ACC will convey its interest in each
Mortgage Loan to the Transferor who in turn will
convey such interests to the Bond Issuer. See
"Aames Capital Acceptance Corp." and "Aames
Capital Corporation" in the Prospectus.
The Servicer............... ACC will act as servicer of the Mortgage Loans (in
such capacity, the "Servicer") under the terms of
that certain agreement, dated as of March 1, 1997
(the "Servicing Agreement"), among the Servicer,
the Bond Issuer and the Indenture Trustee. See
"The Servicer" in the Prospectus and "Servicing
of the Mortgage Loans" herein.
The Servicer will appoint one or more mortgage
servicing institutions (each, a "Sub-Servicer"),
which may be affiliates of the Servicer, to
service and administer certain Mortgage Loans on
behalf of the Servicer. See "Servicing of the
Mortgage Loans -- Sub-Servicers" herein.
The Indenture Trustee...... Bankers Trust Company of California, N.A., a
national banking association, duly organized and
existing under and by virtue of the laws of the
United States. See "The Indenture" in the
Prospectus and "Description of the Bonds -- The
Indenture Trustee" herein.
Cut-off Dates.............. With respect to the Mortgage Loans owned by ACC as
of March 1, 1997 and designated for inclusion in
the Mortgage Pool as of the date hereof (the
"Original Mortgage Loans"), the Cut-off Date is
March 1, 1997. With respect to the Mortgage Loans
acquired by ACC by bulk purchase after March 1,
1997 but prior to the date hereof and
S-3
<PAGE> 7
designated for inclusion in the Mortgage Pool as
of the date hereof (the "Bulk Purchase Mortgage
Loans" and, together with the Original Mortgage
Loans, the "Initial Mortgage Loans"), the Cut-off
Date is March 21, 1997. With respect to the
Mortgage Loans satisfying the criteria described
herein that are acquired during the Funding
Period through the application of amounts on
deposit in the Prefunding Account (the
"Additional Mortgage Loans"), the Cut-off Date is
the date specified as such in the related
subsequent transfer agreement for the Additional
Mortgage Loans transferred pursuant thereto.
Closing Date............... On or about March 26, 1997.
Description of the Bonds... The Bonds represent non-recourse obligations of the
Bond Issuer and will be issued pursuant to an
indenture to be dated as of March 1, 1997 (the
"Indenture"), entered into between the Bond
Issuer and the Indenture Trustee. The assets
included in the trust estate created by the
Indenture (the "Trust Estate") and pledged to
secure the Bonds will be the sole source of
payments on the Bonds. The Bonds will be issued
in a single class.
Initially, the assets of the Trust Estate will
consist of (i) a pool (the "Mortgage Pool") of
the Initial Mortgage Loans, which are adjustable
rate home equity mortgage loans secured by first
lien mortgages or deeds of trust on one- to
four-family residential properties, including
units in condominium, planned unit developments
and manufactured housing units (the "Mortgaged
Properties"), and including any note or other
instrument of indebtedness (each, a "Mortgage
Note"); (ii) all payments in respect of principal
of the Initial Mortgage Loans received on or
after the applicable Cut-off Dates; (iii) all
payments in respect of interest accrued on the
Initial Mortgage Loans from and after the
applicable Cut-off Dates, irrespective of when
received; (iv) security interests in the
Mortgaged Properties; (v) amounts to be deposited
in the Prefunding Account that will be available
for the acquisition of the Additional Mortgage
Loans during the Funding Period; (vi) amounts to
be deposited in the Capitalized Interest Account;
(vii) the insurance policy (the "Financial
Guaranty Insurance Policy") issued by Financial
Security Assurance Inc. (the "Financial Guaranty
Insurer"); and (viii) certain other property.
Denominations and
Registration............. The Bonds will be issued in minimum denominations
of $1,000 principal amount and in integral
multiples of $1 in excess thereof. No person
acquiring a beneficial ownership interest in any
Bond (any such person, a "Bond Owner") will be
entitled to receive such Bond in fully
registered, certificated form (a "Definitive
Bond"), except under the limited circumstances
described herein under "Description of the
Bonds -- Book-Entry Registration and Definitive
Bonds." Instead, Bond Owners will hold their
Bonds through The Depository Trust Company
("DTC"), in the United States, or Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System
("Euroclear") in Europe, each of which will
effect payments and transfers in respect of the
Bonds by means of electronic record keeping
services, acting through certain participating
organizations. Transfers within DTC, Cedel or
Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. So long as the
Bonds are in book-entry form, the Bonds will be
represented by one or more global certificates
registered in the name of Cede & Co., as
S-4
<PAGE> 8
nominee of DTC, or Citibank N.A. or Morgan
Guaranty Trust Company of New York, the relevant
depositaries of Cedel and Euroclear,
respectively, and each a participating member of
DTC. This may result in certain delays in receipt
of payments by an investor and may restrict an
investor's ability to pledge its Bonds. See "Risk
Factors -- Book-Entry Registration" and
"Description of the Bonds -- Book-Entry
Registration and Definitive Bonds" herein, "ANNEX
B: Global Clearance, Settlement and Tax
Documentation Procedures" hereto and "Description
of the Securities -- Form of
Securities -- Book-Entry Registration" in the
Prospectus. Unless and until Definitive Bonds are
issued, it is anticipated that the only
"Bondholder" will be Cede & Co., as nominee of
DTC. Bond Owners will not be Bondholders as that
term is used in the Indenture and the Servicing
Agreement. Bond Owners are permitted to exercise
their rights only indirectly through DTC and its
Participants (including Cedel and Euroclear).
Payments on the Bonds
A. General............... Payments on the Bonds will be made on the 15th day
of each month, or if such day is not a business
day, on the next succeeding business day (each, a
"Payment Date"), commencing in April 1997, to
each Bondholder of record on the related Record
Date. Unless otherwise specified elsewhere in
this Prospectus Supplement, the term "business
day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking
institutions in the State of California or the
State of New York are authorized or obligated by
law, regulation, executive order or governmental
decree to be closed. The "Record Date" for the
Bonds with respect to any Payment Date will be
the last business day of the immediately
preceding calendar month, except that the final
payment in redemption of any Definitive Bond will
be made only upon presentation and surrender of
such Definitive Bond at the office or agency
designated by the Indenture Trustee for that
purpose. See "Description of the Bonds" herein.
On each Payment Date, payments of principal and
interest will be made to Bondholders as of the
immediately preceding Record Date out of
Available Funds for such Payment Date. The
"Available Funds" for any Payment Date will
generally consist of the aggregate of the
following amounts:
(i) amounts collected, received or otherwise
recovered by or on behalf of the Servicer on
or with respect to the Mortgage Loans during
the calendar month immediately preceding the
month in which such Payment Date occurs or, in
the case of the first Payment Date, during the
period from the applicable Cut-off Date for
each Mortgage Loan through the end of March
1997 (each, a "Collection Period"), net of
amounts representing interest accrued on such
Mortgage Loans in respect of any period prior
to the applicable Cut-off Date, the related
Servicing Fee and any additional servicing
compensation paid to the Servicer in respect
to the related Collection Period, Payments
Ahead and reimbursements for certain advances
(other than those included in liquidation
expenses reimbursed from related Liquidation
Proceeds); and
(ii) the amount of any Monthly Advances and
Compensating Interest Payments made by the
Servicer for such Payment Date, any
S-5
<PAGE> 9
amounts deposited in the Bond Account in
respect of the release, removal or substitution
of Mortgage Loans during the related Collection
Period, amounts deposited in the Bond Account
in respect of interest for the first two
Collection Periods and any amounts deposited in
the Bond Account during such Collection Period
from the Prefunding Account and the Capitalized
Interest Account or in connection with the
redemption of the Bonds, all as more fully
described under "Description of the
Bonds -- Payments on the Bonds" herein.
B. Bond Interest Rate.... The Bond Interest Rate for the initial Interest
Period will be a per annum rate equal to LIBOR
plus 0.20% and will be determined on March 24,
1997. The Bond Interest Rate for each subsequent
Interest Period will be a per annum rate equal to
the lesser of (i) for each Interest Period ending
prior to the Pool Redemption Date, LIBOR plus
0.20% and, for each Interest Period ending
thereafter, LIBOR plus 0.40% and (ii) the
Adjustable Rate Cap. The "Adjustable Rate Cap"
will be, with respect to any Payment Date and the
Bonds, the per annum rate equal to the percentage
obtained by (I) dividing (x) an amount equal to
the aggregate of the interest portions of each of
the monthly payments due on the Mortgage Loans
during the related Collection Period, reduced by
the sum of (i) the Servicing Fee with respect to
the Mortgage Loans for such Collection Period,
(ii) the Financial Guaranty Insurer Premium for
such Payment Date, and (iii) in the case of each
Payment Date occurring after the Payment Date in
September 1997, an amount equal to one-twelfth
( 1/12) of 100 basis points multiplied by the
Aggregate Principal Balance of the Mortgage Loans
as of the end of such Collection Period, by (y)
the product of (i) the then outstanding aggregate
principal balance of the Bonds (the "Bond
Balance") as of the first day of such Interest
Period and (ii) the actual number of days elapsed
during such Interest Period divided by 360 and
(II) multiplying the result by 100. See
"Description of the Bonds -- Payments on the
Bonds" herein.
The "Interest Period" in respect of any Payment
Date will be the period from and including the
Closing Date, in the case of the initial Payment
Date, or the immediately preceding Payment Date,
as applicable, to but excluding the related
Payment Date. All calculations of interest on the
Bonds will be computed on the basis of the actual
number of days elapsed in the related Interest
Period in a year of 360 days.
C. Payments of
Interest............... On each Payment Date, Bonds will be entitled to
payments in respect of interest on the Bonds
("Bond Interest"). Bond Interest for any Payment
Date will be an amount equal to (a) with respect
to the initial Interest Period, interest for the
number of days in the period commencing on the
Closing Date and ending on the day prior to such
Payment Date at the Bond Interest Rate on the
Original Bond Balance, and (b) with respect to
any subsequent Interest Period, interest for the
number of days in such Interest Period at the
Bond Interest Rate on the Bond Balance as of the
preceding Payment Date (after giving effect to
the payment, if any, in reduction of principal
made on the Bonds on such preceding Payment
Date). See "Description of the Bonds -- Payments
on the Bonds" herein.
If, with respect to any Payment Date, funds are not
available from Available Funds to pay the full
amount of the interest due on the Bonds, the
deficiency will be covered by payments made
pursuant to
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the Financial Guaranty Insurance Policy for such
Payment Date. See "Description of the
Bonds -- The Financial Guaranty Insurance Policy"
herein.
D. Payments of
Principal.............. On each Payment Date, Bonds will be entitled to
Monthly Principal in reduction of the Bond
Balance. "Monthly Principal" with respect to any
Payment Date will be equal to the aggregate of
amounts collected, received or otherwise
recovered in respect of principal on the Mortgage
Loans during or in respect of the related
Collection Period, subject to reduction for any
Coverage Surplus with respect to the related
Payment Date as described herein.
E. Payments of Excess
Cash................... On each Payment Date with respect to which the
Coverage Amount for the Bonds is less than the
Required Coverage Amount for such Payment Date,
Excess Cash derived from Available Funds, if any,
will be paid on the Bonds in reduction of the
Bond Balance, up to the amount necessary for the
related Coverage Amount to equal the applicable
Required Coverage Amount. "Excess Cash" on any
Payment Date will be equal to Available Funds on
such Payment Date, reduced by the sum of (i) Bond
Interest for the related Payment Date, (ii) the
Monthly Principal for the related Payment Date,
(iii) the Financial Guaranty Insurer Premium
attributable to the related Payment Date, (iv)
any amounts payable to the Financial Guaranty
Insurer for Insured Amounts paid on prior Payment
Dates and not yet reimbursed and (v) any amounts
payable to the Financial Guaranty Insurer for
unpaid Financial Guaranty Insurer Premiums from
prior Payment Dates. Any Excess Cash remaining
after making required payments on the Bonds on
any Payment Date will be released to the Bond
Issuer on such Payment Date, free from the lien
of the Indenture, and such amounts will not be
available to make payments on the Bonds on any
subsequent Payment Date.
F. Overcollateralization
Feature............... Credit enhancement with respect to the Bonds
initially will be provided in part by
overcollateralization resulting from the sum of
the Aggregate Principal Balances of the Initial
Mortgage Loans as of their respective Cut-off
Dates (the "Initial Cut-off Date Pool Balance")
and the Prefunding Account Deposit exceeding the
Original Bond Balance, which is expected to be
supplemented by the application of Excess Cash on
each Payment Date so that over time such
overcollateralization will increase. Such
overcollateralization is intended to result in
receipts, collections and recoveries on the
Mortgage Loans in excess of the amount necessary
to pay Bond Interest and the Monthly Principal
required to be paid on the Bonds on any Payment
Date and to reduce the Bond Balance to zero prior
to the Final Maturity Date. Excess Cash will be
paid in reduction of the Bond Balance on each
Payment Date up to the amount necessary for the
related Coverage Amount to equal the Required
Coverage Amount for such Payment Date.
The "Coverage Amount" for the Bonds on any Payment
Date will be equal to the amount by which the sum
of the Aggregate Principal Balance of the
Mortgage Loans in the Mortgage Pool as of the end
of the related Collection Period (plus, in the
case of the April 1997 Payment Date, the
aggregate of the Principal Balances of any
Additional Mortgage Loans added to the Mortgage
Pool after March 31, 1997 but prior to the end of
the Funding Period) exceeds the Bond
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Balance for such Payment Date after taking into
account payments of Monthly Principal
(disregarding any permitted reduction in Monthly
Principal due to a Coverage Surplus) made on such
Payment Date. The "Required Coverage Amount" for
the Bonds on any Payment Date will be equal to
the amount specified as such in the Indenture.
The "Coverage Surplus" for the Bonds on any
Payment Date will be the amount, if any, by which
the Coverage Amount on such Payment Date exceeds
the then applicable Required Coverage Amount. The
"Coverage Deficit" for the Bonds on any Payment
Date will be the amount, if any, by which the
Bond Balance on such Payment Date (after taking
into account the Monthly Principal and Excess
Cash to be paid on such Payment Date in reduction
of the Bond Balance) exceeds the sum of the
Aggregate Principal Balance of the Mortgage Loans
at the end of the related Collection Period
(plus, in the case of the April 1997 Payment
Date, the aggregate of the Principal Balances of
any Additional Mortgage Loans added to the
Mortgage Pool after March 31, 1997 but prior to
the end of the Funding Period).
On the Closing Date, the initial Coverage Amount
for the Bonds will be approximately 1.0% of the
sum of the Initial Cut-off Date Pool Balance and
the Prefunding Account Deposit. The initial
Coverage Amount for the Bonds is not indicative
of the quality of the Mortgage Loans nor is it
intended to reflect the loss, default or
delinquency experience anticipated on the
Mortgage Loans.
The Indenture may provide that the Required
Coverage Amount for the Bonds may increase or
decrease during the period the Bonds remain
outstanding. If on any Payment Date occurring
after April 1997, the amount of Excess Cash
payable on the Bonds is less than an amount
specified in the Indenture, the Required Coverage
Amount for the Bonds will be increased (any such
Payment Date, a "Trigger Event Date"); provided,
however, that upon the satisfaction of certain
cash flow requirements in respect of the Bonds
for the period specified in the Indenture, such
Required Coverage Amount will return to its
original level. Any increase in the Required
Coverage Amount may result in an accelerated
amortization of the Bonds until such Required
Coverage Amount is reached, and any decrease in
the Required Coverage Amount will result in a
decelerated amortization of the Bonds until such
Required Coverage Amount is reached. See
"Description of the
Bonds -- Overcollateralization Feature" herein.
F. Financial Guaranty
Insurance Policy...... The Financial Guaranty Insurance Policy will be
issued on the Closing Date by the Financial
Guaranty Insurer in favor of the Indenture
Trustee for the benefit of the Bondholders. If,
with respect to any Payment Date, sufficient
funds are not available from Available Funds to
pay Bond Interest on such Payment Date, or if a
Coverage Deficit exists with respect to such
Payment Date (after taking into account any
payments in reduction of the Bond Balance on such
Payment Date), the Indenture Trustee will make a
draw on the Financial Guaranty Insurance Policy
in an amount equal to the amount necessary to pay
the full amount of such Bond Interest and the
amount of any such Coverage Deficit, as more
fully described under "Description of the
Bonds -- The Financial Guaranty Insurance Policy"
herein. See also "The Financial Guaranty
Insurance Policy and the Financial Guaranty
Insurer" herein.
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G. Maturity of the
Bonds.................. The final maturity date of the Bonds is the Payment
Date occurring in June 15, 2029 (the "Final
Maturity Date").
Forward Commitment;
Prefunding Account....... On the Closing Date, the Bond Issuer will make a
deposit (the "Prefunding Account Deposit") in the
amount of approximately $82,720,605 to a
segregated account (the "Prefunding Account") in
the name of the Indenture Trustee to be allocated
for the acquisition of Additional Mortgage Loans.
The Prefunding Account Deposit may be increased
by an amount equal to the aggregate of the
principal balances of any mortgage loans removed
from the Mortgage Pool prior to the Closing Date
as described herein, provided that any such
increase shall not exceed $10,000,000. See "The
Mortgage Loans -- General" herein. During the
period (the "Funding Period") from the Closing
Date until the earlier of (i) the date on which
the amount on deposit in the Prefunding Account
is reduced to zero and (ii) April 14, 1997, the
amount on deposit in the Prefunding Account will
be allocated for the acquisition of Additional
Mortgage Loans in accordance with the applicable
provisions of the Indenture. The Additional
Mortgage Loans will be acquired or originated by
ACC and conveyed to the Transferor from time to
time during the Funding Period. The Transferor
will in turn convey the Additional Mortgage Loans
to the Bond Issuer, which will pledge such
Additional Mortgage Loans under the Indenture.
Additional Mortgage Loans acquired and added to
the Mortgage Pool on any Subsequent Transfer Date
must be approved by the Financial Guaranty
Insurer. Any date on which such Additional
Mortgage Loans are acquired is a "Subsequent
Transfer Date." On the Payment Date in April
1997, any amount remaining on deposit in the
Prefunding Account and not applied to acquire
Additional Mortgage Loans during the Funding
Period will be paid in reduction of the Bond
Balance. Although it is intended that the
principal amount of Additional Mortgage Loans
acquired will require application of
substantially all of the Prefunding Account
Deposit and it is not currently anticipated that
there will be any material amount of principal
payments from amounts remaining on deposit in the
Prefunding Account in reduction of the Bond
Balance, no assurance can be given that such a
payment will not occur on the Payment Date in
April 1997. In any event, it is unlikely that the
Bond Issuer will be able to acquire Additional
Mortgage Loans with aggregate principal balances
that exactly equal the Prefunding Account
Deposit. Any portion of the Prefunding Account
Deposit that is not applied to acquire Additional
Mortgage Loans during the Funding Period will be
paid on the April 1997 Payment Date in reduction
of the Bond Balance. See "Description of the
Bonds -- Prefunding Account" herein.
All Additional Mortgage Loans acquired from
application of amounts on deposit in the
Prefunding Account shall be part of the Trust
Estate from and after the date of acquisition
thereof.
Capitalized Interest
Account.................. On the Closing Date, the Bond Issuer will deposit
cash in the name of the Indenture Trustee in a
segregated account (the "Capitalized Interest
Account"). The Capitalized Interest Account will
be maintained with the Indenture Trustee in its
corporate trust department. The amount on deposit
in the Capitalized Interest Account will be
specifically allocated to cover shortfalls in
interest on the Bonds that may arise as a result
of the utilization of the Prefunding Account for
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<PAGE> 13
the acquisition of Additional Mortgage Loans
during the Funding Period and will be so applied
by the Indenture Trustee on the April 1997
Payment Date. See "Description of the
Bonds -- Capitalized Interest Account" herein.
Monthly Advances........... The Servicer is required to make an advance (each,
a "Monthly Advance") on each Payment Date (i) in
respect of delinquent payments of interest on the
Mortgage Loans for the related Collection Period,
subject to certain limitations described herein
and (ii) to cover interest at the Mortgage
Interest Rate on each Mortgage Loan that is not
delinquent as of the close of business on the
last day of the related Collection Period for the
period from and including the due date of the
related monthly payment to the end of such
Collection Period preceding such Payment Date.
See "Servicing of the Mortgage Loans -- The
Servicing Agreement -- Monthly Advances" herein.
Compensating Interest...... With respect to any Mortgage Loan (i) as to which a
prepayment in whole or in part was received, (ii)
that became a Liquidated Mortgage Loan or (iii)
that was otherwise charged off during a
Collection Period, the Servicer will be required
to remit to the Indenture Trustee, from amounts
otherwise payable to the Servicer as the
Servicing Fee for the related Collection Period,
an amount generally calculated to ensure that a
full month's interest on each such Mortgage Loan
(less the applicable Servicing Fee attributable
to such Mortgage Loan) is available for payment
to the Bondholders on the applicable Payment Date
(each such amount, a "Compensating Interest
Payment"). See "Servicing of the Mortgage
Loans -- The Servicing Agreement -- Compensating
Interest Payments" herein.
Financial Guaranty Insurer
Premium.................. The Financial Guaranty Insurer will be entitled to
receive a monthly premium (the "Financial
Guaranty Insurer Premium") payable out of
Available Funds on each Payment Date from amounts
on deposit in the Bond Account after
reimbursement to the Financial Guaranty Insurer
of certain Insured Amounts. The Financial
Guaranty Insurer Premium as of any Payment Date
will equal one-twelfth ( 1/12) of the product of
the applicable Insurer Premium Rate and the Bond
Balance for such Payment Date (before giving
effect to any reductions thereof on such Payment
Date). The "Insurer Premium Rate" will be 0.18%;
provided, however, that with respect to each
Payment Date commencing with the Payment Date
immediately following the Pool Redemption Date,
if the Coverage Amount is less than the then
applicable Required Coverage Amount as of the
immediately preceding Payment Date, the Insurer
Premium Rate applicable to such Payment Date will
be 0.68%. See "Description of the Bonds -- The
Financial Guaranty Insurer Premium" herein.
Servicing Fee.............. The primary compensation payable to the Servicer on
each Payment Date in respect of the related
Collection Period (the "Servicing Fee") will
equal one-twelfth ( 1/12) of the product of (a)
the applicable Servicing Fee Rate and (b) the
Aggregate Principal Balance of the Mortgage Loans
at the beginning of such Collection Period. The
"Servicing Fee Rate" will be 0.50% for each
Collection Period. The Servicer will also be
entitled to retain late fees, prepayment charges
and certain other amounts and charges as
additional servicing compensation. See "Servicing
of the Mortgage Loans -- Servicing and Other
Compensation; Payment of Expenses" herein.
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The Mortgage Loans......... The statistical information presented in this
Prospectus Supplement regarding the Mortgage Pool
is based on the Initial Mortgage Loans as of
February 28, 1997 (the "Statistical Calculation
Date"). As of the Statistical Calculation Date,
the Initial Mortgage Loans had an Aggregate
Principal Balance totaling approximately
$340,346,661 (the "Initial Pool Balance"). The
Transferor expects the Aggregate Principal
Balance of the Initial Mortgage Loans as of the
applicable Cut-off Dates to be approximately
$335,635,753, after application of all payments
of principal received in respect of any such
Initial Mortgage Loan before the applicable
Cut-off Dates. The statistical information
presented in this Prospectus Supplement does not
take into account any amortization of the Initial
Mortgage Loans prior to the Closing Date, or any
Additional Mortgage Loans that may be added to
the Mortgage Pool during the Funding Period
through application of amounts on deposit in the
Prefunding Account. Certain mortgage loans may
prepay in full or be removed, prior to the
Closing Date, from the Mortgage Pool as described
herein. In such event, an amount equal to the
aggregate principal balances of such mortgage
loans, but in no event more than $10,000,000,
would be added to the Prefunding Account Deposit
on the Closing Date. As a result, the statistical
information presented herein regarding the
Initial Mortgage Loans as of the Statistical
Calculation Date may vary in certain limited
respects from comparable information based on the
actual composition of the Mortgage Pool on the
Closing Date.
As of the Closing Date, the Mortgage Pool is
expected to consist of a total of 3,342 Initial
Mortgage Loans, bearing interest at rates that
are subject to periodic adjustment. See "The
Mortgage Loans -- General" herein and "ANNEX A:
Description of the Mortgage Pool" hereto for
detailed information about the Initial Mortgage
Loans. As used herein, the term "Aggregate
Principal Balance" means the aggregate of the
Principal Balances of the Mortgage Loans in the
Mortgage Pool at the related date of
determination.
The Mortgage Loans are closed-end, adjustable rate,
home equity mortgage loans originated by ACC or
acquired by ACC from certain affiliates of ACC
(the "Affiliated Originators") and institutions
not affiliated with ACC (the "Unaffiliated
Originators" and, together with the Affiliated
Originators, the "Originators"). See "Origination
of the Mortgage Loans" herein.
Approximately 13.21% of the Initial Mortgage Loans
(by Initial Pool Balance) are secured by
Mortgaged Properties located in California. See
"Risk Factors -- Risks Associated with Geographic
Concentration of the Mortgaged Properties"
herein.
Optional Redemption........ The Bonds may be redeemed in full at the option of
the Bond Issuer after the Bond Balance is less
than 20% of the Original Bond Balance. In
addition, the Servicer and the Financial Guaranty
Insurer will have rights, under the limited
circumstances described herein, to acquire all of
the Mortgage Loans from the Indenture Trustee and
thereby effect a redemption of the Bonds. See
"Description of the Bonds -- Redemption of Bonds"
herein.
Certain Federal Income Tax
Consequences............. Investors are advised to consult their tax advisors
and to review "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
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<PAGE> 15
No election will be made to treat the Trust Estate
or any portion thereof as a "real estate mortgage
investment conduit" (a "REMIC") for federal
income tax purposes.
For federal income tax purposes, the Bonds will be
treated as debt obligations of the Bond Issuer. A
Bond Owner will not be required to report income
with respect to the Bonds under an accrual method
unless the Bond Owner otherwise uses the accrual
method.
The Bonds will not represent interests in
"qualifying real property loans" within the
meaning of Section 593(d) of the Internal Revenue
Code of 1986, as amended (the "Code"), "real
estate assets" for purposes of Section
856(c)(5)(A) of the Code and "[l]oans . . .
principally secured by an interest in real
property" within the meaning of Section
7701(a)(19)(C)(v) of the Code.
ERISA Considerations....... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Bonds may be acquired and held by
a pension or other employee benefit plan subject
to the provisions of Title I of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA") and/or Section 4975 of the
Internal Revenue Code of 1986, as amended. See
"ERISA Considerations" herein and in the
Prospectus.
Legal Investment
Considerations........... The Bonds will NOT constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984
("SMMEA"). See "Legal Investment
Considerations -- SMMEA" in the Prospectus and
"Legal Investment Considerations" herein.
Rating..................... It is a condition to the issuance of the Bonds that
they be rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's") and "AAA" by Standard and
Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P" and, together with Moody's, the
"Rating Agencies"). A security rating is not a
recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at
any time by the assigning Rating Agency. See
"Rating of the Bonds" herein.
Risk Factors............... For a discussion of certain factors that should be
considered by prospective investors in the Bonds,
including certain yield and prepayment risks, see
"Risk Factors" herein and in the Prospectus.
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<PAGE> 16
RISK FACTORS
Prospective investors in the Bonds should consider the following risk
factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with the purchase of the Bonds. Any statistical
information presented below is based upon the characteristics of the Initial
Mortgage Loans as of the Statistical Calculation Date. Such information does not
take into account any amortization of the Initial Mortgage Loans prior to the
Closing Date and may vary as a result of the possibility that certain mortgage
loans may prepay in full or be removed from the Mortgage Pool prior to the
Closing Date.
RISK OF LIMITATIONS ON ADJUSTMENTS OF THE BOND INTEREST RATE
The Mortgage Pool will contain Mortgage Loans that, after a period of
approximately six months, one year, eighteen months, two years, three years,
five years or seven years following the date of origination, adjust either
semi-annually based upon the London interbank offered rate for six-month United
States dollar deposits (the "six-month London Interbank Offered Rate") or
annually based on the weekly average yield on United States Treasury securities
adjusted to a constant maturity of one year, as made available by the Federal
Reserve Board (the "one-year CMT index"), in each case subject to periodic caps
on such adjustment, whereas the Bond Interest Rate adjusts monthly based upon
the London interbank offered rate for one-month United States dollar deposits,
subject to the Adjustable Rate Cap. Consequently, the interest due on such
Mortgage Loans (reduced by the sum of (i) the Servicing Fee, (ii) the Financial
Guaranty Insurer Premium, and (iii) after the Payment Date in September 1997, an
amount equal to one-twelfth ( 1/12) of 100 basis points multiplied by the
Aggregate Principal Balance of the Mortgage Loans as of the end of the
immediately preceding Collection Period) during any Collection Period may not
equal the amount of interest that would accrue at LIBOR plus the applicable
margin on the Bonds during the related Interest Period. In particular, because
the interest rates of the Mortgage Loans adjust less frequently than the Bond
Interest Rate, the amount of Bond Interest paid on the Bonds on any Payment Date
may be limited (as a result of being determined on the basis of the Adjustable
Rate Cap) to an amount that is less than the amount of interest that would be
due on the Bond Balance for such Payment Date at a rate equal to LIBOR plus
0.20% or LIBOR plus 0.40%, as applicable, for extended periods in a rising
interest rate environment.
Approximately 49.26% (by Initial Pool Balance) of the Initial Mortgage
Loans have initial Mortgage Interest Rates that will remain fixed for one year
or more from the Statistical Calculation Date before initial adjustment,
approximately 13.78% (by Initial Pool Balance) of the Initial Mortgage Loans
have initial Mortgage Interest Rates that will remain fixed for two years or
more from the Statistical Calculation Date before initial adjustment and
approximately 0.07% (by Initial Pool Balance) of the Initial Mortgage Loans have
initial Mortgage Interest Rates that will remain fixed for three years or more
from the Statistical Calculation Date before initial adjustment. The inclusion
of such Mortgage Loans in the Mortgage Pool may increase the likelihood that the
Bond Interest Rate will be determined based on the Adjustable Rate Cap rather
than on the basis of LIBOR plus 0.20% or LIBOR plus 0.40%, as applicable, if
LIBOR increases appreciably prior to the time that such Mortgage Loans have
reached their respective dates of first adjustment.
If the Bond Interest Rate is determined on the basis of the Adjustable Rate
Cap, the value of the Bonds may be temporarily or permanently reduced.
RISKS ASSOCIATED WITH UNDERWRITING STANDARDS
All of the Original Mortgage Loans will have been underwritten and
originated or, in the case of Original Mortgage Loans acquired by ACC from
Unaffiliated Originators, re-underwritten, in either case pursuant to the Aames
Guidelines (as described in the Prospectus under the caption "The
Originators -- Underwriting Guidelines"), which generally rely on the value and
adequacy of the related Mortgaged Property as collateral and on the
creditworthiness and repayment ability of the Mortgagor.
The Bulk Purchase Mortgage Loans were acquired by ACC in a whole loan sale
transaction. In connection with such acquisition, ACC has analyzed pursuant to
the Aames Guidelines all of the Bulk Purchase Mortgage Loans based on the
information contained in a computer tape provided by the seller. ACC has
performed data integrity on all of the Mortgage Notes evidencing the Bulk
Purchase Mortgage Loans and
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<PAGE> 17
has re-underwritten approximately one-half of the Bulk Purchase Mortgage Loans
to confirm compliance with Aames Guidelines. It is possible that some of the
Bulk Purchase Mortgage Loans that were not included in the sample may have been
underwritten pursuant to underwriting guidelines or policies that vary from the
Aames Guidelines in certain material respects, and no assurances can be given
that such Bulk Purchase Mortgage Loans will perform in a manner consistent with
mortgage loans underwritten in accordance with the Aames Guidelines or that such
Bulk Purchase Mortgage Loans will not be subject to higher rates of
delinquencies, foreclosures and losses than the Original Mortgage Loans. At the
time each Bulk Purchase Mortgage Loan is conveyed to the Transferor, ACC will
have made the same representations regarding such Bulk Purchase Mortgage Loans
as are made with respect to the Original Mortgage Loans. However, with respect
to those Bulk Purchase Mortgage Loans that were not included in the sample,
certain characteristics or documentation may not conform in all material
respects to such representations. To the extent that a breach of a
representation relating to any Bulk Purchase Mortgage Loan materially and
adversely affects the interests of the Bondholders in such Bulk Purchase
Mortgage Loan, ACC will be required to remove such Bulk Purchase Mortgage Loan
from the Trust Estate or deliver a substitute Mortgage Loan therefor. If ACC
removes such Mortgage Loan from the Trust Estate, such removal will accelerate
the timing of payments of principal and may thereby affect the yields and
weighted average lives of the Bonds.
No assurance can be given that the values of the Mortgaged Properties will
not decline from those on the dates the related Mortgage Loans were originated
and any such decline could render the information set forth herein with respect
to the Loan-to-Value Ratios of such Mortgage Loans an unreliable measure of
security for the related debt. If the residential real estate market should
experience an overall decline in property values such that the outstanding
Principal Balances of the Mortgage Loans become equal to or greater than the
values of such Mortgaged Properties, the actual rate of delinquencies,
foreclosures and losses on the related Mortgage Loans could be higher than those
now generally experienced in the mortgage lending industry. Even assuming that
the Mortgaged Properties provide adequate security for the Mortgage Loans,
substantial delays could be encountered in connection with the foreclosure and
liquidation of defaulted Mortgage Loans and corresponding delays in the receipt
of related proceeds by Bondholders could occur. In the event that any Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans, any
resulting losses will be covered by funds made available through operation of
the overcollateralization feature described herein, or, if necessary, by amounts
paid under the Financial Guaranty Insurance Policy to the extent of Bond
Interest due to the Bondholders on the related Payment Date and the amount of
any Coverage Deficit with respect to such Payment Date. See "Certain Legal
Aspects of the Mortgage Loans and Related Matters -- Foreclosure/Repossession,"
and "-- Rights of Redemption" in the Prospectus and "Servicing of the Mortgage
Loans -- The Servicing Agreement -- Realization upon Defaulted Mortgage Loans"
herein.
In general, a prospective borrower applying for a Mortgage Loan is required
to fill out a detailed application designed to provide the related Originator
pertinent information. As part of the description of the borrower's financial
condition, the borrower generally is required to provide a current list of
assets and liabilities and a statement of income and expenses, as well as an
authorization to apply for a credit report that summarizes the borrower's credit
history. The Originator obtains a credit report from one or more credit
reporting agencies. In many cases, the borrower's credit history will include
major derogatory credit items such as credit write-offs, outstanding judgments
and prior bankruptcies. The Originator generally verifies the borrower's
employment, but in many cases does not verify the borrower's income. Because
certain Mortgage Loans may have been underwritten pursuant to standards that
rely to a greater extent on the value of the related Mortgaged Properties than
on the creditworthiness of the related Mortgagor, the actual rates of
delinquencies, foreclosures and losses on such Mortgage Loans could be higher
than those historically experienced in the mortgage lending industry in general,
particularly in periods during which the values of the related Mortgaged
Properties decline. See "The Originators -- Underwriting Guidelines" in the
Prospectus.
RISKS ASSOCIATED WITH GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
Approximately 13.21% of the Initial Mortgage Loans (by Initial Pool
Balance) are secured by Mortgaged Properties located in California. The
California residential real estate market has experienced a sustained decline
over the last several years. In general, declines in the California residential
real estate market may
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<PAGE> 18
adversely affect the values of the Mortgaged Properties securing such Mortgage
Loans such that the Aggregate Principal Balance of such Mortgage Loans will
equal or exceed the value of such Mortgaged Properties. In addition, adverse
economic conditions in California (which may or may not affect real property
values) may affect the timely payment by borrowers of scheduled payments of
principal and interest on such Mortgage Loans and, accordingly, the actual rates
of delinquencies, foreclosures and losses on such Mortgage Loans could be higher
than those currently experienced in the mortgage lending industry in general.
RISKS ASSOCIATED WITH DAMAGED MORTGAGED PROPERTIES
Generally, the standard form of hazard insurance policy required to be
maintained under the terms of each Mortgage Loan does not cover physical damage
resulting from floods and other water-related causes or from earth movement
(including earthquakes, landslides and mudflows). Certain Initial Mortgage Loans
are secured, and certain Additional Mortgage Loans may be secured, by Mortgaged
Properties located in areas that have been affected by other natural disasters
not covered by standard hazard insurance policies. See "The Pooling and
Servicing Agreement -- Maintenance of Hazard Insurance" in the Prospectus.
During the latter part of 1996 and the early part of 1997, major flooding
occurred in parts of Ohio, Kentucky and Indiana that may have damaged some of
the Mortgaged Properties securing Mortgage Loans included in the Trust Estate.
Approximately 5.89% of the Initial Mortgage Loans (by Initial Pool Balance) are
secured by Mortgaged Properties located in the states of Ohio, Kentucky and
Indiana, but there can be no assurance as to the number of Mortgaged Properties
securing Initial Mortgage Loans, if any, that may have been damaged by such
flooding or the extent of any such damage.
If a Mortgaged Property has been materially damaged since the applicable
Cut-off Date due to flooding or other water-related causes or due to an
earthquake or other earth movement and such damage results in losses on the
related Mortgage Loan, such losses will be covered by funds made available
through operation of the overcollateralization feature described herein, or, if
necessary, by amounts paid under the Financial Guaranty Insurance Policy to the
extent of Bond Interest due to the Bondholders on the related Payment Date and
the amount of any Coverage Deficit with respect to such Payment Date. See
"Description of the Bonds -- Overcollateralization
Feature -- Overcollateralization and the Financial Guaranty Insurance Policy"
and "-- The Financial Guaranty Insurance Policy" herein.
However, at the time each Mortgage Loan is conveyed to the Transferor, ACC
will have represented that, as of the applicable Cut-off Date, each Mortgaged
Property is free of substantial damage and is in good repair. In the event that
any uncured breach of such representation materially and adversely affects the
interest of Bondholders in the related Mortgage Loan, ACC will be required to
remove the Mortgage Loan from the Trust Estate or deliver a substitute Mortgage
Loan therefor. To the extent ACC removes such Mortgage Loan from the Trust
Estate, such removal will accelerate the timing of payments of principal and may
thereby affect the yields and weighted average lives of the Bonds.
RISKS ASSOCIATED WITH PREPAYMENT OF THE MORTGAGE LOANS
All of the Mortgage Loans may be prepaid in full or in part at any time,
generally upon the payment to the Servicer of a prepayment charge. The rate of
prepayments of the Mortgage Loans cannot be predicted and may be affected by a
wide variety of general economic, social, competitive and other factors,
including state and federal income tax policies (including possible future
changes affecting the deductibility for federal income tax purposes of interest
payments on mortgage loans), interest rates, the availability of alternative
financing and homeowner mobility. Therefore, no assurance can be given as to the
level of prepayments that the Mortgage Loans will experience. A number of
factors suggest that the prepayment behavior of the Mortgage Pool may be
significantly different from that of a pool of conventional first lien
residential mortgage loans with equivalent interest rates and maturities. One
such factor is that the Principal Balance of the average Mortgage Loan is
smaller than that of the average conventional first lien mortgage loan. A
smaller Principal Balance may be easier for a borrower to refinance or otherwise
prepay than a larger balance and, therefore, a higher prepayment rate may result
for the Mortgage Pool than for a pool of conventional first lien mortgage loans,
irrespective of the relative average interest rates and the general interest
rate environment. Accordingly, the Mortgage Loans may experience higher rates of
prepayment than conventional first lien mortgage loans.
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Conversely, a borrower with a Mortgage Loan having a small Principal Balance may
view refinancing such Mortgage Loan at a lower interest rate as less attractive
because the impact to the borrower of lower interest rates on the size of the
related monthly payment may be perceived as insignificant. Moreover, borrowers
under the Mortgage Loans may have limited access to alternative financing, which
may limit refinancing options, or may be required to incur relatively higher
origination costs than borrowers under conventional first lien mortgage loans,
which may discourage refinancing activity. As a result, the Mortgage Loans may
prepay at slower rates than those of conventional first lien loans. See "Risk
Factors -- Yield, Maturity and Prepayment Considerations" and "Maturity,
Prepayment and Yield Considerations" in the Prospectus.
Prepayments may result from voluntary early payments by borrowers, sales of
Mortgaged Properties subject to "due-on-sale" clauses as to which the Servicer
exercises its rights thereunder and liquidations due to default, as well as the
receipt of proceeds from hazard, credit life and disability insurance policies.
In addition, removals or releases of Mortgage Loans from the Trust Estate
required or permitted to be made by ACC, the Servicer, the Bond Issuer and,
under certain limited circumstances, the Financial Guaranty Insurer under the
Indenture will have the same effect on the Bondholders as a prepayment of the
related Mortgage Loans. In addition, certain of the Mortgage Loans that have
initial interest rate adjustment dates one or more years after the Statistical
Calculation Date have an initial rate adjustment cap that will allow a
significant increase in the Mortgage Interest Rate on the first interest rate
adjustment date. As a result, in connection with the initial rate adjustment,
borrowers under Mortgage Loans with higher initial rate adjustment caps may be
more likely either to prepay voluntarily or to default due to higher payments
following such initial adjustment. Because the Aames Guidelines utilized in
connection with underwriting the Mortgage Loans refer only to the initial rate
adjustment of the related Mortgage Loan to assess the creditworthiness of the
borrower thereunder, subsequent rate adjustments may prompt such borrowers to
prepay voluntarily or default. Prepayments and such removals and releases will
accelerate the receipt of payments of Monthly Principal. See "Description of the
Bonds -- Assignment of Mortgage Loans" and "-- Redemption of the Bonds" herein
and "Certain Legal Aspects of the Mortgage Loans and Related
Matters -- Enforceability of Due-on-Sale Clauses" in the Prospectus. The
Servicer may solicit refinancings from existing borrowers under loans originated
by Affiliated Originators, which may have the effect of increasing the rate of
prepayment, due to refinancings, on the Mortgage Loans. See "Origination of the
Mortgage Loans" and "Servicing of the Mortgage Loans" herein.
Prepayments, liquidations, removals and releases of the Mortgage Loans will
result in payments to Bondholders of principal amounts that would otherwise be
paid over the remaining terms of the Mortgage Loans. The extent to which the
yield to maturity of a Bond may vary from the anticipated yield will depend upon
the degree to which it is purchased at a premium or discount and the degree to
which the timing of payments thereon is sensitive to prepayments, liquidations,
removals and releases of Mortgage Loans. In the case of any Bonds purchased at a
discount, an investor should consider the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Bond purchased at a premium, the risk that a faster than anticipated rate of
prepayments, liquidations, removals and releases could result in an actual yield
to such investor that is lower than the anticipated yield. Further, there can be
no assurance that Bondholders will be able to reinvest payments made in respect
of prepayments, liquidations, removals and releases of the Mortgage Loans in
securities or other instruments that have a yield comparable to that of the
Bonds.
THE ADDITIONAL MORTGAGE LOANS AND THE PREFUNDING ACCOUNT
Any conveyance of Additional Mortgage Loans is subject to the following
conditions, among others: (i) each Additional Mortgage Loan must satisfy the
representations and warranties specified in the agreement pursuant to which the
Additional Mortgage Loans are conveyed by ACC to the Transferor; (ii) ACC will
not select such Additional Mortgage Loans in a manner that it believes is
adverse to the interests of the Transferor or its assignees; and (iii) the
Additional Mortgage Loans will have been approved by the Financial Guaranty
Insurer. Following the transfer of Additional Mortgage Loans to the Mortgage
Pool, the aggregate characteristics of the Mortgage Loans then held in the
Mortgage Pool may vary from those of the Initial Mortgage Loans included in the
Mortgage Pool. A Current Report on Form 8-K containing a description of the
Mortgage Loans included in the final Mortgage Pool as of the end of the Funding
Period in a form comparable to the
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description of the Initial Mortgage Loans contained in "ANNEX A: Description of
the Mortgage Pool" will be filed with the Commission within 15 days after
expiration of the Funding Period. See "The Mortgage Loans -- Conveyance of
Additional Mortgage Loans" herein.
If, by the end of the Funding Period, amounts on deposit in the Prefunding
Account have not been fully applied to the acquisition of Additional Mortgage
Loans, the amount that is remaining in the Prefunding Account at the end of the
Funding Period will be paid in reduction of the Bond Balance. Although it is
intended that the principal amount of Additional Mortgage Loans will require
application of substantially all of the Prefunding Account Deposit and it is not
currently anticipated that there will be any material amount of principal
payments from amounts remaining on deposit in the Prefunding Account in
reduction of the Bond Balance, no assurance can be given that such a payment
will not occur on the Payment Date in April 1997. In any event, it is unlikely
that the Bond Issuer will be able to acquire Additional Mortgage Loans with
aggregate principal balances that exactly equal the Prefunding Account Deposit.
Any portion of the Prefunding Account Deposit that is not applied to acquire
Additional Mortgage Loans during the Funding Period will be paid on the April
1997 Payment Date in reduction of the Bond Balance.
YIELD CONSIDERATIONS RELATING TO EXCESS CASH
Excess Cash will be paid in reduction of the Bond Balance on each Payment
Date to the extent the then applicable Required Coverage Amount exceeds the
Coverage Amount on such Payment Date. If purchased at a premium or a discount,
the yield to maturity on a Bond will be affected by the rate at which Excess
Cash is paid to Bondholders in reduction of the Bond Balance. If the actual rate
of such Excess Cash payments is slower than the rate anticipated by an investor
who purchases a Bond at a discount, the actual yield to such investor will be
lower than such investor's anticipated yield. If the actual rate of such Excess
Cash payments is faster than the rate anticipated by an investor who purchases a
Bond at a premium, the actual yield to such investor will be lower than such
investor's anticipated yield. The amount of Excess Cash on any Payment Date will
be affected by the actual amount of interest received, collected or recovered in
respect of the Mortgage Loans during the related Collection Period and such
amount will be influenced by changes in the weighted average of the Mortgage
Interest Rates resulting from prepayments and liquidations of Mortgage Loans as
well as from adjustments of Mortgage Interest Rates. The amount of Excess Cash
payments applied in reduction of the Bond Balance on each Payment Date will be
based on the then applicable Required Coverage Amount, which may increase or
decrease during the period the Bonds remain outstanding. If on any Payment Date
occurring after April 1997, the amount of Excess Cash payable on the Bonds is
less than an amount specified in the Indenture, the Required Coverage Amount
will be increased (any such Payment Date, a "Trigger Event Date"); provided,
however, that upon the satisfaction of certain cash flow requirements for the
period specified in the Indenture, such Required Coverage Amount will return to
its original level. Any increase in a Required Coverage Amount (including an
increase required on a Trigger Event Date) may result in an accelerated rate of
amortization of the Bonds until the Coverage Amount equals such Required
Coverage Amount and any decrease in a Required Coverage Amount will result in a
decelerated rate of amortization of the Bonds until the Coverage Amount equals
such Required Coverage Amount.
OTHER YIELD CONSIDERATIONS
The Bonds are subject to optional redemption in full by the Bond Issuer
after the Bond Balance is less than 20% of the Original Bond Balance. In
addition, the Servicer and the Financial Guaranty Insurer will have rights,
under the limited circumstances described herein, to acquire all the Mortgage
Loans from the Indenture Trustee and thereby effect a redemption of the Bonds.
See "Description of the Bonds -- Redemption of the Bonds" herein. Any such
redemption of the Bonds may affect the yield and weighted average lives of the
Bonds.
ENVIRONMENTAL STATUTES AFFECTING SECURITY INTERESTS
A substantial portion of the Initial Mortgage Loans are secured by
Mortgaged Properties located in states that may impose a statutory lien for
associated costs on property that is the subject of a clean-up action by the
state on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a
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lien generally will have priority over all subsequent liens on the property,
although in some states, including California, it will not have priority over
prior recorded liens, including the lien of a mortgage. In addition, under
environmental legislation and case law applicable in various states, including
California, a secured party that takes a deed in lieu of foreclosure, acquires a
mortgaged property at a foreclosure sale or, prior to foreclosure, has been
involved in decisions or actions that may lead to contamination of a property,
may be liable for the costs of cleaning up a contaminated site. See "Certain
Legal Aspects of the Mortgage Loans and Related Matters -- Environmental
Considerations" in the Prospectus. Any such liens or costs imposed in connection
with a clean-up action by the state may impede the ability of the Servicer to
foreclose on or sell the related Mortgaged Property or to obtain Net Liquidation
Proceeds sufficient to repay all amounts due on the related Mortgage Loan. Any
resulting losses will be covered by funds made available through operation of
the overcollateralization feature described herein or, if necessary, by amounts
paid under the Financial Guaranty Insurance Policy to the extent of Bond
Interest due on the related Payment Date and the amount of any Coverage Deficit
with respect to such Payment Date.
RISKS ASSOCIATED WITH CERTAIN ORIGINATION FEES
Fees earned on the origination of loans, placement of related insurance and
other services provided by ACC and Affiliated Originators are often paid by the
borrower out of related loan proceeds. From time to time, in the ordinary course
of their businesses, originators of home equity loans have been named in legal
actions brought by mortgagors challenging the amount or method of imposing or
disclosing such fees. To date, no such action has been decided against ACC or
any Affiliated Originator. If such an action against any Originator with respect
to any Mortgage Loan were successful, a court might require that the Principal
Balances of the related Mortgage Loans be reduced by the amount of contested
fees or charges. Any such reductions could result in substantial Realized Losses
during one or more Collection Periods, potentially leading to Coverage Deficits.
In the event of such a Coverage Deficit, payments by the Financial Guaranty
Insurer would result in accelerated payments in reduction of the Bond Balance.
DISSOLUTION OF BOND ISSUER FROM INSOLVENCY OF TRANSFEROR
On the Closing Date, the Transferor will hold a 1% equity interest in the
Bond Issuer. The Trust Agreement will provide that if any of certain events
(each, an "Insolvency Event") of voluntary corporate dissolution or insolvency,
readjustment of debt, marshaling of assets and liabilities, commencement of
bankruptcy proceedings under the United States Bankruptcy Code or similar
applicable state laws ("Insolvency Laws") or similar proceedings with respect to
the Transferor indicating its insolvency or inability to pay its obligations
occurs, subject to certain conditions (including a default of the Financial
Guaranty Insurer in the payment of any Insured Amount), the Bond Issuer will
dissolve. ACC and the Transferor have taken certain steps in structuring the
transactions contemplated hereby that are intended to help ensure that an
Insolvency Event with respect to the Transferor will not occur. These steps
include the formation of the Transferor as a separate limited-purpose entity
pursuant to formation documents that contain certain limitations (including
restrictions on the nature of the Transferor's business and restrictions on the
Transferor's ability to commence a voluntary case or proceeding under the
Insolvency Laws). However, there can be no assurance that the activities of the
Transferor would not result in an Insolvency Event.
If the Bond Issuer is dissolved, the Indenture Trustee will promptly sell,
dispose of or otherwise liquidate the Mortgage Loans in a commercially
reasonable manner on commercially reasonable terms, except under certain limited
circumstances. The proceeds from any such sale, disposition or liquidation of
the Mortgage Loans will be treated as collections on the Mortgage Loans,
deposited in the Bond Account and paid to the holders of the Bonds in accordance
with the terms described herein.
BOOK-ENTRY REGISTRATION
Issuance of the Bonds in book-entry form may reduce the liquidity of the
Bonds in the secondary trading market because investors may be unwilling to
purchase Bonds for which they cannot obtain physical certificates.
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Because transactions in the Bonds can be effected only through DTC, Cedel,
Euroclear, participating organizations, indirect participants and certain banks,
the ability of a Bond Owner to pledge a Bond to persons or entities that do not
participate in the DTC, Cedel or Euroclear system, or otherwise to take actions
in respect of such Bond, may be limited due to lack of a physical certificate
representing such Bond.
Bond Owners may experience some delay in their receipt of payments of
interest of and principal on the Bonds because such payments will be forwarded
by the Indenture Trustee to DTC and DTC will credit such payments to the
accounts of its Participants, which will thereafter credit them to the accounts
of Bond Owners either directly or indirectly through indirect participants. See
"Description of the Bonds -- Book-Entry Registration and Definitive Bonds"
herein, "ANNEX B: Global Clearance, Settlement and Tax Documentation Procedures"
hereto and "Description of the Securities -- Form of Securities -- Book-Entry
Registration" in the Prospectus.
DESCRIPTION OF THE BONDS
The Bonds will be issued pursuant to the Indenture. The summaries of
certain provisions of the Indenture set forth below and under the caption "The
Indenture" in the Prospectus, while complete in material respects, do not
purport to be exhaustive. For more details regarding the terms of the Indenture,
prospective investors in the Bonds are advised to review the Indenture, a copy
of which the Bond Issuer will provide (without exhibits) without charge upon
written request addressed to: Aames Capital Owner Trust 1997-1 c/o Aames Capital
Acceptance Corp., 3731 Wilshire Boulevard, 10th Floor, Los Angeles, California
90010.
GENERAL
The Bonds will be secured by the Trust Estate created by the Indenture. The
Bonds represent non-recourse obligations of the Bond Issuer, and proceeds of the
assets in the Trust Estate will be the sole source of payments on the Bonds. The
Bonds will not represent an interest in or obligation of the Transferor, the
Servicer, AFC, the Indenture Trustee, the Underwriters, any of their respective
affiliates or any other entity, and will not represent an interest in or
recourse obligation of the Bond Issuer.
Initially, the assets of the Trust Estate will consist of (i) the Mortgage
Pool, which is comprised of the Initial Mortgage Loans secured by first lien
mortgages or deeds of trust on the Mortgaged Properties; (ii) all payments in
respect of principal of the Initial Mortgage Loans received on or after the
applicable Cut-off Dates; (iii) all payments in respect of interest accrued on
the Initial Mortgage Loans from and after the applicable Cut-off Dates,
irrespective of when received; (iv) security interests in the Mortgaged
Properties; (v) amounts to be deposited in the Prefunding Account that will be
available for the acquisition of the Additional Mortgage Loans during the
Funding Period; (vi) amounts to be deposited in the Capitalized Interest
Account; (vii) the Financial Guaranty Insurance Policy issued by the Financial
Guaranty Insurer; and (viii) certain other property.
All payments on the Bonds will be made by or on behalf of the Indenture
Trustee to each Bondholder of record on the related Record Date for the related
Payment Date. Payments on Bonds issued in book-entry form will be made by or on
behalf of the Indenture Trustee to DTC. Payments on Definitive Bonds generally
will be made either (i) by check mailed to the address of each Bondholder as it
appears in the register maintained by the Indenture Trustee or (ii) by wire
transfer of immediately available funds to the account of a Bondholder, if such
Bondholder (a) is the registered holder of Definitive Bonds having an initial
principal amount of at least $1,000,000 and (b) has provided the Indenture
Trustee with wiring instructions in writing five days prior to the related
Record Date or has provided the Indenture Trustee with such instructions for any
previous Payment Date. A fee may be charged by the Indenture Trustee to a
Bondholder of Definitive Bonds for any payment made by wire transfer.
Notwithstanding the above, the final payment in redemption of any Definitive
Bond will be made only upon presentation and surrender of such Definitive Bond
at the office or agency designated by the Indenture Trustee for that purpose.
The Bonds will be issued in denominations of not less than $1,000 principal
amount and in integral dollar multiples of $1 in excess thereof.
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<PAGE> 23
BOOK-ENTRY REGISTRATION AND DEFINITIVE BONDS
The Bonds initially will be book-entry Bonds (the "Book-Entry Bonds"). Bond
Owners will hold such Bonds through DTC, in the United States, or Cedel or
Euroclear, in Europe, if they are participants of such systems, or indirectly
through organizations that are participants in such systems. The Book-Entry
Bonds initially will be registered in the name of Cede & Co., the nominee of
DTC. Cedel and Euroclear will hold omnibus positions on behalf of Cedel
Participants and Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank
N.A. ("Citibank") will act as depositary for Cedel and Morgan Guaranty Trust
Company of New York ("Morgan") will act as depositary for Euroclear (Citibank
and Morgan, in such capacities, individually the "Relevant Depositary" and,
collectively, the "European Depositaries"). Except as described below, no person
acquiring a Book-Entry Bond will be entitled to receive a Definitive Bond.
Unless and until Definitive Bonds are issued, it is anticipated that the only
"Bondholder" will be Cede & Co., as nominee of DTC. Bond Owners will not be
Bondholders as that term is used in the Indenture. Bond Owners are permitted to
exercise their rights only indirectly through DTC and its Participants
(including Cedel and Euroclear).
The beneficial ownership of a Book-Entry Bond will be recorded on the
records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains the Bond Owner's
account for such purpose. In turn, the Financial Intermediary's ownership of
such Book-Entry Bond will be recorded on the records of DTC (or of a
participating firm that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a Participant and on the records of Cedel
or Euroclear, as appropriate).
Bond Owners will receive all payments of principal of, and interest on, the
Bonds from the Indenture Trustee through DTC and its Participants (including
Cedel and Euroclear). While the Bonds are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Bonds and is required to receive and transmit payments of
principal of, and interest on, such Bonds. Participants and indirect
participants with whom Bond Owners have accounts with respect to Book-Entry
Bonds are similarly required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Bond Owners. Accordingly,
although Bond Owners will not possess certificates, the Rules provide a
mechanism by which Bond Owners will receive payments and will be able to
transfer their interests.
Bond Owners will not receive or be entitled to receive certificates
representing their respective interests in the Bonds, except under the limited
circumstances described below. Unless and until Definitive Bonds are issued,
Bond Owners who are not Participants may transfer ownership of Bonds only
through Participants and indirect participants by instructing such Participants
and indirect participants to transfer Bonds, by book-entry transfer, through DTC
for the account of the purchasers of such Bonds, which account is maintained
with their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Bonds will be executed through DTC
and the accounts of the respective Participants at DTC will be debited and
credited. Similarly, the Participants and indirect participants will make debits
or credits, as the case may be, on their records on behalf of the selling and
purchasing Bond Owners.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear
Participants or Cedel Participants on such business day. Cash received in Cedel
or Euroclear as a result of sales of securities by or through a Cedel
Participant or Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant Cedel or
Euroclear cash account only as of the business day following settlement in DTC.
For information with respect to tax documentation procedures relating to the
Bonds, see "Certain Federal Income Tax Consequences -- Taxation of Bonds,"
"-- Miscellaneous Tax Aspects" and "-- Tax Treatment of Foreign Investors" in
the Prospectus and "-- Information Reporting and Backup
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<PAGE> 24
Withholding" in "ANNEX B: Global Clearance, Settlement and Tax Documentation
Procedures -- Certain U.S. Federal Income Tax Documentation Requirements"
hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants ("Participants"), some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each Participant in the Book-Entry
Bonds, whether held for its own account or as a nominee for another person. In
general, beneficial ownership of Book-Entry Bonds will be subject to the rules,
regulations and procedures governing DTC and its Participants as in effect from
time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants, through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled through Euroclear in any of 32 currencies,
including United States dollars. Euroclear provides various other services,
including securities lending and borrowing, and interfaces with domestic markets
in several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation that 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
(the "Federal Reserve Board") and the New York State Banking Department, as well
as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution to specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Payments on the Book-Entry Bonds will be made on each Payment Date by the
Indenture Trustee to DTC. DTC will be responsible for crediting the amount of
such payments to the accounts of the applicable Participants in accordance with
DTC's normal procedures. Each Participant will be responsible for disbursing
such payments to the Bond Owners that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Bond Owners that it represents.
Under a book-entry format, Bond Owners may experience some delay in their
receipt of payments because such payments will be forwarded by the Indenture
Trustee to Cede. Payments with respect to Bonds held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by the Relevant Depositary. Such payments will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences -- Taxation of Bonds,"
"-- Miscellaneous Tax Aspects" and "-- Tax Treatment of Foreign Investors" in
the Prospectus and "-- Information Reporting and Backup Withholding" in "ANNEX
B: Global Clearance, Settlement and Tax Documentation Procedures -- Certain U.S.
Federal Income Tax Documentation Requirements" hereto. Because DTC has indicated
that it will act only on behalf of Financial Intermediaries, the ability of Bond
Owners to pledge Book-Entry Bonds to persons or entities that do not participate
in the depository system or otherwise take actions in respect of such Book-Entry
Bonds may be limited due to the lack of physical certificates representing such
Book-Entry Bonds. In addition, issuance of the Book-Entry Bonds in book-entry
form may reduce the liquidity of such Bonds in the secondary market because
certain potential investors may be unwilling to purchase Bonds for which they
cannot obtain physical certificates.
Monthly and annual reports on the Mortgage Loans and the Trust Estate will
be provided to Cede & Co., as nominee of DTC, and may be made available by such
entity to Bond Owners upon request, in accordance with the Rules, and to the
Financial Intermediaries to whose DTC accounts the related Book-Entry Bonds are
credited.
DTC has advised the Indenture Trustee that, unless and until Definitive
Bonds are issued, DTC will take any action permitted to be taken by a Bondholder
under the Indenture only at the direction of one or more Financial
Intermediaries to whose DTC accounts the Book-Entry Bonds are credited, to the
extent that such actions are taken on behalf of Financial Intermediaries whose
holdings include such Book-Entry Bonds. Cedel or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Bondholder
under the Indenture on behalf of a Cedel Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Bonds that conflict with actions taken with respect to other
Bonds.
Definitive Bonds will be issued in registered form to Bond Owners, or their
nominees, rather than to DTC, only if (i) DTC or the Bond Issuer advises the
Indenture Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as nominee and depositary with respect to the
Bonds and the Bond Issuer or the Indenture Trustee is unable to locate a
qualified successor, (ii) the Bond Issuer, at
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its option, advises the Indenture Trustee that it elects to terminate the
book-entry system through DTC, or (iii) after a Bond Event of Default under the
Indenture, the Bond Owners representing not less than 51% of the Bond Balance of
the Book-Entry Bonds advise the Indenture Trustee and DTC that the book-entry
system is no longer in the best interests of such Bond Owners. Upon issuance of
Definitive Bonds to Bond Owners, such Bonds will be transferable directly (and
not exclusively on a book-entry basis) and registered holders will deal directly
with the Indenture Trustee with respect to transfers, notices and payments. See
"Description of the Securities -- Form of Securities -- General" in the
Prospectus.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all Bond
Owners of the occurrence of such event and the availability through DTC of
Definitive Bonds. Upon surrender by DTC of the global certificates representing
the Book-Entry Bonds and instructions for re-registration, the Indenture Trustee
will issue Definitive Bonds and thereafter the Indenture Trustee will recognize
the holders of such Definitive Bonds as Bondholders under the Indenture.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfer of Bonds among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
ASSIGNMENT OF MORTGAGE LOANS
The Mortgage Loans were originated by ACC or acquired by ACC, as more fully
described herein under the caption "The Originators." On or prior to the date
the Bonds are issued, ACC will convey each Mortgage Loan to the Transferor who
in turn will convey each such Mortgage Loan to the Bond Issuer.
At the time of issuance of the Bonds, the Bond Issuer will pledge all of
its right, title and interest in and to the Initial Mortgage Loans, including
all principal received on or after the applicable Cut-off Dates and all interest
accrued from and including the applicable Cut-off Dates, together with its
right, title and interest in and to the proceeds of any related insurance
policies received on and after the applicable Cut-off Dates, without recourse,
to the Indenture Trustee pursuant to the Indenture as collateral for the Bonds.
The Indenture Trustee, concurrently with such assignment, will authenticate
and deliver the Bonds at the direction of the Bond Issuer in exchange for, among
other things, the Initial Mortgage Loans, the Prefunding Account Deposit and the
amount deposited in the Capitalized Interest Account. Each Initial Mortgage Loan
will be identified in a schedule appearing as an exhibit to the Indenture (the
"Mortgage Loan Schedule") that will provide information about each Mortgage
Loan, including, among other things, its identifying number and the name of the
related Mortgagor, the street address of the related Mortgaged Property, its
date of origination, the original number of months to stated maturity, the
original stated maturity, its original Principal Balance, the applicable Cut-off
Date, its Principal Balance as of the applicable Cut-off Date, its interest rate
as of the applicable Cut-off Date, the manner in which the interest rate is to
be determined and its monthly payment as of the applicable Cut-off Date.
Following the Closing Date, and from time to time on or before April 14,
1997, Additional Mortgage Loans consisting of closed-end, adjustable rate, home
equity mortgage loans may be added to the Mortgage Pool. In connection with each
acquisition of Additional Mortgage Loans, the Indenture Trustee will remit from
the Prefunding Account Deposit an amount of not more than 100% of the principal
balance thereof; the Indenture Trustee may remit an amount less than 100% for
the purpose of increasing the Coverage Amount, but in no event less than the
fair market value of the Additional Mortgage Loans. Each such Additional
Mortgage Loan will be pledged to the Indenture Trustee as of the applicable
Cut-off Date as provided above with respect to the Initial Mortgage Loans and
will be identified in a schedule that conforms to the Mortgage Loan Schedule.
The Indenture will require the Bond Issuer to deliver to the Indenture
Trustee the Mortgage Loans, the related Mortgage Notes endorsed without recourse
to the Indenture Trustee, the related mortgages or deeds of trust with evidence
of recording thereon, the title policies with respect to the related Mortgaged
Properties, all intervening mortgage assignments, if applicable, and certain
other documents relating to the Mortgage Loans
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(the "Mortgage Files"). The Bond Issuer additionally will be required to cause
to be prepared and recorded, within the time period specified in the Indenture
(or, if original recording information is unavailable, within such later period
as is permitted by the Indenture) assignments of the mortgages from the Bond
Issuer to the Indenture Trustee, in the appropriate jurisdictions in which such
recordation is necessary to perfect the lien thereof as against creditors of or
purchasers from the Bond Issuer; provided, however, that if the Bond Issuer
furnishes to the Indenture Trustee an opinion of counsel, or other documentation
acceptable to the Indenture Trustee, to the effect that no such recording is
necessary to perfect the Indenture Trustee's interests in the Mortgage Loans
with respect to one or more jurisdictions, then such recording will not be
required with respect to such jurisdictions.
Because certain of the assignments by the Bond Issuer to the Indenture
Trustee of Mortgage Loans will not be recorded, it may be possible for the Bond
Issuer to transfer such Mortgage Loans to bona fide purchasers for value without
notice, notwithstanding the rights of the Indenture Trustee. However, in most
instances, the Bond Issuer would not be able to deliver the original documents
evidencing the Mortgage Notes or the mortgages because, under the terms of the
Indenture, such documents will be retained in the possession of the Indenture
Trustee, except when released to the Servicer in connection with its servicing
activities. Moreover, a subsequent transferee who failed to obtain delivery of
the original evidence of indebtedness generally would not, in the absence of
special facts, be able to defeat the interests of the Indenture Trustee in a
Mortgage Loan so long as such evidence of indebtedness remained in the
possession of the Indenture Trustee.
The Indenture Trustee will review the Mortgage Files delivered to it within
45 days following such delivery, and if any document required to be included in
any Mortgage File is found to be missing or to be defective in any material
respect and such defect is not cured within 60 days following notification
thereof to the Bond Issuer, the Transferor and ACC by the Indenture Trustee, the
Indenture Trustee will require either that the related Mortgage Loan be removed
from the Mortgage Pool or that a Qualified Replacement Mortgage be substituted
for the related Mortgage Loan in the manner described below.
In connection with the transfer of the Mortgage Loans to the Transferor,
ACC will make certain representations and warranties as to the accuracy in all
material respects of the information set forth on the Mortgage Loan Schedule. In
addition, ACC will make certain other representations and warranties regarding
the Mortgage Loans, including, for instance, that each Mortgage Loan, at its
origination, complied in all material respects with applicable state and federal
laws, that each mortgage is a valid first priority lien, that, as of the
applicable Cut-off Date, no Mortgage Loan had three or more monthly payments
past due, that each Mortgaged Property consists of a one- to four-family
residential property or unit in a condominium or planned unit development, that
ACC had good title to each Mortgage Loan prior to such transfer and that the
Originator was authorized to originate each Mortgage Loan. The rights of the
Transferor to enforce remedies for breaches of such representations and
warranties against ACC will be assigned to the Indenture Trustee pursuant to the
Indenture.
If with respect to any Mortgage Loan (1) a defect in any document
constituting a part of the related Mortgage File remains uncured and materially
and adversely affects the value of any such Mortgage Loan or (2) a breach of any
representation or warranty made by ACC relating to such Mortgage Loan occurs and
such breach materially and adversely affects the value of any such Mortgage
Loan, the Indenture Trustee will enforce the remedies for such defects or
breaches against ACC by requiring ACC to remove the related Mortgage Loan (any
such Mortgage Loan, a "Defective Mortgage Loan") from the Trust Estate by
remitting to the Indenture Trustee an amount equal to its Principal Balance
together with interest accruing at the Mortgage Interest Rate (net of the
applicable Servicing Fee Rate) on such Defective Mortgage Loan from the date
interest was last paid by the related Mortgagor to the end of the Collection
Period immediately preceding the related Deposit Date, less any payments
received during the related Collection Period in respect of such Defective
Mortgage Loan (the "Release Price"). ACC will also have the option, but not the
obligation, to substitute for such Defective Mortgage Loan a Mortgage Loan
conforming to the requirements of the Indenture (a "Qualified Replacement
Mortgage"). Upon delivery of a Qualified Replacement Mortgage and deposit of
certain amounts in the Bond Account as set forth in the Indenture, or deposit of
the Release Price in the Bond Account and receipt by the Indenture Trustee of
written notification of any such substitution or removal, as the case may be,
the Indenture Trustee shall execute and deliver an instrument of
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transfer or assignment necessary to vest legal and beneficial ownership of such
Defective Mortgage Loan (including any property acquired in respect thereof or
proceeds of any insurance policy with respect thereto) in ACC and release such
Defective Mortgage Loan from the Trust Estate.
The obligation of ACC to cure, remove or substitute any Mortgage Loan as
described above will constitute the sole remedy available to Bondholders or the
Indenture Trustee for a Defective Mortgage Loan.
PAYMENTS ON THE BONDS
Payments on the Bonds will be made by the Indenture Trustee (in such
capacity, the "Paying Agent") on each Payment Date, commencing with the Payment
Date in April 1997 to Bondholders as of the Record Date in an amount equal to
the product of such Bondholders' Percentage Interest and the amount paid in
respect of the Bonds. The "Percentage Interest" represented by any Bond will be
equal to the percentage obtained by dividing the aggregate principal balance of
such Bond by the Bond Balance.
On each Payment Date, the Paying Agent will be required to pay the
following amounts, in the following order of priority, out of Available Funds:
(a) to the Financial Guaranty Insurer, an amount equal to the
Financial Guaranty Insurer Premium for such Payment Date and the aggregate
amount necessary to reimburse the Financial Guaranty Insurer for any
unreimbursed payments of Insured Amounts (together with interest thereon)
in respect of the Bonds on prior Payment Dates and the amount of any unpaid
Financial Guaranty Insurer Premium for prior Payment Dates (together with
interest thereon); provided, however, that the Financial Guaranty Insurer
shall be paid such amounts only after Bondholders have received Bond
Interest and any Coverage Deficit with respect to such Payment Date;
(b) to the Bondholders, Bond Interest;
(c) to the Bondholders, the amount of Monthly Principal for the Bonds,
in reduction of the Bond Balance until such Bond Balance is reduced to
zero; and
(d) to the Bondholders, the amount, if any, of Excess Cash in
reduction of the Bond Balance, up to an amount equal to the lesser of (1)
the amount necessary for the Coverage Amount to equal the Required Coverage
Amount on such Payment Date and (2) the amount necessary to reduce the Bond
Balance to zero.
Any Available Funds remaining after application in the manner specified above
will be released to the Bond Issuer.
In the event that, with respect to a particular Payment Date, Available
Funds on such date are not sufficient to pay any portion of Bond Interest, the
Indenture Trustee will make a claim on the Financial Guaranty Insurance Policy
in an amount equal to such deficiency and apply the Insured Amount received in
respect of such claim to the payment of the deficiency in such Bond Interest. In
addition, the Indenture Trustee will make a claim on the Financial Guaranty
Insurance Policy in an amount equal to any Coverage Deficit on a Payment Date
(after taking into account payments in respect of Monthly Principal and Excess
Cash on such Payment Date) and apply the portion of the Insured Amount related
to such Coverage Deficit to reduce the Bond Balance on such Payment Date by the
amount of such Coverage Deficit. Any Insured Amount paid in respect of the Bonds
to make up any Coverage Deficit shall be paid to the Bondholders, in reduction
of the Bond Balance, until such Bond Balance is reduced to zero.
In no event will the aggregate payments of principal to Bondholders exceed
the Original Bond Balance.
"Bond Interest" for any Payment Date will be an amount equal to (a) with
respect to the initial Interest Period, interest for the number of days in the
period commencing on the Closing Date and ending on the day prior to such
Payment Date at the Bond Interest Rate on the Original Bond Balance, and (b)
with respect to any subsequent Interest Period, interest for the number of days
in such Interest Period at the Bond Interest Rate on the Bond Balance as of the
preceding Payment Date (after giving effect to the payment, if any, in reduction
of principal made on the Bonds on such preceding Payment Date).
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All calculations of interest on the Bonds will be computed on the basis of
the actual number of days elapsed in the related Interest Period and in a year
of 360 days.
The "Bond Interest Rate" (i) for the initial Interest Period will be a per
annum rate equal to LIBOR plus 0.20% and will be determined on March 24, 1997,
and (ii) for each subsequent Interest Period will be a per annum rate equal to
the lesser of (x) for each Interest Period ending prior to the Pool Redemption
Date, LIBOR plus 0.20%, and, for each Interest Period thereafter, LIBOR plus
0.40% and (y) the Adjustable Rate Cap. The "Adjustable Rate Cap" will be, with
respect to any Payment Date, the per annum rate equal to the percentage obtained
by (I) dividing (x) an amount equal to the aggregate of the interest portions of
each of the monthly payments due on the Mortgage Loans during the related
Collection Period, reduced by the sum of (i) the Servicing Fee with respect to
the Mortgage Loans for such Collection Period, (ii) the Financial Guaranty
Insurer Premium for such Payment Date, and (iii) in the case of each Payment
Date occurring after the Payment Date in September 1997, an amount equal to
one-twelfth ( 1/12) of 100 basis points multiplied by the Aggregate Principal
Balance of the Mortgage Loans as of the end of such Collection Period, by (y)
the product of (i) the Bond Balance as of the first day of such Interest Period
and (ii) the actual number of days elapsed during such Interest Period divided
by 360 and (II) multiplying the result by 100.
"LIBOR" shall mean the London interbank offered rate for one-month United
States dollar deposits. LIBOR for each Interest Period shall be determined on
the second business day preceding the first day of any Interest Period (each, a
"LIBOR Determination Date"), on the basis of the offered rates of the Reference
Banks for one-month United States dollar deposits, as such rates appear on the
Reuters Screen LIBO Page, as of 11:00 a.m. (London time) on such LIBOR
Determination Date. As used in this paragraph, "business day" means a day on
which banks are open for dealing in foreign currency and exchange in London and
New York City; "Reuters Screen LIBO Page" means the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks); and "Reference Banks" means leading
banks selected by the Indenture Trustee and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) whose quotations appear on the
Reuters Screen LIBO Page on the LIBOR Determination Date in question, (iii)
which have been designated as such by the Indenture Trustee and (iv) not
controlling, controlled by or under common control with the Bond Issuer or any
Originator.
On each LIBOR Determination Date, LIBOR will be established by the
Indenture Trustee as follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR shall be the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of
such offered quotations.
(b) If on such LIBOR Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR shall be the greater of (x) LIBOR as
determined on the previous LIBOR Determination Date and (y) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum that
the Indenture Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of
the one-month U.S. dollar lending rates which New York City banks selected
by the Indenture Trustee are quoting on the relevant LIBOR Determination
Date to the principal London offices of leading banks in the London
interbank market or, in the event that the Indenture Trustee can determine
no such arithmetic mean, (ii) the lowest one-month U.S. dollar lending rate
which New York City banks selected by the Indenture Trustee are quoting on
such LIBOR Determination Date to leading European banks.
The establishment of LIBOR on each LIBOR Determination Date by the
Indenture Trustee and the Indenture Trustee's calculation of the Bond Interest
Rate for the related Interest Period shall (in the absence of manifest error) be
final and binding. Each such rate of interest may be obtained by telephoning the
Indenture Trustee at (800) 735-7777.
The "Bond Balance" will equal, as of any Payment Date, the Original Bond
Balance less all Monthly Principal and Excess Cash paid to the Bondholders on
previous Payment Dates in reduction of the Bond
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Balance (exclusive, for the sole purpose of effecting the Financial Guaranty
Insurer's subrogation rights, of payments made by the Financial Guaranty Insurer
in respect of any Coverage Deficit under the Financial Guaranty Insurance
Policy, except to the extent reimbursed to the Financial Guaranty Insurer
pursuant to the Indenture).
"Monthly Principal" for any Payment Date will be an amount equal to (A) the
aggregate of (i) any Principal Payments received in respect of the Mortgage
Loans during or in respect of the related Collection Period, (ii) Net
Liquidation Proceeds and Insurance Proceeds allocable to principal recovered or
collected in respect of the Mortgage Loans during the related Collection Period,
(iii) the aggregate of the amounts allocable to principal deposited in the Bond
Account on the related Deposit Date by the Bond Issuer, the Transferor, the
Servicer or the Financial Guaranty Insurer in connection with a release, removal
or substitution of any Mortgage Loans pursuant to the Indenture, and (iv) with
respect to the first Payment Date, the amount, if any, of the Prefunding Account
Deposit that is not applied for the acquisition of Additional Mortgage Loans
during the Funding Period, reduced by (B) the amount of any Coverage Surplus
with respect to such Payment Date.
The "Principal Balance" of a Mortgage Loan with respect to any
Determination Date is the actual outstanding principal balance thereof as of the
close of business on the Determination Date in the preceding month (or, in the
case of the first Payment Date, as of the applicable Cut-off Date), less (i) any
Principal Payments received in respect of such Mortgage Loan during the related
Collection Period, (ii) Net Liquidation Proceeds and Insurance Proceeds
allocable to principal recovered or collected in respect of such Mortgage Loan
during the related Collection Period, (iii) the portion of the Release Price
allocable to principal remitted by the Bond Issuer, the Transferor, the Servicer
or the Financial Guaranty Insurer to the Indenture Trustee on the next
succeeding Deposit Date in connection with a release, removal or substitution of
such Mortgage Loan pursuant to the Indenture, to the extent such amount is
actually remitted on such Deposit Date, (iv) the amount to be remitted by the
Bond Issuer to the Indenture Trustee on the next succeeding Deposit Date in
connection with a substitution of a Qualified Replacement Mortgage for such
Mortgage Loan pursuant to the Indenture, to the extent such amount is actually
remitted on such Deposit Date and (v) the amount to be remitted by the Financial
Guaranty Insurer to the Indenture Trustee on the next succeeding Deposit Date in
connection with obtaining a release to the Financial Guaranty Insurer of such
Mortgage Loan pursuant to the Indenture; provided, however, that Mortgage Loans
that have become Liquidated Mortgage Loans since the preceding Determination
Date (or, in the case of the first Determination Date, since the applicable
Cut-off Dates) will be deemed to have a Principal Balance of zero on the current
Determination Date.
"Determination Date" means, as to any Payment Date, the last day of the
calendar month immediately preceding the calendar month in which such Payment
Date occurs.
"Principal Payment" means, as to any Mortgage Loan and Collection Period,
all amounts received or, in the case of the principal portion of any Payment
Ahead, deemed to have been received by the Servicer from or on behalf of the
related Mortgagor during such Collection Period which, at the time of receipt
or, in the case of any Payment Ahead, at the time such Payment Ahead is deemed
to have been received, were applied or were required to be applied by the
Servicer in reduction of the Principal Balance of such Mortgage Loan.
"Payment Ahead" means any payment of one or more scheduled monthly payments
remitted by a Mortgagor with respect to a Mortgage Note in excess of the
scheduled monthly payment due during such Collection Period with respect to such
Mortgage Note, which sums the related Mortgagor has instructed the Servicer to
apply to scheduled monthly payments due in one or more subsequent Collection
Periods.
"Principal Prepayment" means any Mortgagor payment or other recovery in
respect of principal on a Mortgage Loan (including Net Liquidation Proceeds)
which, in the case of a Mortgagor payment, is received in advance of its
scheduled due date and is not accompanied by an amount as to interest
representing scheduled interest for any month subsequent to the month of such
payment, or that was accompanied by instructions from the related Mortgagor
directing the Servicer to apply such payment to the Principal Balance of such
Mortgage Loan currently.
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"Liquidated Mortgage Loan" means, as to any Payment Date, any Mortgage Loan
as to which the Servicer has determined during the related Collection Period, in
accordance with its customary servicing procedures, that all Liquidation
Proceeds which it expects to recover from or on account of such Mortgage Loan
have been recovered.
"Available Funds" with respect to any Payment Date will consist of the sum
of the amounts described in clauses (a) through (j) below, less (i) the
Servicing Fee in respect of the related Collection Period, (ii) Monthly Advances
and Servicing Advances previously made that are reimbursable to the Servicer
(other than those included in liquidation expenses for any Liquidated Mortgage
Loan and reimbursed from the related Liquidation Proceeds) in such Collection
Period to the extent permitted by the Indenture and (iii) the aggregate amounts
(A) deposited into the Collection Account or Bond Account that may not be
withdrawn therefrom pursuant to a final and nonappealable order of a United
States bankruptcy court of competent jurisdiction imposing a stay pursuant to
Section 362 of the United States Bankruptcy Code and that would otherwise have
been included in Available Funds on such Payment Date and (B) received by the
Indenture Trustee that are recoverable and sought to be recovered from the Bond
Issuer as a voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code in accordance with a final nonappealable order of
a court of competent jurisdiction:
(a) the total amount of interest payments on or in respect of the
Mortgage Loans received by or on behalf of the Servicer during the related
Collection Period, net of amounts representing interest accrued on such
Mortgage Loans in respect of any period prior to the applicable Cut-off
Dates, plus any Compensating Interest Payments made by the Servicer in
respect of the related Mortgage Loans and any net income from related REO
Properties for such Collection Period;
(b) all Principal Payments received or deemed to be received during
the related Collection Period in respect of the Mortgage Loans;
(c) the aggregate of any proceeds from or in respect of any policy of
insurance covering a Mortgage Loan that are received during the related
Collection Period and applied by the Servicer to reduce the Principal
Balance of the related Mortgage Loan ("Insurance Proceeds") (which proceeds
will not include any amounts applied to the restoration or repair of the
related Mortgaged Property or released to the related Mortgagor in
accordance with applicable law, the Servicer's customary servicing
procedures or the terms of the related Mortgage Loan);
(d) the aggregate of any other proceeds received by the Servicer
during the related Collection Period in connection with the liquidation of
any Mortgaged Property securing a Mortgage Loan, whether through trustee's
sale, foreclosure, condemnation, taking by eminent domain or otherwise
(including any insurance proceeds to the extent not duplicative of amounts
in clause (c) above) ("Liquidation Proceeds"), less expenses incurred by
the Servicer in connection with the liquidation of such Mortgage Loan ("Net
Liquidation Proceeds");
(e) the aggregate of the amounts received in respect of any Mortgage
Loans that are required or permitted to be released, removed or substituted
by ACC or the Servicer, as the case may be, during the related Collection
Period as described in "-- Assignment of Mortgage Loans" and "Servicing of
the Mortgage Loans" herein, to the extent such amounts are received by the
Indenture Trustee on or before the related Deposit Date;
(f) the amount of any Monthly Advances made for such Payment Date;
(g) the aggregate of amounts deposited in the Bond Account by the Bond
Issuer, the Servicer or the Financial Guaranty Insurer, as the case may be,
during such Collection Period in connection with redemption of the Bonds as
described under "-- Redemption of the Bonds" herein;
(h) in the case of the April 1997 Payment Date, amounts, if any,
remaining in the Prefunding Account and the Capitalized Interest Account
immediately prior to such Payment Date (in each case net of reinvestment
income payable to the Bond Issuer);
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(i) in the case of the April 1997 Payment Date, amounts deposited by
the Bond Issuer representing 30 days of interest, computed at the related
Mortgage Interest Rate, on each Initial Mortgage Loan that does not have a
monthly payment due in the Collection Period relating to such Payment Date;
and
(j) in the case of the May 1997 Payment Date, amounts deposited by the
Bond Issuer representing 30 days of interest, computed at the related
Mortgage Interest Rate, on each Mortgage Loan that does not have a monthly
payment due in the Collection Period relating to such Payment Date.
BOND ACCOUNT
Pursuant to the Indenture, the Indenture Trustee shall establish and
maintain an account (the "Bond Account") from which all payments with respect to
the Bonds will be made. As described below, not later than the Deposit Date, the
Servicer will be required pursuant to the Servicing Agreement to wire transfer
to the Indenture Trustee for deposit in the Bond Account the sum (without
duplication) of all amounts on deposit in the Collection Account that constitute
any portion of Available Funds for the related Payment Date. See "Description of
Securities -- Distributions and Payments on Securities -- Available Funds" in
the Prospectus.
All amounts held in the Bond Account will be required to be in Permitted
Investments that mature not later than the date which is one business day prior
to the Deposit Date for the related Payment Date next succeeding the date of
investment. See "-- Investment of Bond Account" and "-- Permitted Investments"
below. Investment income on monies on deposit in the Bond Account will not be
available for payment to Bondholders or otherwise subject to any claims or
rights of the Bondholders and will be released from the Trust Estate and paid to
Bond Issuer. The Bond Issuer will be liable for any losses resulting from such
investments.
Investment of Bond Account. All or a portion of the Bond Account may be
invested and reinvested in one or more Permitted Investments bearing interest or
sold at a discount. The Indenture Trustee or any affiliate thereof may be the
obligor on any investment in the Bond Account which otherwise qualifies as a
Permitted Investment. No investment in the Bond Account may mature later than
the business day preceding the Payment Date.
The Indenture Trustee will not in any way be held liable by reason of any
insufficiency in any Bond Account resulting from any loss on any Permitted
Investment included therein (except to the extent the Indenture Trustee is the
obligor thereon).
All income or other gain from investments in the Bond Account will be held
in the Bond Account for the benefit of the Bond Issuer and will be subject to
withdrawal from time to time as permitted by the Indenture. Any loss resulting
from such investments will be for the account of the Bond Issuer. The Bond
Issuer will be required to deposit the amount of any such loss immediately upon
the realization of such loss to the extent such loss will not be offset by other
income or gain from investments in the Bond Account and then available for such
application.
Permitted Investments. The Indenture will define "Permitted Investments"
generally as follows:
(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States, the timely payment
or the guarantee of which constitutes a full faith and credit obligation of
the United States.
(b) Federal Housing Administration debentures, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption or which are not rated in one of the
two highest categories by each Rating Agency.
(c) Federal Home Loan Mortgage Corporation senior debt obligations,
but excluding any such securities whose terms do not provide for payment of
a fixed dollar amount upon maturity or call for redemption or which are not
rated in one of the two highest categories by each Rating Agency.
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(d) Federal National Mortgage Association senior debt obligations, but
excluding any such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption or which are not
rated in one of the two highest categories by each Rating Agency.
(e) Federal funds, certificates of deposit, time and demand deposits,
and bankers' acceptances (having original maturities of not more than 365
days) of any domestic bank or trust company, the short-term debt
obligations of which have been assigned a minimum rating specified in the
Indenture by the applicable Rating Agency.
(f) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $100,000,000
which deposits are not in excess of the applicable limits insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation, provided that the long-term deposits
of such bank or savings and loan association are assigned a minimum rating,
if any, specified in the Indenture by the applicable Rating Agency.
(g) Commercial paper (having original maturities of not more than 180
days) assigned a minimum rating specified in the Indenture by the
applicable Rating Agency.
(h) Investments in money market funds assigned a minimum rating
specified in the Indenture by the applicable Rating Agency.
(i) Other investments acceptable to the applicable Rating Agency and
the Financial Guaranty Insurer.
No instrument described above is permitted to evidence either the right to
receive (a) only interest with respect to obligations underlying such instrument
or (b) both principal and interest payments derived from obligations underlying
such instrument and the interest and principal payments with respect to such
instrument provided a yield to maturity at par greater than 120% of the yield to
maturity at par of the underlying obligations, and no instrument described above
may be purchased at a price greater than par if such instrument may be prepaid
or called at a price less than its purchase price prior to stated maturity.
PREFUNDING ACCOUNT
On the Closing Date, the Bond Issuer will deposit cash in the aggregate
amount of approximately $82,720,605 (the "Prefunding Account Deposit") in the
Prefunding Account, which account will be part of the Trust Estate and will be
maintained with the Indenture Trustee in its corporate trust. The Prefunding
Account Deposit may be increased by an amount equal to the aggregate of the
principal balances of any mortgage loans removed from the Mortgage Pool prior to
the Closing Date, provided that any such increase shall not exceed $10,000,000.
During the Funding Period, the amount on deposit in the Prefunding Account will
be allocated for the acquisition of Additional Mortgage Loans from the Bond
Issuer in accordance with the applicable provisions of the Indenture. The
Additional Mortgage Loans will be acquired or originated by ACC and conveyed to
the Transferor from time to time during the Funding Period. The Transferor will
in turn convey the Additional Mortgage Loans to the Bond Issuer, which will
pledge such Additional Mortgage Loans under the Indenture. Additional Mortgage
Loans acquired and added to the Trust Estate on any Subsequent Transfer Date
must be approved by the Financial Guaranty Insurer. On the Payment Date in April
1997, any amount remaining on deposit in the Prefunding Account and not applied
to acquire Additional Mortgage Loans during the Funding Period will be paid in
reduction of the Bond Balance. Although it is intended that the principal amount
of Additional Mortgage Loans transferred to the Mortgage Pool will require
application of substantially all of the Prefunding Account Deposit and it is not
currently anticipated that there will be any material amount of principal
payments from amounts remaining on deposit in the Prefunding Account in
reduction of the Bond Balance, no assurance can be given that such a payment
will not occur on the Payment Date in April 1997. In any event, it is unlikely
that the Bond Issuer will be able to acquire Additional Mortgage Loans with
aggregate principal balances that exactly equal the Prefunding Account Deposit.
Any portion of the Prefunding Account Deposit that is not applied to acquire
Additional Mortgage Loans during the Funding Period will be paid on the April
1997 Payment Date in reduction of the Bond Balance, thereby reducing the
weighted average lives of such Bonds.
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Amounts remaining on deposit in the Prefunding Account after the
acquisition of the Additional Mortgage Loans will be invested in Permitted
Investments as defined in the Indenture. Permitted Investments are required to
mature as may be necessary for the acquisition of Additional Mortgage Loans on
any Subsequent Transfer Date no later than the business day prior to the related
Subsequent Transfer Date and, in any case, no later than the business day prior
to the April 1997 Payment Date. All interest and any other investment earnings
on amounts on deposit in the Prefunding Account will be released to the Bond
Issuer on the April 1997 Payment Date. The Bond Issuer will be liable for any
losses resulting from such investments.
All Additional Mortgage Loans acquired from application of amounts on
deposit in the Prefunding Account shall be part of the Trust Estate from and
after the date of acquisition thereof.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date, the Bond Issuer will deposit cash into the Capitalized
Interest Account, which account will be part of the Trust Estate and will be
maintained with the Indenture Trustee in its corporate trust department. The
amount on deposit in the Capitalized Interest Account will be specifically
allocated to cover shortfalls in interest on the Bonds that may arise as a
result of the utilization of the Prefunding Account for the acquisition of
Additional Mortgage Loans during the Funding Period and will be so applied by
the Indenture Trustee on the April 1997 Payment Date. In the unlikely event that
the full amount allocated to cover interest shortfalls in respect of the Bonds
is not required for such purpose, the amount remaining (net of reinvestment
income payable to the Bond Issuer) will be deposited in the Bond Account and
will be part of Available Funds.
Amounts on deposit in the Capitalized Interest Account will be invested in
Permitted Investments as defined in the Indenture. All such Permitted
Investments are required to mature no later than the business day prior to the
April 1997 Payment Date as specified in the Indenture. All interest and any
other investment earnings on amounts on deposit in the Capitalized Interest
Account will be released to the Bond Issuer on the April 1997 Payment Date. The
Bond Issuer will be liable for any losses resulting from such investments.
OVERCOLLATERALIZATION FEATURE
Credit enhancement with respect to the Bonds initially will be provided in
part by overcollateralization resulting from the sum of the Initial Cut-off Date
Pool Balance and the Prefunding Account Deposit exceeding the Original Bond
Balance, which is expected to be supplemented by the application of Excess Cash
on each Payment Date so that over time such overcollateralization will increase.
Such overcollateralization is intended to result in receipts, collections and
recoveries on the Mortgage Loans in excess of the amount necessary to pay Bond
Interest required to be paid on the Bonds on any Payment Date and to reduce the
Bond Balance to zero no later than the Final Maturity Date of the Bonds. Excess
Cash will be paid in reduction of the Bond Balance on each Payment Date up to
the amount necessary for the related Coverage Amount to equal the Required
Coverage Amount for such Payment Date.
The "Excess Cash" on any Payment Date will be equal to Available Funds for
such Payment Date, reduced by (i) the amount of Bond Interest for such Payment
Date, (ii) the Monthly Principal for such Payment Date, (iii) the Financial
Guaranty Insurer Premium with respect to such Payment Date, (iv) any amounts
payable to the Financial Guaranty Insurer for unreimbursed Insured Amounts paid
on prior Payment Dates and (v) any amounts payable to the Financial Guaranty
Insurer for unpaid Financial Guaranty Insurer Premiums from prior Payment Dates.
The "Coverage Amount" with respect to any Payment Date is the amount, if
any, by which (x) the Aggregate Principal Balance of the Mortgage Loans as of
the end of the related Collection Period (plus, in the case of the April 1997
Payment Date, the aggregate of the Principal Balances of any Additional Mortgage
Loans added to the Mortgage Pool after March 31, 1997 but prior to the end of
the Funding Period) exceeds (y) the Bond Balance as of such Payment Date after
taking into account payments of Monthly Principal (disregarding any permitted
reduction in Monthly Principal due to a Coverage Surplus) made on such Payment
Date. The required level of the Coverage Amount with respect to any Payment Date
(the "Required Coverage Amount") will be equal to the amount specified as such
in the Indenture. The Indenture will
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provide that the applicable Required Coverage Amount may increase or decrease
during the period the Bonds remain outstanding. If on any Payment Date occurring
after April 1997, the amount of Excess Cash payable on the Bonds is less than an
amount specified in the Indenture, the Required Coverage Amount will be
increased (any such Payment Date, a "Trigger Event Date"); provided, however,
that upon the satisfaction of certain cash flow requirements in respect of the
Bonds as specified in the Indenture, such Required Coverage Amount will return
to its original level. Any increase in the applicable Required Coverage Amount
(including an increase required on a Trigger Event Date) may result in an
accelerated amortization of the Bonds until such Required Coverage Amount is
reached. Conversely, any decrease in the Required Coverage Amount will result in
a decelerated amortization of the Bonds until such Required Coverage Amount is
reached.
The application of Excess Cash to reduce the Bond Balance on any Payment
Date will have the effect of accelerating the amortization of the Bonds relative
to the amortization of the Mortgage Loans in the Trust Estate.
In the event that the Required Coverage Amount is permitted to decrease or
"step down " on any Payment Date in the future, the Indenture will provide that
all or a portion of the Excess Cash that would otherwise be paid to the Bonds on
any such Payment Date in reduction of the Bond Balance will be released to the
Bond Issuer. This may have the effect of decelerating the amortization of the
Bonds relative to the amortization of the related Mortgage Loans, and of
reducing the related Coverage Amount.
With respect to any Payment Date, a "Coverage Surplus" means, the amount,
if any, by which (x) the Coverage Amount for such Payment Date exceeds (y) the
then applicable Required Coverage Amount for such Payment Date. As a technical
matter, a Coverage Surplus may result even prior to the occurrence of any
decrease or "step down" in the Required Coverage Amount because the Bonds will
be entitled to receive 100% of collected principal on the Mortgage Loans, even
though the Bond Balance will, as a result of the initial overcollateralization
and the accelerated amortization caused by the application of the Excess Cash,
be less than the Aggregate Principal Balance of the Mortgage Loans, in the
absence of any Realized Losses on the Mortgage Loans.
The Indenture will provide that, on any Payment Date, all amounts collected
on the Mortgage Loans in respect of principal during the applicable Collection
Period will be paid to Bondholders in reduction of the Bond Balance on such
Payment Date, except as provided above with respect to any Payment Date for
which there exists a Coverage Surplus. If any Mortgage Loan became a Liquidated
Mortgage Loan during such prior Collection Period, the Net Liquidation Proceeds
related thereto and allocated to principal may be less than the Principal
Balance of the related Mortgage Loan; the amount of any such deficiency is a
"Realized Loss." In addition, the Indenture will provide that the Principal
Balance of any Mortgage Loan that becomes a Liquidated Mortgage Loan shall equal
zero. The Indenture will not require that the amount of any Realized Loss be
paid to Bondholders on the Payment Date following the event of loss. However,
the occurrence of a Realized Loss will reduce the Coverage Amount for the Bonds,
and will result in more Excess Cash, if any, being paid on the Bonds in
reduction of the Bond Balance on subsequent Payment Dates than would be the case
in the absence of such Realized Loss.
Overcollateralization and the Financial Guaranty Insurance Policy. The
Indenture will require the Indenture Trustee to make a claim for an Insured
Amount under the Financial Guaranty Insurance Policy not later than 12:00 noon
(New York City time) on the second business day prior to any Payment Date as to
which the Indenture Trustee has determined that a Coverage Deficit with respect
to the Bonds will occur for the purpose of applying the proceeds of such Insured
Amount as a payment of principal to the Bondholders on such Payment Date. With
respect to any Payment Date, a "Coverage Deficit" will mean the amount, if any,
by which (x) the Bond Balance, after taking into account all payments to be made
on such Payment Date in reduction thereof, including any Excess Cash payments,
exceeds (y) the sum of Aggregate Principal Balance of the Mortgage Loans as of
the end of the applicable Collection Period (plus, in the case of the April 1997
Payment Date, the aggregate of the Principal Balances of any Additional Mortgage
Loans added to the Mortgage Pool after March 31, 1997 but prior to the end of
the Funding Period). Accordingly, the Financial Guaranty Insurance Policy is
similar to the provisions described above insofar as the Financial Guaranty
Insurance Policy guarantees ultimate collection of the full amount of the Bond
Balance, rather than current
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payments of the amounts of any Realized Losses to the Bondholders. INVESTORS IN
THE BONDS SHOULD REALIZE THAT, UNDER CERTAIN LOSS OR DELINQUENCY SCENARIOS, THEY
MAY TEMPORARILY RECEIVE NO PAYMENTS IN REDUCTION OF THE BOND BALANCE.
REPORTS TO BONDHOLDERS
Concurrently with each payment to Bondholders, the Indenture Trustee will
mail a statement to each Bondholder in the form required by the Indenture and
setting forth the following information:
(a) the amount of such payment to the Bondholders allocable to (i)
Monthly Principal and (ii) any Excess Cash payment;
(b) the amount of such payment to the Bondholders allocable to Bond
Interest;
(c) the Bond Balance after giving effect to the payment of Monthly
Principal and any Excess Cash applied to reduce the Bond on such Payment
Date;
(d) the Aggregate Principal Balance of the Mortgage Loans as of the
end of the related Collection Period;
(e) the amount of unreimbursed Monthly Advances and/or Servicing
Advances, if any;
(f) the number and the aggregate of the Principal Balances of the
Mortgage Loans delinquent (i) one month, (ii) two months and (iii) three or
more months as of the end of the related Collection Period;
(g) the aggregate of the Principal Balances of the Mortgage Loans in
foreclosure or other similar proceedings and the book value of any real
estate acquired through foreclosure or grant of a deed in lieu of
foreclosure;
(h) the Insured Amount, if any, relating to the Bonds and such Payment
Date;
(i) the amount of the Servicing Fee paid to or retained by the
Servicer for the related Collection Period; and
(j) the Coverage Amount, the then applicable Required Coverage Amount,
the Coverage Surplus, if any, and the Coverage Deficit, if any.
In the case of information furnished pursuant to clauses (a) and (b) above,
the amounts shall be expressed as a dollar amount per Bond with a $1,000
principal denomination.
Within 90 days after the end of each calendar year, the Indenture Trustee
will mail to each person who at any time during such calendar year was a
Bondholder and to the Underwriters a statement containing the information set
forth in clauses (a) and (b) above, aggregated for such calendar year or, in the
case of each person who was a Bondholder for a portion of such calendar year,
setting forth such information for each month thereof.
THE FINANCIAL GUARANTY INSURANCE POLICY
The Financial Guaranty Insurer will issue a Financial Guaranty Insurance
Policy in favor of the Indenture Trustee for the benefit of the Bondholders. The
Financial Guaranty Insurance Policy unconditionally and irrevocably guarantees
payment of Bond Interest and any Coverage Deficit in respect of the Bonds on
each Payment Date.
In the event that, on any Payment Date, (i) Available Funds are less than
the full amount of Bond Interest for such Payment Date or (ii) a Coverage
Deficit exists for the Bonds, the Indenture Trustee will make a claim on the
Financial Guaranty Insurance Policy for payment of: (a) an amount equal to the
amount necessary to pay the full amount of Bond Interest on such Payment Date
and (b) an amount equal to any such Coverage Deficit (the amount of any
shortfalls in Bond Interest, together with any Coverage Deficit with respect to
any Payment Date, is the "Insured Amount"). The Financial Guaranty Insurer will
be obligated to
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pay to the Indenture Trustee on each Payment Date the full amount of the Insured
Amount under the Financial Guaranty Insurance Policy for such Payment Date. See
"The Financial Guaranty Insurance Policy and the Financial Guaranty Insurer"
herein.
Any portion of an Insured Amount paid to the Bondholders will be allocated
first to make up any shortfall on such Payment Date in Bond Interest and second
to make up any Coverage Deficit on such Payment Date. Any Insured Amount paid in
respect of the Bonds to make up any shortfall in Bond Interest shall be paid pro
rata to the Bondholders in proportion to the shortfall in Bond Interest payable
to such Bondholders. Any Insured Amount paid in respect of the Bonds to make up
any Coverage Deficit shall be paid pro rata to the Bondholders in proportion to
their Bond Balance in reduction of the Bond Balance until the Bond Balance is
reduced to zero.
The Financial Guaranty Insurer will be subrogated to the rights of
Bondholders to receive any payments on the Bonds for which the Financial
Guaranty Insurer paid Insured Amounts that were not subsequently reimbursed
together with interest thereon; provided, however, that the Financial Guaranty
Insurer is not entitled to reimbursement on any Payment Date for previously paid
Insured Amounts or to interest thereon unless the Bondholders will receive the
full amount of the applicable Bond Interest on such Payment Date and no Coverage
Deficit exists with respect to the Bonds.
THE FINANCIAL GUARANTY INSURER PREMIUM
The Financial Guaranty Insurer will be entitled to receive a monthly
premium (the "Financial Guaranty Insurer Premium") payable out of Available
Funds on each Payment Date. The Financial Guaranty Insurer Premium as of any
Payment Date will equal one-twelfth ( 1/12) of the product of the applicable
Insurer Premium Rate and the Bond Balance for such Payment Date. The "Insurer
Premium Rate" will be 0.18%; provided, however, that with respect to each
Payment Date commencing with the Payment Date immediately following the Pool
Redemption Date, if the Coverage Amount is less than the then applicable
Required Coverage Amount as of the immediately preceding Payment Date, the
Insurer Premium Rate with respect to such Payment Date shall be equal to 0.68%.
See "-- Payments on the Bonds" herein.
REDEMPTION OF THE BONDS
The Bonds will be subject to redemption, in whole but not in part, at the
option of the Bond Issuer, on or after the Payment Date on which the Bond
Balance is less than 20% of the Original Bond Balance. The Servicer may also
cause the redemption of the Bonds by exercising its right to purchase all
Mortgage Loans from the Indenture Trustee on or after the Payment Date on which
the Aggregate Principal Balance of the Mortgage Loans in the Mortgage Pool has
declined to less than 10% of the sum of the Initial Cut-off Date Pool Balance
and the Prefunding Account Deposit (the "Pool Redemption Date").
In addition, the Financial Guaranty Insurer may effect a redemption of the
Bonds by exercising its right to purchase all Mortgage Loans from the Indenture
Trustee on any Payment Date on which Mortgage Loans having Principal Balances as
of the applicable Cut-off Dates aggregating an amount equal to or in excess of
25% of the sum of the Initial Cut-off Date Pool Balance and the Prefunding
Account Deposit have become Liquidated Mortgage Loans.
The Bonds will be redeemed at a redemption price of 100% of the then
outstanding Bond Balance thereof plus accrued but unpaid interest thereon
through the end of Interest Period immediately preceding the related Payment
Date. There will be no prepayment premium in connection with such a redemption.
Notice of an optional redemption of the Bonds must be mailed by the Indenture
Trustee to the Bondholders at least ten days prior to the Payment Date set for
such redemption.
The payment on the final Payment Date in connection with the redemption of
the Bonds shall be in lieu of the payment otherwise required to be made on such
Payment Date in respect of the Bonds.
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PAYMENTS TO THE BOND ISSUER
On each Payment Date, any portion of Available Funds remaining after making
payments of interest and principal due on the Bonds and other distributions
required on such Payment Date will be released to the Bond Issuer, free of the
lien of the Indenture. Such amounts will not be available to make payments on
the Bonds on any subsequent Payment Date.
THE INDENTURE TRUSTEE
Bankers Trust Company of California, N.A., a national banking association,
will be the Indenture Trustee under the Indenture. The Indenture will provide
that the Indenture Trustee is entitled to certain fees and reimbursement of
expenses.
The Indenture also will provide that the Indenture Trustee may resign at
any time, upon notice to the Bond Issuer, the Servicer and any Rating Agency, in
which event the Bond Issuer will be obligated to appoint a successor Indenture
Trustee. The Bond Issuer may remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to continue as such under the Indenture or if the
Indenture Trustee becomes insolvent. Any resignation or removal of the Indenture
Trustee and appointment of a successor Indenture Trustee will not become
effective until acceptance of the appointment by the successor Indenture
Trustee. The Indenture will provide that the Indenture Trustee is under no
obligation to exercise any of the rights or powers vested in it by the Indenture
at the request or direction of any of the Bondholders, unless such Bondholders
shall have offered to the Indenture Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction. The Indenture Trustee may execute any
of the rights or powers granted by the Indenture or perform any duties
thereunder either directly or by or through agents or attorneys, and the
Indenture Trustee is responsible for any misconduct or negligence on the part of
any agent or attorney appointed and supervised with due care by it thereunder.
Pursuant to the Indenture, the Indenture Trustee is not liable for any action it
takes or omits to take in good faith which it reasonably believes to be
authorized by an authorized officer of any person or within its rights or powers
under the Indenture. The Indenture Trustee and any director, officer, employee
or agent of the Indenture Trustee may rely and will be protected in acting or
refraining from acting in good faith in reliance on any certificate, notice or
other document of any kind prima facie properly executed and submitted by the
authorized officer of any person respecting any matters arising under the
Indenture.
VOTING
Unless otherwise specified in the Indenture, with respect to any provisions
of the Indenture providing for the action, consent or approval of the
Bondholders evidencing specified "Voting Interests", each Bondholder will have a
Voting Interest equal to the Percentage Interest represented by such
Bondholder's Bond. Any Bond registered in the name of the Bond Issuer or any
affiliate thereof will be deemed not to be outstanding and the Percentage
Interest evidenced thereby shall not be taken into account in determining
whether the requisite amount of Voting Interests necessary to take any such
action, or effect any such consent, has been obtained.
BOND EVENTS OF DEFAULT
See "The Indenture -- Bond Events of Default" in the Prospectus for a
description of the circumstances under which a default on the Bonds may occur.
In addition to those Bond Events of Default specified in the Prospectus, a
default on the Bonds may also occur if on any Payment Date, after taking into
account all payments made in respect of principal on the Bonds and the payment
of any Insured Amounts on such Payment Date, a Coverage Deficit exists with
respect to the Bonds. See "The Indenture -- Rights upon Bond Events of Default"
in the Prospectus for a description of the rights of Bondholders in connection
with any Bond Event of Default. In the absence of a failure by the Financial
Guaranty Insurer to pay Insured Amounts, no acceleration of the maturity of the
Bonds shall be permitted without the consent of the Financial Guaranty Insurer.
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THE BOND ISSUER
The Bond Issuer is a Delaware business trust established by the Transferor
pursuant to the Trust Agreement. After the Closing Date, substantially all of
the beneficial ownership interest in the Bond Issuer will be held by ACC. The
Transferor will retain only a negligible interest in the Bond Issuer after the
Closing Date, but will have primary responsibility for managing the affairs and
operations of the Bond Issuer. The principal office of the Bond Issuer is
located in Los Angeles, California. The Bond Issuer does not have, nor is it
expected in the future to have, any significant assets, other than the assets
included in the Trust Estate.
THE MORTGAGE LOANS
GENERAL
The following is a brief description of certain terms of the Initial
Mortgage Loans based on the Initial Mortgage Loans as of the Statistical
Calculation Date. Certain mortgage loans may prepay in full or be removed, prior
to the Closing Date, from the Mortgage Pool as described herein, in which case
an amount equal to the aggregate principal balances of such mortgage loans, but
in no event more than $10,000,000, will be added to the Prefunding Account
Deposit on the Closing Date. The statistical information presented below does
not take into account any amortization of the Initial Mortgage Loans prior to
the Closing Date or any Additional Mortgage Loans that may be added to the
Mortgage Pool during the Funding Period. As a result, the statistical
information presented below regarding the Initial Mortgage Loans set forth
herein may vary from comparable information based on the actual composition of
the Mortgage Pool at the Closing Date.
The information expressed below as a percentage of the Initial Pool Balance
may not total 100% due to rounding.
None of the Mortgage Loans is or will be insured or guaranteed by the Bond
Issuer, ACC, AFC, the Transferor, the Servicer, the Indenture Trustee, any
Originator or any of their respective affiliates, or by any governmental agency
or other person.
A schedule of the Initial Mortgage Loans as of the Closing Date will be
attached to the Indenture delivered to the Indenture Trustee upon delivery of
the Bonds. A Current Report on Form 8-K containing a description of the Mortgage
Loans included in the final Mortgage Pool as of the end of the Funding Period in
a form comparable to the description of the Initial Mortgage Loans contained in
"ANNEX A: Description of the Mortgage Pool" will be filed with the Commission
within 15 days after the expiration of the Funding Period.
For a more detailed description of certain characteristics of the Initial
Mortgage Loans as of the Statistical Calculation Date in tabular form, see
"ANNEX A: Description of the Mortgage Pool" at the end of this Prospectus
Supplement.
All of the Initial Mortgage Loans are secured by first liens with respect
to the related Mortgaged Properties. All of the Mortgage Loans will be required
to be covered by standard hazard insurance policies insuring against certain
losses.
Each Mortgage Loan in the Mortgage Pool will bear interest that is
adjustable at regular periodic intervals. Each Mortgage Loan will have the
interest due thereon computed on an actuarial basis.
Each Mortgage Loan generally will provide for the payment of a charge if
the principal thereof is paid prior to its stated maturity date. Such charge,
however, will not be included in Available Funds for the related Collection
Period but will instead be paid to the Servicer as additional servicing
compensation.
In connection with the transfer by ACC of the Initial Mortgage Loans to the
Transferor, ACC will make representations regarding the percentages of the
Initial Mortgage Loans (by Initial Cut-off Date Pool Balance) that had two
monthly payments and one monthly payment past due as of the applicable Cut-off
Dates. Such percentages must be satisfactory to the Financial Guaranty Insurer.
No Mortgage Loan will have three or more monthly payments past due as of the
applicable Cut-off Date.
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The Initial Pool Balance is approximately $340,346,661. Approximately
87.01%, 5.15%, 7.81% and 0.03% of the related Mortgaged Properties (by Initial
Pool Balance) were single family residences, two- to four-family residences,
units in condominium and planned unit developments and manufactured housing
units, respectively, and no more than 0.31% of the Mortgage Loans (by Initial
Pool Balance) were secured by Mortgaged Properties located in any single zip
code.
As of the Statistical Calculation Date, the original weighted average
Loan-to-Value Ratio of all Initial Mortgage Loans was approximately 71.33%. The
maximum and average current balances as of the applicable Statistical
Calculation Date were approximately $809,616.15 and $101,839.22, respectively.
The average appraised value of the Mortgaged Properties securing Initial
Mortgage Loans as of the Statistical Calculation Date was approximately
$147,905.83 at the time of origination of such Mortgage Loans. The
"Loan-to-Value Ratio" is the original Principal Balance of such Mortgage Loan as
a percentage of the appraised valuation (of, if the Mortgage Loan was obtained
in connection with the purchase of the related Mortgaged Property, the purchase
price, if less) of the related Mortgaged Property determined by the Originator
at the time of origination of such Mortgage Loan. See "Risk Factors -- Risks
Associated with Underwriting Standards" herein.
The Initial Mortgage Loans bear interest rates that, after a period of
approximately six months, one year, eighteen months, two years, three years,
five years or seven years following the related date of origination, adjust
based on the six-month London Interbank Offered Rate based on quotations of
major banks as published in The Wall Street Journal. The Initial Mortgage Loans
that have interest rates adjusted on the basis of the six-month London Interbank
Offered Rate have semi-annual interest rate and payment adjustment frequencies
after the first interest rate adjustment date. Approximately 49.26% (by Initial
Pool Balance) of the Initial Mortgage Loans have initial interest rates
("Mortgage Interest Rates") that will remain fixed for one year or more from the
Statistical Calculation Date before initial adjustment, approximately 13.78% (by
Initial Pool Balance) of the Initial Mortgage Loans have initial Mortgage
Interest Rates that will remain fixed for two years or more from the Statistical
Calculation Date before initial adjustment and approximately 0.07% (by Initial
Pool Balance) of the Initial Mortgage Loans have initial Mortgage Interest Rates
that will remain fixed for three years or more from the Statistical Calculation
Date before initial adjustment. As of the Statistical Calculation Date, the
weighted average remaining period to the next interest rate adjustment date for
the Initial Mortgage Loans was approximately 14 months.
As of the Statistical Calculation Date, approximately 78.97% of the Initial
Mortgage Loans (by Initial Pool Balance) have the interest rate thereof adjusted
on the basis of the six-month London Interbank Offered Rate and approximately
21.03% of the Initial Mortgage Loans (by Initial Pool Balance) have the interest
rate thereof adjusted on the basis of the one-year CMT index. As of the
Statistical Calculation Date, each Initial Mortgage Loan that has its interest
rate adjusted on the basis of the six-month London Interbank Offered Rate has a
semi-annual rate adjustment cap of 0.00% to 2.00% above the then current
interest rate for such Initial Mortgage Loan. The Initial Mortgage Loans have a
weighted average initial periodic rate adjustment cap as of the Statistical
Calculation Date equal to approximately 1.40%. As of the Statistical Calculation
Date, the weighted average Mortgage Interest Rate was approximately 10.14% per
annum. The Initial Mortgage Loans had a weighted average gross margin as of the
Statistical Calculation Date of approximately 6.71%. The initial gross margin
for the Initial Mortgage Loans as of the Statistical Calculation Date ranged
from approximately 3.375% to 14.375%. The interest rates borne by the Initial
Mortgage Loans as of the Statistical Calculation Date ranged from approximately
5.380% per annum to approximately 15.750% per annum. As of the Statistical
Calculation Date, the maximum rates at which interest may accrue on the Initial
Mortgage Loans (the "Maximum Rates") ranged from 8.750% per annum to 21.990% per
annum. The Initial Mortgage Loans had a weighted average Maximum Rate as of the
Statistical Calculation Date of approximately 16.58% per annum. As of the
Statistical Calculation Date, the minimum rates at which interest may accrue on
the Mortgage Loans after their respective first interest adjustment dates (the
"Minimum Rates") ranged from approximately 4.750% per annum to approximately
15.750% per annum. As of the Statistical Calculation Date, the weighted average
Minimum Rate was approximately 10.07% per annum.
The weighted average remaining term to stated maturity of the Initial
Mortgage Loans was approximately 357 months as of the Statistical Calculation
Date. The weighted average original term to maturity of
S-37
<PAGE> 41
the Initial Mortgage Loans as of the Statistical Calculation Date was
approximately 359 months. As of the Statistical Calculation Date, the weighted
average seasoning of the Initial Mortgage Loans was approximately 2 months.
CONVEYANCE OF ADDITIONAL MORTGAGE LOANS
The obligation of the Bond Issuer to purchase the Additional Mortgage Loans
on a Subsequent Transfer Date for inclusion in the Mortgage Pool is subject to
the following requirements: (i) no Additional Mortgage Loans may be 60 or more
days contractually delinquent as of the related Cut-off Dates, (ii) the original
term to stated maturity of such Additional Mortgage Loans may not exceed 30
years, (iii) each Additional Mortgage Loan will have an adjustable rate of
interest determined on the basis of either the six-month London Interbank
Offered Rate or one-year CMT index; (iv) each Additional Mortgage Loan will have
an initial interest rate of not less than 6.00%, (v) such Additional Mortgage
Loans will be underwritten or re-underwritten, as applicable, in accordance with
the criteria set forth under "The Originators -- Underwriting Guidelines" in the
Prospectus, and (vi) following the acquisition of such Additional Mortgage
Loans, the Mortgage Loans (including the Additional Mortgage Loans) (a) will
have an initial weighted average Mortgage Interest Rate of at least 10.14%; (b)
will each have a principal balance not in excess of $810,000; and (c) may
include mortgage loans that bear interest based on the one-year CMT index,
provided that the aggregate principal balance of such mortgage loans at the date
of the acquisition thereof does not exceed 19.0% of the sum of the Initial
Cut-off Date Pool Balance plus the Prefunding Account Deposit. See "Risk
Factors -- The Additional Mortgage Loans and the Prefunding Account" herein. In
addition, the transfer of Additional Mortgage Loans to the Mortgage Pool on any
Subsequent Transfer Date is subject to the approval of the Financial Guaranty
Insurer and, in instances deemed appropriate by the Financial Guaranty Insurer,
the requirements for Additional Mortgage Loans specified above may be waived or
modified.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of and, if purchased at other than par, the yield
to maturity on a Bond will be directly related to the rate of payment of
principal of the Mortgage Loans, including for this purpose voluntary payment in
full of Mortgage Loans prior to stated maturity, liquidations due to defaults,
casualties and condemnations, and removals of Mortgage Loans from the Trust
Estate or releases of the Mortgage Loans obtained by the Financial Guaranty
Insurer. The actual rate of principal prepayments on the Mortgage Loans may be
influenced by a variety of economic, tax, geographic, demographic, social,
competitive, legal and other factors and has fluctuated considerably in recent
years.
Because all amounts available for payment on the Bonds after payments in
respect of Bond Interest, including all or a portion of the Excess Cash, are
applied as reductions of the Bond Balance, the weighted average life of such
Bonds will be influenced by the amount of Excess Cash so applied. Because Excess
Cash attributable to the overcollateralization feature is derived, in part, from
interest collections on the Mortgage Loans and will be applied to reduce the
Bond Balance, the aggregate payments in reduction of the Bond Balance on a
Payment Date will usually be greater than the aggregate amount of principal
payments (including prepayments) on the Mortgage Loans payable on such Payment
Date. As a consequence, Excess Cash available for payment in reduction of the
Bond Balance will increase in proportion to the outstanding Bond Balance over
time in the absence of offsetting Realized Losses on the Mortgage Loans.
Excess Cash will be paid on the Bonds in reduction of the Bond Balance on
each Payment Date to the extent the then applicable Required Coverage Amount
exceeds the Coverage Amount on such Payment Date. Any remaining Excess Cash will
be released to the Bond Issuer. If a Bond is purchased at other than par, its
yield to maturity will be affected by the rate at which Excess Cash is paid to
Bondholders. If the actual rate of Excess Cash payments on the Bonds applied in
reduction of the Bond Balance is slower than the rate anticipated by an investor
who purchases a Bond at a discount, the actual yield to such investor will be
lower than such investor's anticipated yield. If the actual rate of Excess Cash
payments applied in reduction of the Bond Balance is faster than the rate
anticipated by an investor who purchases a Bond at a premium, the actual yield
to such investor will be lower than such investor's anticipated yield. The
amount of Excess Cash on any
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<PAGE> 42
Payment Date will be affected by, among other things, the actual amount of
interest received, collected or recovered in respect of the Mortgage Loans
during the related Collection Period and such amount will be influenced by
changes in the weighted average of the Mortgage Interest Rates resulting from
prepayment and liquidations of Mortgage Loans, by the relationship between the
six-month London Interbank Offered Rate or the one-year CMT index and LIBOR, by
adjustments of Mortgage Interest Rates and by adjustments in the Bond Interest
Rate. The amount of Excess Cash paid to the Bondholders applied to the Bond
Balance on each Payment Date will be based on the Required Coverage Amount,
which may increase or decrease during the period the Bonds remain outstanding.
In this regard, the Indenture provides that on and after a Trigger Event Date,
the Required Coverage Amount will be increased for each Payment Date thereafter;
provided, however, that upon the satisfaction of certain cash flow requirements
in respect of the Bonds for a period of six consecutive Payment Dates as
specified in the Indenture, such Required Coverage Amount will return to its
original level. Any increase in the Required Coverage Amount (including an
increase required on a Trigger Event Date) may result in an accelerated
amortization until such Required Coverage Amount is reached. Conversely, any
decrease in the Required Coverage Amount will result in a decelerated
amortization of the Bonds until such Required Coverage Amount is reached.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors, even if the average rate of principal prepayments
is consistent with the expectations of investors. In general, the earlier the
payment of principal of the Mortgage Loans the greater the effect will be on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Bonds will not be offset by a subsequent like reduction (or increase) in
the rate of principal prepayments. Investors must make their own decisions as to
the appropriate prepayment assumptions to be used in deciding whether to
purchase any of the Bonds. The Bond Issuer makes no representations or
warranties as to the rate of prepayment or the factors to be considered in
connection with such determination.
PROJECTED PREPAYMENTS AND YIELDS FOR THE BONDS
If a Bond is purchased at other than par, its yield to maturity will be
affected by the rate of the payment of principal on the Mortgage Loans. If the
actual rate of payments on the Mortgage Loans is slower than the rate
anticipated by an investor who purchases a Bond at a discount, the actual yield
to such investor will be lower than such investor's anticipated yield. If the
actual rate of payments on the Mortgage Loans is faster than the rate
anticipated by an investor who purchases a Bond at a premium, the actual yield
to such investor will be lower than such investor's anticipated yield.
The rate of prepayments with respect to adjustable rate mortgage loans has
fluctuated significantly in recent years and, in fact, may be subject to a
greater rate of principal prepayments in a declining interest rate environment
than conventional fixed rate mortgage loans. For example, if prevailing interest
rates fall appreciably, adjustable rate mortgage loans are likely to be subject
to a higher prepayment rate than if prevailing interest rates remain constant
because the availability of fixed rate mortgage loans at competitive interest
rates may encourage mortgagors to refinance their adjustable rate mortgage loans
to "lock in" a lower fixed interest rate. However, no assurance can be given as
to the expected level of prepayments on the Mortgage Loans. The Bond Issuer does
not have representative prepayment experience that may be referred to for
purposes of estimating the future prepayment experience of the Mortgage Loans.
The Final Maturity Date of the Bonds is the Payment Date occurring in June
2029, which is the Payment Date two years and two months after the latest
scheduled maturity date of any Mortgage Loan in the Mortgage Pool. The weighted
average life of the Bonds are likely to be shorter, and the actual final Payment
Date could occur significantly earlier than the Final Maturity Date because (i)
prepayments are likely to occur which shall be applied to the payment of the
Bond Balance, (ii) payments of Excess Cash may occur on each Payment Date which
will accelerate the amortization of the Bonds, (iii) the Bonds may be redeemed
at the option of the Bond Issuer on any Payment Date after the Bond Balance is
less than 20% of the Original Bond Balance, (iv) the Servicer may cause a
redemption of the Bonds by exercising its right to purchase all of the Mortgage
Loans from the Indenture Trustee when the Aggregate Principal Balance of the
Mortgage Loans in the Mortgage Pool has declined to less than 10% of the sum of
the Initial Cut-off Date Pool Balance
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<PAGE> 43
and the Prefunding Account Deposit and (v) the Financial Guaranty Insurer may
effect a redemption of the Bonds by exercising its rights to purchase all of the
Mortgage Loans from the Indenture Trustee on any Payment Date on which Mortgage
Loans with Principal Balances as of the applicable Cut-off Dates aggregating an
amount equal to or in excess of 25% of the sum of the Initial Cut-off Date Pool
Balance and the Prefunding Account Deposit have become Liquidated Mortgage
Loans.
The table entitled "Weighted Average Life of the Bonds" has been prepared
on the basis of the following assumptions, except as set forth in the respective
tables: (i) the Bonds are purchased on March 26, 1997; (ii) the Initial Mortgage
Loans have an aggregate principal balance equal to the Initial Pool Balance;
(iii) the Bond Issuer acquires Additional Mortgage Loans with Aggregate
Principal Balances equal to the Prefunding Account Deposit; (iv) the Mortgage
Interest Rate for each Mortgage Loan is adjusted on its next Mortgage Interest
Rate change date (and on subsequent Mortgage Interest Rate change dates, if
necessary) to equal the sum of the applicable Gross Margin plus the applicable
index (such sum being subject to the assumed periodic adjustment caps set forth
below; (v) with respect to the initial Collection Period, the Mortgage Loans
include 30 days of interest and no deposits in respect of interest were
contributed to the Trust Estate; (vi) scheduled payments are timely received on
the first day of each month commencing in March 1997 (April 1997 with respect to
the Additional Mortgage Loans); (vii) payments on the Bonds are received, in
cash, on the 15th day of each month, commencing in April 1997; (viii) no
defaults or delinquencies in, or modifications, waivers or amendments
respecting, the payment by the Mortgagors of principal and interest on the
Mortgage Loans occur; (ix) prepayments represent payment in full of individual
Mortgage Loans and are received on the last day of each month, commencing in
March 1997 (April 1997 with respect to the Additional Mortgage Loans) and
include 30 days' interest thereon; (x) the Mortgage Loans prepay according to
the indicated Prepayment Scenario as described below; (xi) the six-month London
Interbank Offered Rate remains constant at 5.7500%, the one-year CMT index
remains constant at 5.8000% and, for Interest Periods ending prior to the Pool
Redemption Date, the Bond Interest Rate remains constant at 5.6375%; (xii) for
Interest Periods ending after the Pool Redemption Date, Bond Interest Rate
remains constant at 5.8375%; (xiii) early redemption occurs on the Pool
Redemption Date only as specified in the manner set forth in the respective
tables; (xiv) no Trigger Event Date occurs; (xv) Excess Cash will be applied to
build overcollateralization to the levels specified in the Indenture; and (xvi)
the Mortgage Loans have the following characteristics:
S-40
<PAGE> 44
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
REMAINING REMAINING MONTHS TO
MORTGAGE AMORTIZATION TERM NEXT
PRINCIPAL INTEREST TERM TO MATURITY GROSS MORTGAGE
INDEX BALANCE RATE (MONTHS) (MONTHS) MARGIN RATE CHANGE
- ---------------------------------------- --------------- -------- ------------- ------------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
One-year CMT Index $ 1,571,339.65 10.13% 351 351 5.50% 2
Six-Month London Interbank Offered
Rate.................................. 10,151,397.16 10.66% 355 355 6.76% 2
One-year CMT Index...................... 2,057,398.51 9.89% 353 353 5.71% 11
Six-Month London Interbank Offered
Rate.................................. 212,396.82 10.52% 357 357 6.53% 14
Six-Month London Interbank Offered
Rate.................................. 15,868,795.08 10.71% 354 354 6.56% 17
Six-Month London Interbank Offered
Rate.................................. 137,987,044.60 10.22% 359 359 7.16% 23
One-year CMT Index...................... 2,089,049.91 9.54% 357 357 7.35% 32
Six-Month London Interbank Offered
Rate.................................. 3,279,894.73 10.11% 357 357 6.20% 31
One-year CMT Index...................... 1,595,983.65 10.36% 352 352 5.33% 3
Six-Month London Interbank Offered
Rate.................................. 19,758,051.97 10.37% 358 358 7.05% 3
One-year CMT Index...................... 4,864,966.19 10.28% 353 353 5.52% 4
Six-Month London Interbank Offered
Rate.................................. 29,895,817.09 10.07% 358 358 7.12% 4
One-year CMT Index...................... 6,689,918.81 10.00% 354 354 5.51% 5
Six-Month London Interbank Offered
Rate.................................. 22,254,917.93 9.92% 354 354 7.35% 5
One-year CMT Index...................... 6,404,334.73 10.08% 355 355 5.56% 6
Six-Month London Interbank Offered
Rate.................................. 17,384,081.88 10.00% 357 357 6.56% 6
One-year CMT Index...................... 11,052,884.72 9.89% 356 356 5.52% 7
Six-Month London Interbank Offered
Rate.................................. 1,554,243.48 9.49% 360 360 6.27% 7
One-year CMT Index...................... 35,261,605.66 9.51% 358 358 5.61% 9
Six-Month London Interbank Offered
Rate.................................. 2,480,051.67 9.06% 355 355 7.43% 9
Six-Month London Interbank Offered
Rate.................................. 97,300.00 12.48% 359 179 8.91% 4
Six-Month London Interbank Offered
Rate.................................. 7,835,186.71 11.31% 356 356 5.28% 31
<CAPTION>
ORIGINAL PERIODIC MAXIMUM MINIMUM
TERM TO RATE MORTGAGE MORTGAGE
MATURITY ADJUSTMENT INTEREST INTEREST
INDEX (MONTHS) CAP RATE RATE
- ---------------------------------------- -------- ---------- ------- -------
<S> <C> <C> <C> <C>
One-year CMT Index 360 2.00% 16.13% 10.13%
Six-Month London Interbank Offered
Rate.................................. 359 1.07% 17.03% 10.69%
One-year CMT Index...................... 360 2.00% 15.89% 9.52%
Six-Month London Interbank Offered
Rate.................................. 360 1.09% 16.76% 10.52%
Six-Month London Interbank Offered
Rate.................................. 360 1.02% 17.19% 10.63%
Six-Month London Interbank Offered
Rate.................................. 359 1.29% 16.90% 10.06%
One-year CMT Index...................... 360 2.00% 15.54% 9.54%
Six-Month London Interbank Offered
Rate.................................. 360 1.08% 16.67% 10.01%
One-year CMT Index...................... 360 2.00% 16.36% 10.04%
Six-Month London Interbank Offered
Rate.................................. 360 1.01% 16.69% 10.23%
One-year CMT Index...................... 360 2.00% 16.28% 10.28%
Six-Month London Interbank Offered
Rate.................................. 359 1.12% 16.47% 9.97%
One-year CMT Index...................... 360 2.00% 16.00% 10.00%
Six-Month London Interbank Offered
Rate.................................. 355 1.23% 16.53% 10.06%
One-year CMT Index...................... 360 2.00% 16.08% 10.08%
Six-Month London Interbank Offered
Rate.................................. 357 1.27% 16.61% 10.27%
One-year CMT Index...................... 360 2.00% 15.89% 9.89%
Six-Month London Interbank Offered
Rate.................................. 360 1.26% 15.76% 10.64%
One-year CMT Index...................... 360 2.00% 15.51% 9.51%
Six-Month London Interbank Offered
Rate.................................. 360 1.59% 15.40% 9.03%
Six-Month London Interbank Offered
Rate.................................. 180 1.10% 18.58% 12.48%
Six-Month London Interbank Offered
Rate.................................. 360 2.00% 17.31% 11.25%
</TABLE>
ADDITIONAL MORTGAGE LOANS
<TABLE>
<CAPTION>
REMAINING REMAINING MONTHS TO ORIGINAL
MORTGAGE AMORTIZATION TERM NEXT TERM TO
PRINCIPAL INTEREST TERM TO MATURITY GROSS MORTGAGE MATURITY
INDEX BALANCE RATE (MONTHS) (MONTHS) MARGIN RATE CHANGE (MONTHS)
- ------------------------------------ --------------- -------- ------------- ----------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Six-Month London Interbank Offered
Rate.............................. $ 78,845,261.05 10.22% 359 359 7.18% 6 360
<CAPTION>
PERIODIC MAXIMUM MINIMUM
RATE MORTGAGE MORTGAGE
ADJUSTMENT INTEREST INTEREST
INDEX CAP RATE RATE
- ------------------------------------ ---------- ------- -------
<S> <C> <C> <C>
Six-Month London Interbank Offered
Rate.............................. 1.44% 16.81% 10.17%
</TABLE>
S-41
<PAGE> 45
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average lives of the
Bonds will be influenced by the rate at which principal payments on the Mortgage
Loans are made, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments and
liquidations due to default). The weighted average life of the Bonds also will
be influenced by the overcollateralization of the Bonds because collections are
applied as principal prepayments to the Bonds until the outstanding Bond Balance
is less than the Aggregate Principal Balance of the Mortgage Loans by an amount
equal to the Required Coverage Amount. These prepayments have the effect of
accelerating the amortization of the Bonds, thereby shortening their respective
weighted average life.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. A common model (the "Constant Prepayment Rate" or
"CPR") represents an assumed annualized rate of prepayment relative to the then
outstanding principal balance on a pool of new mortgage loans. The prepayment
model used in this Prospectus Supplement assumes a fixed rate of CPR. CPR does
not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. The Bond Issuer is not aware of any statistics
that provide a reliable basis for predicting the amount or the timing of receipt
of prepayments on the related mortgage loans.
The Prepayment Scenarios are defined as follows:
<TABLE>
<CAPTION>
SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V SCENARIO VI
---------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Percentage of CPR............... 0% 10% 20% 25% 30% 40%
</TABLE>
WEIGHTED AVERAGE LIFE OF THE BONDS
<TABLE>
<CAPTION>
TO MATURITY TO POOL REDEMPTION DATE
-------------------------------------------- --------------------------------------------
PREPAYMENT WEIGHTED AVERAGE LIFE EXPECTED FINAL WEIGHTED AVERAGE LIFE EXPECTED FINAL
SCENARIO (YEARS)(1) PAYMENT(1) (YEARS)(2) PAYMENT(2)
- ------------ --------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
I........... 21.20 February 15, 2027 21.15 March 15, 2026
II.......... 7.55 March 15, 2026 7.17 May 15, 2016
III......... 3.94 January 15, 2019 3.62 April 15, 2007
IV.......... 3.10 November 15, 2014 2.84 February 15, 2005
V........... 2.52 September 15, 2011 2.31 August 15, 2003
VI.......... 1.78 July 15, 2007 1.63 September 15, 2001
</TABLE>
- ---------------
(1) Assuming no early redemption.
(2) Assuming early redemption by the Servicer exercising its right to purchase
the Mortgage Loans on the Pool Redemption Date.
ORIGINATION OF THE MORTGAGE LOANS
THE ORIGINATORS
Approximately 31.85% of the Initial Mortgage Loans (by Initial Pool
Balance) were originated by one or more Affiliated Originators. The remaining
68.15% of the Initial Mortgage Loans (by Initial Pool Balance) were acquired by
ACC, either directly or indirectly through one of the Affiliated Originators, in
arm's-length transactions from Unaffiliated Originators. Certain of the
Additional Mortgage Loans will be originated by Unaffiliated Originators, and no
assurance can be given that the proportion of Mortgage Loans in the final
Mortgage Pool (after inclusion of any Additional Mortgage Loans) that have been
originated by Unaffiliated Originators will not be materially different from the
proportion of Initial Mortgage Loans originated by Unaffiliated Originators.
S-42
<PAGE> 46
UNDERWRITING OF MORTGAGE LOANS
Original Mortgage Loans originated by Affiliated Originators have been
underwritten in accordance with standard guidelines (the "Aames' Guidelines")
developed by AFC and the related Affiliated Originator for customary application
in the Affiliated Originator's loan origination activities, as described in the
Prospectus. Original Mortgage Loans originated by Unaffiliated Originators are
re-underwritten in accordance with the applicable Aames Guidelines. See "The
Originators -- Underwriting Guidelines" in the Prospectus.
ACC has analyzed pursuant to the Aames Guidelines all of the Bulk Purchase
Mortgage Loans based on the information contained in a computer tape provided by
the seller. ACC has performed data integrity on all of the Mortgage Notes
evidencing the Bulk Purchase Mortgage Loans and has re-underwritten
approximately one-half of the Bulk Purchase Mortgage Loans to confirm compliance
with Aames Guidelines. See "Risk Factors -- Risks Associated with Underwriting
Standards" herein.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Servicer will service and administer the Mortgage Loans, either
directly or through Sub-Servicers, in accordance with the policies, procedures
and practices customarily employed by the Servicer in servicing other comparable
mortgage loans and pursuant to the provisions of the Servicing Agreement.
Generally, servicing includes, but is not limited to, post-origination loan
processing, customer service, remittance handling, collections and liquidations.
Consistent with the foregoing, the Servicer, in its discretion, may (a) waive
any assumption fees, late payment charges, charges for checks returned for
insufficient funds or other fees that may be collected in the ordinary course of
servicing a Mortgage Loan, (b) arrange a schedule for the payment of delinquent
payments on the related Mortgage Loan, subject to conditions set forth in the
Servicing Agreement, if a Mortgagor is in default or about to be in default
because of such Mortgagor's financial condition or (c) modify monthly payments
on Mortgage Loans in accordance with the Servicer's general policy on Mortgage
Loans subject to the Relief Act. The Servicer, acting as agent for the Indenture
Trustee, will not consent to the subsequent placement of a deed of trust or
mortgage, as applicable, on any Mortgaged Property that is of equal or higher
priority to that of the lien securing the related Mortgage Loan unless such
Mortgage Loan is prepaid in full, thereby removing such Mortgage Loan from the
Mortgage Pool. If, notwithstanding the foregoing, the placement of a lien or
liens of equal or higher priority to that of the lien securing the related
Mortgage Loan is consented to by the Servicer, the Servicing Agreement will
require that the Servicer release such Mortgage Loan at the applicable Release
Price.
CUSTOMARY SERVICING PROCEDURES
The procedures of the Servicer with respect to day to day servicing of the
Mortgage Loans may vary considerably depending on the particular Mortgage Loan,
the Mortgaged Property, the Mortgagor, the presence of an acceptable party to
assume a Mortgage Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. Generally, it is the current practice of the Servicer to
send borrowers a monthly billing statement ten days prior to the monthly payment
due date. Although borrowers generally make loan payments within ten to fifteen
days after the due date, if a borrower fails to pay the monthly payment within
such time period, the Servicer will commence collection efforts by notifying the
borrower of the delinquency. Under the terms of each Mortgage Loan, the
Mortgagor agrees to pay a late charge (which the Servicer is entitled to retain
as additional servicing compensation under the Servicing Agreement) if a monthly
payment on a Mortgage Loan is not received within the number of days specified
in the Mortgage Note after its due date. If the Mortgage Loan remains
delinquent, the Servicer will attempt to contact the Mortgagor to determine the
cause of the delinquency and to obtain a commitment to cure the delinquency at
the earliest possible time.
As a general matter, if efforts to obtain payment have not been successful
shortly after the due date of the next subsequently scheduled installment, a
pre-foreclosure notice will be sent to the Mortgagor providing 30
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<PAGE> 47
days' notice of impending foreclosure action. During the 30 day notice period,
collection efforts continue. However, if no substantial progress has been made
in obtaining delinquent monies from the Mortgagor, foreclosure proceedings will
be commenced.
Regulations and practices regarding foreclosure vary greatly from state to
state. Generally, the Servicer will have commenced foreclosure proceedings prior
to the time when a loan is 90 days delinquent. If the Servicer determines that
purchasing a property securing a mortgage loan will minimize the loss associated
with such defaulted loan, the Servicer may bid at the foreclosure sale for such
property or accept a deed in lieu of foreclosure. After the Servicer acquires
title to a mortgaged property by foreclosure or deed in lieu of foreclosure a
real estate broker is selected to list and advertise the property.
During a foreclosure, any expenses incurred by the Servicer will be added
to the amount owed by the Mortgagor, as permitted by applicable law. Upon
completion of the foreclosure, the property will be sold to an outside bidder,
or passes to the mortgagee, in which case the Servicer will proceed to liquidate
the asset. Servicing and charge-off policies and collection practices may change
over time in accordance with the Servicer's business judgment, changes in its
real estate loan portfolio and applicable laws and regulations.
THE SERVICING AGREEMENT
The summaries of certain provisions of the Servicing Agreement set forth
below and in other places in this Prospectus Supplement, while complete in
material respects, do not purport to be exhaustive. For more details regarding
the terms of the Servicing Agreement, prospective investors in the Bonds are
advised to review the Servicing Agreement, a copy of which the Servicer will
provide (without exhibits) without charge upon written request addressed to:
Aames Capital Corporation, 3731 Wilshire Boulevard., 10th Floor, Los Angeles,
California 90010.
Generally, the Servicer, in its own name or in the name of any
Sub-Servicer, will be authorized and empowered pursuant to the Servicing
Agreement (i) to execute and deliver any and all instruments of satisfaction or
cancellation or of partial or full release or discharge and all other comparable
instruments with respect to the Mortgage Loans and with respect to the Mortgaged
Properties, (ii) to institute foreclosure proceedings or obtain a deed in lieu
of foreclosure so as to effect ownership of any Mortgaged Property in its own
name on behalf of the Indenture Trustee and (iii) to hold title in its own name
to any Mortgaged Property upon such foreclosure or deed in lieu of foreclosure
on behalf of the Indenture Trustee.
Payments on Mortgage Loans and Establishment of Collection Account. The
Servicer shall establish and maintain one or more accounts or, with respect to
certain Mortgage Loans serviced by a Sub-Servicer, shall cause the related
Sub-Servicer to establish and maintain such accounts (collectively, the
"Collection Account") at one or more institutions meeting the requirements set
forth in the Servicing Agreement. The Collection Account, and all amounts
deposited therein from time to time, shall be part of the Trust Estate. The
Servicer will deposit, or cause the related Sub-Servicer to deposit, into the
Collection Account not later than two business days after receipt, all payments
on or in respect of the Mortgage Loans received from or on behalf of Mortgagors
and all proceeds of the Mortgage Loans. On the date in each month specified in
the Servicing Agreement, which date shall be no later than three business days
prior to the related Payment Date (the "Deposit Date"), funds to be paid in
respect of Bond Interest, Monthly Principal and any Excess Cash will be
transferred from the Collection Account to the Bond Account. Notwithstanding the
foregoing, payments and collections that do not constitute Available Funds
(e.g., amounts representing interest accrued on Mortgage Loans in respect of any
period prior to the applicable Cut-off Dates, fees, late payment charges,
prepayment charges, charges for checks returned for insufficient funds,
extension or other administrative charges or other amounts received for
application towards the payment of taxes, insurance premiums, assessments and
similar items) will not be required to be deposited into the Collection Account.
The Servicer may make withdrawals from the Collection Account only for the
following purposes: (a) to make deposits into the Bond Account as described
below; (b) to pay itself any monthly Servicing Fees to the extent permitted by
the Servicing Agreement; (c) to make any Servicing Advance or to reimburse
itself for any Servicing Advance or Monthly Advance previously made to the
extent permitted by the Servicing Agreement; (d) to withdraw
S-44
<PAGE> 48
amounts that have been deposited to the Collection Account in error; and (e) to
clear and terminate the Collection Account.
Investment of Collection Account. All or a portion of the Collection
Account may be invested and reinvested in one or more Permitted Investments
bearing interest or sold at a discount. The Indenture Trustee or any affiliate
thereof may be the obligor on any investment in any Collection Account which
otherwise qualifies as a Permitted Investment. No investment in the Collection
Account may mature later than the Deposit Date next succeeding the date of
investment.
The Indenture Trustee will not in any way be held liable by reason of any
insufficiency in the Collection Account resulting from any loss on any Permitted
Investment included therein (except to the extent the Indenture Trustee is the
obligor thereon).
All income or other gain from investments in the Collection Account will be
held in the Collection Account for the benefit of the Servicer and will be
subject to withdrawal from time to time as permitted by the Servicing Agreement.
Any loss resulting from such investments will be for the account of the
Servicer. The Servicer will be required to deposit the amount of any such loss
immediately upon the realization of such loss to the extent such loss will not
be offset by other income or gain from investments in the Collection Account and
then available for such application.
Monthly Advances. In order to maintain a regular flow of scheduled
interest to Bondholders (rather than to guarantee or insure against losses), the
Servicing Agreement will require that, not later than the close of business on
the Deposit Date prior to each Payment Date, the Servicer will remit or cause to
be remitted a Monthly Advance, if any, to the Indenture Trustee for deposit in
the Bond Account to be paid on the related Payment Date. A "Monthly Advance"
will be equal to the sum of (i) the interest portions of the aggregate amount of
monthly payments (net of the related Servicing Fee) due on the Mortgage Loans
during the related Collection Period (or, in the case of the first two
Collection Periods, the interest portions of such monthly payments that
represent interest accrued from and including the applicable Cut-off Dates) but
delinquent as of the close of business on the last day of the related Collection
Period, (ii) interest on each Mortgage Loan that is not delinquent as of the
close of business on the last day of the related Collection Period at the
related Mortgage Interest Rate for the period from and including the due date of
the monthly payment in the related Collection Period to the end of such
Collection Period and (iii) with respect to each Mortgaged Property that was
acquired in foreclosure or similar action (each, an "REO Property") during or
prior to the related Collection Period and as to which final sale did not occur
during the related Collection Period, an amount equal to the excess, if any, of
interest on the Principal Balance of the Mortgage Loan relating to such REO
Property for the related Collection Period at the related Mortgage Interest Rate
(net of the Servicing Fee) over the net income from the REO Property transferred
to the Bond Account for such Payment Date.
The Servicing Agreement provides that the Servicer may pay all or a portion
of any Monthly Advance out of amounts on deposit in the Collection Account which
are being held for payment on a subsequent Payment Date relating to such
Collection Period; any such amounts so used are required to be replaced by the
Servicer by deposit to the Collection Account on or before the Deposit Date
relating to such subsequent Payment Date.
The Servicer may recover Monthly Advances, if not theretofore recovered
from the Mortgagor on whose behalf such Monthly Advance was made, from
subsequent collections on the related Mortgage Loan, including Liquidation
Proceeds, Insurance Proceeds and such other amounts as may be collected by the
Servicer from the Mortgagor or otherwise relating to the Mortgage Loan. To the
extent the Servicer, in its good faith business judgment, determines that any
Monthly Advance will not be ultimately recoverable from subsequent collections,
Insurance Proceeds, Liquidation Proceeds on the related Mortgage Loans or
otherwise ("Nonrecoverable Advances"), the Servicer may reimburse itself on the
first Payment Date thereafter.
The Servicer will not be required to make any Monthly Advance that it
determines would be a Nonrecoverable Advance.
Compensating Interest Payments. With respect to each Mortgage Loan (i) as
to which a prepayment in whole or in part was received, (ii) that became a
Liquidated Mortgage Loan or (iii) that was otherwise charged off during the
Collection Period related to a Payment Date, the Servicer will be required with
respect
S-45
<PAGE> 49
to such Payment Date to remit to the Indenture Trustee, from amounts otherwise
payable to the Servicer as the Servicing Fee for the related Collection Period,
an amount equal to the excess, if any, of (a) 30 days' interest on the Principal
Balance of each such Mortgage Loan (immediately prior to such payment) at the
related Mortgage Interest Rate, net of the applicable Servicing Fee, less (b)
the amount of interest actually received on such Mortgage Loan during such
Collection Period (each such amount, a "Compensating Interest Payment") for
payment on the Bonds on such Payment Date. The Servicer will not be entitled to
be reimbursed from collections on the Mortgage Loans or any assets of the Trust
for any Compensating Interest Payments made.
Realization upon Defaulted Mortgage Loans. The Servicing Agreement will
require the Servicer to foreclose upon or otherwise comparably convert to
ownership in the name of the Servicer, on behalf of the Indenture Trustee,
Mortgaged Properties securing such of the Mortgage Loans as come into default,
as to which no satisfactory arrangements can be made for the collection of
delinquent payments and as to which the Servicer has not reacquired pursuant to
the option described below; provided, however, that if the Servicer has actual
knowledge or reasonably believes that any Mortgaged Property is contaminated by
hazardous or toxic wastes or substances, the Servicer need not acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such foreclosure or other conversion, the Servicer will follow such
practices as it deems necessary or advisable and as are in keeping with its
general mortgage loan servicing activities; provided, however, that the Servicer
will not be required to expend it own funds in connection with foreclosure or
other conversion, correction of a default on a senior deed of trust or
restoration of any Mortgaged Property unless the Servicer determines that such
foreclosure, correction or restoration will increase Net Liquidation Proceeds.
In servicing the Mortgage Loans, the Servicer will be required to
determine, with respect to each defaulted Mortgage Loan, when it has recovered,
whether through Indenture Trustee's sale, foreclosure sale or otherwise, all
amounts, if any, it expects to recover from or on account of such defaulted
Mortgage Loan, whereupon such Mortgage Loan will be charged off and will become
a Liquidated Mortgage Loan.
The Servicer may have the right and the option under the Servicing
Agreement, but not the obligation, to reacquire for its own account any Mortgage
Loan which becomes delinquent, in whole or in part, as to three consecutive
monthly installments or any Mortgage Loan as to which enforcement proceedings
have been brought by the Servicer. Any such Mortgage Loan so reacquired will be
withdrawn from the Mortgage Pool on a Deposit Date at the Release Price thereof.
Enforcement of Due-on-Sale Clauses. In any case in which the Servicer
becomes aware that a Mortgaged Property has been or is about to be voluntarily
conveyed by the related Mortgagor, the Servicing Agreement will require the
Servicer to enforce the rights of the Indenture Trustee as the mortgagee of
record to accelerate the maturity of the related Mortgage Loan under any
due-on-sale clause contained in the related Mortgage or Mortgage Note to the
extent permitted by the related Mortgage Note and mortgage and applicable law or
regulation, but only to the extent such enforcement will not (i) adversely
affect or jeopardize coverage under any related insurance policy, (ii) result in
legal action by the Mortgagor or (iii) materially increase the risk of default
or delinquency on, or materially decrease the security for, such Mortgage Loan.
In any such event, the Servicer may, with the prior written consent of the
Financial Guaranty Insurer, enter into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the related promissory note
and, to the extent permitted by applicable law or the mortgage documents, the
Mortgagor remains liable thereon. In addition, the Servicer may, with the prior
written consent of the Financial Guaranty Insurer, enter into a substitution of
liability agreement with such person, pursuant to which the original Mortgagor
is released from liability and such person is substituted as Mortgagor and
becomes liable under the Mortgage Note. The Servicing Agreement will prohibit
the Servicer from entering into an assumption or substitution of liability
agreement unless permitted by applicable law and unless such assumption or
substitution of liability agreement would not materially increase the risk of
default or delinquency on, or materially decrease the security for, such
Mortgage Loan. Any fees collected by the Servicer for entering into an
assumption or substitution of liability agreement will be retained by the
Servicer as additional servicing compensation.
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<PAGE> 50
Evidence as to Compliance. The Servicing Agreement provides that on or
before a specified date in each year, a firm of independent public accountants
will furnish a statement to the Indenture Trustee to the effect that on the
basis of certain procedures substantially in conformance with the Uniform Single
Attestation Program for Mortgage Bankers (to the extent the procedures are
applicable to the servicing obligations set forth in the Servicing Agreement),
the servicing by or on behalf of the Servicer of the related Mortgage Loans,
under agreements substantially similar to each other (including the Servicing
Agreement) was conducted in compliance with such agreements and such procedures
have disclosed no exceptions or errors in records relating to the Mortgage Loans
subject to the Servicing Agreement which, in the opinion of such firm, are
material, except for such exceptions as will be referred to in the report. The
Servicing Agreement will provide that the Servicer will be required to deliver
to the Indenture Trustee, on or before a specified date in each year, an annual
statement signed by an officer of the Servicer to the effect that the Servicer
has fulfilled its material obligations under the Servicing Agreement throughout
the preceding year.
Certain Matters Regarding Servicer's Servicing Obligations. The Servicing
Agreement will provide that the Servicer may not resign from its obligations and
duties as the Servicer thereunder, except upon determination that its duties
thereunder are no longer permissible under applicable law or regulation or are
in material conflict by reason of applicable law or regulation with any other of
its activities carried on as of the date of the Servicing Agreement. No such
resignation will become effective until the Indenture Trustee or a successor
servicer approved by the Financial Guaranty Insurer has assumed the servicing
obligations and duties of the Servicer under the Servicing Agreement.
The Servicing Agreement will also provide that neither the Servicer, nor
any of its directors, officers, employees or agents, will be liable to the
Indenture Trustee, the Trust or the Bondholders for any action taken or for
refraining from the taking of any action by the Servicer pursuant to the
Servicing Agreement, or for errors in judgment; provided, however, that neither
the Servicer nor any such person will be protected against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties of the Servicer, or by reason of
reckless disregard of obligations and duties of the Servicer, thereunder.
In addition, the Servicing Agreement will provide that the Servicer will
not be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its duties to service the Mortgage Loans under the
Servicing Agreement and which in its opinion may involve it in any expense or
liability.
The Servicing Agreement will provide that any corporation or other entity
(a) into which the Servicer may be merged or consolidated, (b) that may result
from any merger, conversion or consolidation to which the Servicer shall be a
party or (c) that may succeed to all or substantially all of the business of the
Servicer, will, in any case where an assumption is not effected by operation of
law, execute an agreement of assumption to perform every obligation of the
Servicer under the Servicing Agreement, and will be the successor to the
Servicer thereunder without the execution or filing of any document or any
further act by any of the parties to the Servicing Agreement; provided, however,
that if the Servicer in any of the foregoing cases is not the surviving entity,
the surviving entity shall execute an agreement of assumption to perform every
obligation of the Servicer thereunder.
Servicer Events of Default. Events of default (each, a "Servicer Event of
Default") under the Servicing Agreement will include (a) any failure by the
Servicer to make a Monthly Advance as required; (b) any failure by the Servicer
to deposit in the Collection Account or Bond Account any amount (other than an
amount representing a Monthly Advance) required to be so deposited under the
Servicing Agreement, which failure continues unremedied for one business day
after the giving of written notice of such failure to the Servicer by the
Indenture Trustee or the Financial Guaranty Insurer or to the Servicer, the
Financial Guaranty Insurer and the Indenture Trustee by Bondholders evidencing
Voting Interests represented by all Bonds aggregating not less than 51%; (c) the
payment of an Insured Amount by the Financial Guaranty Insurer on any Payment
Date; (d) any failure by the Servicer to duly observe or perform in any material
respect any other of its covenants or agreements in the Servicing Agreement
which materially and adversely affects the rights of Bondholders and continues
unremedied for 30 days after the giving of written notice of such failure to the
Servicer by the Indenture Trustee or the Financial Guaranty Insurer or the
Bondholders
S-47
<PAGE> 51
evidencing Voting Interests represented by all Bonds aggregating not less than
51%; (e) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings regarding the Servicer and certain
actions by the Servicer indicating its insolvency or inability to pay its
obligations; and (f) the occurrence of delinquencies and/or losses in respect of
the Mortgage Loans in excess of a level, and for a period of time, as specified
in the Servicing Agreement.
Rights Upon Servicer Events of Default. Upon the occurrence of a Servicer
Event of Default, the Financial Guaranty Insurer or, with the consent of the
Financial Guaranty Insurer, Bondholders evidencing Voting Interests represented
by all Bonds aggregating not less than 51% or the Indenture Trustee may
terminate all of the rights and obligations of the Servicer under the Servicing
Agreement, whereupon the Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Servicing
Agreement and will be entitled to such compensation as the Servicer would have
been entitled to under the Servicing Agreement. In the event that the Indenture
Trustee would be obligated to succeed the Servicer but is unwilling or legally
unable to act, it may appoint, or petition a court of competent jurisdiction for
the appointment of, any established housing and home finance institution or any
institution that regularly services home equity loans that is currently
servicing a home equity loan portfolio that has all licenses, permits and
approvals required by applicable law and a net worth of at least $10,000,000 to
act as successor to the Servicer under the Servicing Agreement, provided that
the appointment of any such successor Servicer (other than the Indenture
Trustee) shall be acceptable to the Financial Guaranty Insurer and will not
result in the qualification, reduction or withdrawal of the rating assigned to
the Bonds by the Rating Agencies. Pending appointment of a successor Servicer,
unless the Indenture Trustee is prohibited by law from so acting, the Indenture
Trustee shall be obligated to act as Servicer. The Indenture Trustee and such
successor Servicer may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation described above.
No Bondholder, solely by virtue of its status as a Bondholder, will have
any right under the Servicing Agreement to institute any action, suit or
proceeding with respect to the Servicing Agreement unless the Financial Guaranty
Insurer shall have consented thereto, unless such Bondholder previously has
given to the Indenture Trustee written notice of default and unless Bondholders
evidencing Voting Interests represented by all Bonds aggregating not less than
51% have made written request upon the Indenture Trustee to institute such
action, suit or proceeding in its own name as Indenture Trustee thereunder and
have offered to the Indenture Trustee reasonable indemnity for costs, expenses
and liabilities to be incurred, and the Indenture Trustee for 60 days has
neglected or refused to institute any such action, suit or proceeding. However,
the Indenture Trustee will be under no obligation to exercise any of the rights
or powers vested in it by the Servicing Agreement or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Bondholders, unless such Bondholders have offered to the
Indenture Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
Amendments. At any time and from time to time, without the consent of the
Bondholders, the Indenture Trustee, the Bond Issuer and the Servicer may amend
the Servicing Agreement for the purposes of (a) curing any ambiguity or
correcting or supplementing any provision of such agreement that may be
inconsistent with any other provision of such agreement or (b) complying with
the requirements of the Code; provided, however, that such action shall not, as
evidenced by an opinion of counsel delivered to the Indenture Trustee,
materially and adversely affect the interests of any Bondholder.
The Servicing Agreement may also be amended by the Indenture Trustee, the
Bond Issuer and the Servicer, at any time and from time to time, with the prior
written approval of the Financial Guaranty Insurer and not less than a majority
of the Voting Interests represented by the Bonds then outstanding, for the
purpose of adding any provisions or changing in any manner or eliminating any of
the provisions thereof or of modifying in any manner the rights of the
Bondholders thereunder; provided, however, that no such amendment shall (a)
reduce in any manner the amount of, or delay the timing of, payments which are
required to be paid to the Bond Account without the consent of all Bondholders
or (b) reduce the aforesaid percentages of Voting Interests which are required
to consent to any such amendments, without the consent of the Bondholders
affected.
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<PAGE> 52
The Indenture Trustee will be required to furnish a copy of any such
amendment to each Bondholder in the manner set forth in the Servicing Agreement.
SUB-SERVICERS
As permitted under the Servicing Agreement, the Servicer will enter into
sub-servicing arrangements with other mortgage servicing institutions, which may
include affiliates of the Servicer and the Bond Issuer, meeting the requirements
of the Servicing Agreement (each, a "Sub-Servicer") to initially service and
administer certain Mortgage Loans on behalf of the Servicer. Any such
sub-servicing arrangements will provide that the Sub-Servicer will service the
Mortgage Loans specified therein in accordance with the provisions and
requirements of the Servicing Agreement, but will not relieve the Servicer of
any liability associated with servicing the Mortgage Loans.
Compensation for the services of the Sub-Servicer will be paid by the
Servicer as a general corporate obligation of the Servicer. The Sub-Servicer may
also be entitled to collect and retain, as part of its servicing compensation,
any late charges or prepayment penalties provided in the Mortgage Note or
related instruments that the Servicer would otherwise be entitled to collect or
retain as servicing compensation under the Servicing Agreement. In addition, the
Sub-Servicer will be reimbursed by the Servicer for certain expenditures that it
makes, generally to the same extent that the Servicer would be reimbursed for
such expenditures under the Servicing Agreement. See "-- Servicing and Other
Compensation; Payment of Expenses" below.
SERVICING AND OTHER COMPENSATION; PAYMENT OF EXPENSES
The Servicing Fee will be the primary compensation to be paid to the
Servicer in respect of its servicing activities under the Servicing Agreement
and will be paid to the Servicer on each Deposit Date out of collections of
interest received on or in respect of the Mortgage Loans for the related
Collection Period. The Servicing Fee will equal one-twelfth ( 1/12) of the
product of (a) the applicable Servicing Fee Rate and (b) the Aggregate Principal
Balance of the Mortgage Loans at the beginning of such Collection Period. The
"Servicing Fee Rate" will be 0.50% for each Collection Period. In addition, the
Servicer will retain the benefit, if any, from any investment of funds in the
Collection Account and the Bond Account. Assumption fees, late payment charges,
prepayment charges, charges for checks returned for insufficient funds, and
extension and other administrative charges, to the extent collected from
Mortgagors, will be retained by the Servicer as additional servicing
compensation.
The Servicer will be required to pay all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance of its servicing
obligations, including, but not limited to, the payment of fees for the
Sub-Servicer and the cost of (i) the preservation, restoration and protection of
the Mortgaged Properties, (ii) any enforcement or judicial proceedings,
including foreclosures, and (iii) the management and liquidation of Mortgaged
Properties acquired in satisfaction of the related Mortgage Loans. Such
expenditures (each, a "Servicing Advance") may include costs of collection
efforts, reappraisals, forced placement of hazard insurance if a borrower allows
his hazard policy to lapse, legal fees in connection with foreclosure actions,
advancing delinquent property taxes and upkeep and maintenance of the Mortgaged
Property if it is acquired through foreclosure and similar types of expenses.
The Servicing Agreement provides that the Servicer may pay all or a portion
of any Servicing Advance out of amounts on deposit in the Collection Account
which are being held for payment on a subsequent Payment Date relating to such
Collection Period; any such amounts so used are required to be replaced by the
Servicer by deposit to the Collection Account on or before the Deposit Date
relating to such subsequent Payment Date.
The Servicer may recover Servicing Advances, if not theretofore recovered
from the Mortgagor on whose behalf such Servicing Advance was made, from
subsequent collections on the related Mortgage Loan, including Liquidation
Proceeds, Insurance Proceeds and such other amounts as may be collected by the
Servicer from the Mortgagor or otherwise relating to the Mortgage Loan. To the
extent the Servicer, in its good faith business judgment, determines that any
Servicing Advance will be a Nonrecoverable Advance, the Servicer may reimburse
itself on the first Payment Date thereafter.
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<PAGE> 53
The Servicer will not be required to make any Servicing Advance that it
determines would be a Nonrecoverable Advance.
SERVICER'S MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
Certain information concerning the delinquency and foreclosure experience,
for the three year period ended June 30, 1996, with respect to home equity
mortgage loans serviced by the Servicer, including home equity loans pooled and
sold in the secondary market, is set forth under the caption "The Servicer --
Mortgage Loan Delinquency and Foreclosure Experience" in the Prospectus. Such
information includes delinquency and foreclosure experience with respect to home
equity mortgage loans originated or purchased by the Servicer or Affiliated
Originators and included in the servicing portfolio of the Servicer of its
affiliates for the periods indicated.
The following table sets forth the Servicer's delinquency and foreclosure
experience with respect to home equity mortgage loans originated or purchased by
the Servicer or Affiliated Originators and included in the servicing portfolio
of the Servicer of its affiliates for the six months ended December 31, 1996,
except that the information with respect to losses on foreclosed loans does not
include any mortgage loans not sold by the Servicer in connection with a
securitization even if serviced and foreclosed upon during the indicated period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Percentage of dollar amount of delinquent loans to loans serviced (period
end)(1)(2)
One month.............................................................. 3.8%
Two months............................................................. 1.8%
Three or more months:
Not foreclosed(3)................................................. 7.5%
Foreclosed(4)..................................................... 1.1%
-------
Total........................................................ 14.2%
=======
Percentage of dollar amount of loans foreclosed to loans serviced (period
end)(2)................................................................... 0.78%
Number of loans foreclosed.................................................. 211
Principal amount at time of foreclosure of foreclosed loans (in
thousands)................................................................ $17,472
Losses on foreclosed loans included in pools of loans securitized (in
thousands)................................................................ $(1,804)
</TABLE>
- ---------------
(1) Delinquent loans are loans for which more than one payment is due.
(2) The delinquency and foreclosure percentages are calculated on the basis of
the total dollar amount of mortgage loans originated or purchased by ACC
and, in each case, serviced by the Servicer, or the Servicer and any
subservicers, as applicable, as of the end of the periods indicated.
(3) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded.
(4) Represents properties acquired following a foreclosure sale and still
serviced by the Servicer at period end.
There is no assurance that the delinquency, foreclosure and loss experience
with respect to any of the Mortgage Loans will be comparable to the experience
reflected above or in the Prospectus. Because certain Mortgage Loans may have
been underwritten pursuant to standards that rely primarily on the value of the
related Mortgaged Properties rather than the creditworthiness of the related
Mortgagor, the actual rates of delinquencies, foreclosures and losses on such
Mortgage Loans could be higher than those historically experienced in the
mortgage lending industry in general, particularly in periods during which the
values of the related Mortgaged Properties decline. In addition, the rate of
delinquencies, foreclosures and losses with respect to the Mortgage Loans will
also be affected by, among other things, interest rate fluctuations and general
and regional economic conditions. See "Risk Factors -- Nature of the Security
for Mortgage Loans" and "The Originators -- Underwriting Guidelines" in the
Prospectus.
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<PAGE> 54
THE FINANCIAL GUARANTY INSURANCE POLICY AND
THE FINANCIAL GUARANTY INSURER
THE FINANCIAL GUARANTY INSURER
The information set forth in this section has been provided by Financial
Security Assurance Inc. (the "Financial Guaranty Insurer"). No representation is
made by the Bond Issuer or any of its affiliates as to the accuracy or
completeness of any such information.
The Financial Guaranty Insurer is a monoline insurance company incorporated
in 1984 under the laws of the State of New York. The Financial Guaranty Insurer
is licensed to engage in financial guaranty insurance business in all 50 states,
the District of Columbia and Puerto Rico.
The Financial Guaranty Insurer and its subsidiaries are engaged in the
business of writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general, financial
guaranty insurance consists of the issuance of a guaranty of scheduled payments
of an issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer. The
Financial Guaranty Insurer and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. The Financial Guaranty Insurer insures both newly issued
securities sold in the primary market and outstanding securities sold in the
secondary market that satisfy the Financial Guaranty Insurer's underwriting
criteria.
The Financial Guaranty Insurer is a wholly owned subsidiary of Financial
Security Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed
company. Major shareholders of Holdings include Fund American Enterprises
Holdings, Inc., US WEST Capital Corporation and the Tokio Marine and Fire
Insurance Co., Ltd. No shareholder of Holdings is obligated to pay any debt of
the Financial Guaranty Insurer or any claim under any insurance policy issued by
the Financial Guaranty Insurer or to make any additional contribution to the
capital of the Financial Guaranty Insurer.
The principal executive offices of the Financial Guaranty Insurer are
located at 350 Park Avenue, New York, New York 10022, and its telephone number
at that location is (212) 826-0100.
Reinsurance. Pursuant to an intercompany agreement, liabilities on
financial guaranty insurance written or reinsured from third parties by the
Financial Guaranty Insurer or any of its domestic operating insurance company
subsidiaries are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, the Financial
Guaranty Insurer reinsures a portion of its liabilities under certain of its
financial guaranty insurance policies with other reinsurers under various quota
share treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by the Financial Guaranty Insurer as a risk management device and to
comply with certain statutory and rating agency requirements; it does not alter
or limit the Financial Guaranty Insurer's obligations under any financial
guaranty insurance policy.
Ratings of Claims-Paying Ability. The Financial Guaranty Insurer's
claims-paying ability is rated "Aaa" by Moody's and "AAA" by S&P, Nippon
Investors Service Inc. and Standard & Poor's (Australia) Pty. Ltd. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
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<PAGE> 55
Capitalization. The following tables sets forth the capitalization of the
Financial Guaranty Insurer and its wholly owned subsidiaries on the basis of
generally accepted accounting principles as of September 30, 1996 (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
<S> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums)..................... $ 358,145
Shareholder's Equity:
Common Stock........................................... 15,000
Additional Paid-In Capital............................. 666,470
Unrealized Gain on Investments
(net of deferred income taxes)....................... 2,482
Accumulated Earnings................................... 111,231
----------
Total Shareholder's Equity.................................. 795,183
----------
Total Deferred Premium Revenue Equity and Shareholder's..... $1,153,328
==========
</TABLE>
For further information concerning the Financial Guaranty Insurer, see the
consolidated financial statements of the Financial Guaranty Insurer and its
subsidiaries, and the notes thereto, incorporated by reference herein. Copies of
the statutory quarterly and annual statements filed with the State of New York
Insurance Department by the Financial Guaranty Insurer are available upon
request to the State of New York Insurance Department.
Incorporation of Certain Documents by Reference. The consolidated
financial statements of the Financial Guaranty Insurer and Subsidiaries for the
year ended December 31, 1995, included as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1995, and the unaudited financial
statements of the Financial Guaranty Insurer and its subsidiaries for the
quarterly periods ended March 31, 1996, June 30, 1996 and September 30, 1996,
included as an exhibit to the Quarterly Report on Form 10-Q for the periods
ended March 31, 1996, June 30, 1996 and September 30, 1996, respectively, each
of which has been filed with the Commission by Holdings, are hereby incorporated
by reference in this Prospectus Supplement. All financial statements of the
Financial Guaranty Insurer and Subsidiaries included in documents filed by
Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the date of this Prospectus
Supplement and prior to the termination of the offering of the Bonds shall be
deemed to be incorporated by reference into this Prospectus Supplement and to be
a part hereof from the respective dates of filing of such documents.
Such consolidated financial statements of the Financial Guaranty Insurer
and its subsidiaries have been prepared on the basis of generally accepted
accounting principles. The New York State Insurance Department recognizes only
statutory accounting practices for determining and reporting the financial
conditions and results of operations of an insurance company, for determining
solvency under the New York Insurance Law, and for determining whether its
financial condition warrants the payment of a dividend to its stockholders. No
consideration is given by the New York State Insurance Department to financial
statements prepared in accordance with generally accepted principles in making
such determinations.
Insurance Regulation. The Financial Guaranty Insurer is licensed and
subject to regulation as a financial guaranty insurance corporation under the
laws of the State of New York, its state of domicile. In addition, the Financial
Guaranty Insurer and its insurance subsidiaries are subject to regulation by
insurance laws of the various other jurisdictions in which they are licensed to
do business. As a financial guaranty insurance corporation licensed to do
business in the State of New York, the Financial Guaranty Insurer is subject to
Article 69 of the New York Insurance Law which, among other things, limits the
business of each such insurer to financial guaranty insurance and related lines,
requires that each such insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
such insurer, and limits the size of individual transactions ("single risks")
and the volume of transactions ("aggregate risks") that may be underwritten by
each such insurer. Other provisions of the New
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<PAGE> 56
York Insurance Law, applicable to non-life insurance companies such as the
Financial Guaranty Insurer, regulate, among other things, permitted investments,
payment of dividends, transactions with affiliates, mergers, consolidations,
acquisitions or sales of assets and incurrence of liabilities for borrowings.
THE FINANCIAL GUARANTY INSURANCE POLICY
The Bond Issuer will obtain the Financial Guaranty Insurance Policy, issued
by the Financial Guaranty Insurer, in favor of the Bondholders. Under the
Financial Guaranty Insurance Policy, the Financial Guaranty Insurer shall
unconditionally and irrevocably guaranty to the Indenture Trustee for the
benefit of each Bondholder the full and complete payment of Bond Interest and
any Coverage Deficit for the related Payment Date. The Financial Guaranty
Insurance Policy does not insure final payment of the Bonds on any specific
Payment Date.
The Financial Guaranty Insurer is required to pay Insured Amounts to the
Indenture Trustee as paying agent following Receipt by the Financial Guaranty
Insurer of the appropriate notice for payment on the later to occur of (a) 12:00
noon, New York City time, on the second business day following Receipt of such
notice for payment and (b) 12:00 noon, New York City time, on the related
Payment Date.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Financial Guaranty Insurance Policy, the Financial Guaranty Insurer shall
cause such payment to be made on the latter of (a) the date when due to be paid
pursuant to the Order referred to below or (b) the first to occur of (i) the
fourth business day following Receipt by the Financial Guaranty Insurer from the
Indenture Trustee of (A) a certified copy of the order (the "Order") of the
court or other governmental body that exercised jurisdiction to the effect that
the relevant Bondholders are required to return principal or interest paid with
respect to such Bonds during the term of the Financial Guaranty Insurance Policy
because such payments were avoidable as preference payments under applicable
bankruptcy law, (B) a certificate of each relevant Bondholder that the Order has
been entered and is not subject to any stay and (C) an assignment duly executed
and delivered by each relevant Bondholder, in such form as is reasonably
required by the Financial Guaranty Insurer and provided to the relevant
Bondholder by the Financial Guaranty Insurer, irrevocably assigning to the
Financial Guaranty Insurer all rights and claims of the Bondholder relating to
or arising under the relevant Bonds held by such Bondholder against the debtor
that made such preference payment or otherwise with respect to such preference
payment or (ii) the date of Receipt by the Financial Guaranty Insurer from the
Indenture Trustee of the items referred to in clauses (A), (B) and (C) of (i)
above if, at least four business days prior to such date of Receipt, the
Financial Guaranty Insurer shall have Received written notice from the Indenture
Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Indenture Trustee or any Bondholder directly (unless such
Bondholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or Indenture Trustee in bankruptcy named in the Order in
which such case payment shall be disbursed to the Indenture Trustee for payment
to such Bondholder upon proof of such payment reasonably satisfactory to the
Financial Guaranty Insurer). In connection with the foregoing, the Financial
Guaranty Insurer shall have certain rights of subrogation, as described in the
Indenture.
The terms "Receipt" and "Received," with respect to the Financial Guaranty
Insurance Policy, mean actual delivery to the Financial Guaranty Insurer and to
the Financial Guaranty Insurer's fiscal agent, if any, prior to 12:00 noon, New
York City time, on a business day; delivery either on a day that is not a
business day or after 12:00 noon, New York City time, shall be deemed to be
Received on the next succeeding business day. If any notice or certificate given
under the Financial Guaranty Insurance Policy by the Indenture Trustee is not in
proper form or is not properly completed, executed or delivered, it shall be
deemed not to have been Received, and the Financial Guaranty Insurer or its
fiscal agent shall promptly so advise the Indenture Trustee and the Indenture
Trustee may submit an amended notice.
Under the Financial Guaranty Insurance Policy, "business day" means any day
other than (i) a Saturday or Sunday or (ii) a day on which banking institutions
in the City of New York, New York are authorized or obligated by law or
executive order to be closed.
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<PAGE> 57
The Financial Guaranty Insurer may effect a redemption of the Bonds by
exercising its right to purchase all of the Mortgage Loans from the Indenture
Trustee if Mortgage Loans with aggregate original Principal Balances that equal
or exceed 25% of the sum of the Initial Pool Balance and the Prefunding Account
Deposit have become Liquidated Mortgage Loans. See "Description of the
Bonds -- Redemption of the Bonds" herein.
The Financial Guaranty Insurance Policy is non-cancelable.
THE FINANCIAL GUARANTY INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The Financial Guaranty Insurer's obligation under the Financial Guaranty
Insurance Policy will be discharged to the extent that funds are disbursed by
the Financial Guaranty Insurer in accordance with the Financial Guaranty
Insurance Policy, whether or not such funds are properly paid by the Indenture
Trustee.
The Financial Guaranty Insurance Policy does not guarantee to the
Bondholders any specific rate of prepayments of principal of the Mortgage Loans.
Payments of principal on the Bonds are covered only to the extent of any
Coverage Deficit on a Payment Date, but such coverage will result in ultimate
collection of the Bond Balance.
Pursuant to the terms of the Indenture and the Servicing Agreement and
notwithstanding anything to the contrary herein, unless a default by the
Financial Guaranty Insurer exists, the Financial Guaranty Insurer shall be
deemed to be the Bondholders for all purposes (other than with respect to
payment on the Bonds), will be entitled to exercise all rights of the
Bondholders thereunder, without the consent of such Bondholders, and the
Bondholders may exercise such rights only with the prior written consent of the
Financial Guaranty Insurer. In addition, the Financial Guaranty Insurer will, as
a third party beneficiary to the Servicing Agreement, have among others, the
following rights: (i) the right to give notices of breach or to terminate the
rights and obligations of the Servicer under the Servicing Agreement in the
event of a Servicer Event of Default; (ii) the right to direct the actions of
the Indenture Trustee during the continuation of a Servicer Event of Default;
(iii) the right to require the Bond Issuer to remove Mortgage Loans for breach
of representation and warranty or defect in documentation; and (iv) the right to
direct foreclosures upon the failure of the Servicer to do so in accordance with
the Servicing Agreement. The Financial Guaranty Insurer's consent (which consent
will not be unreasonably withheld) will be required prior to, among other
things, (i) the appointment of any successor Indenture Trustee or Servicer or
(ii) any amendment to the Indenture or the Servicing Agreement.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the Financial Guaranty Insurance
Policy is protection for credit risk and not for prepayment risk. A claim may
not be made under the Financial Guaranty Insurance Policy, in an attempt to
guarantee or insure that any particular rate of prepayment is experienced by the
Trust.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
No election will be made to treat the Trust Estate or any portion thereof
as a REMIC for federal income tax purposes.
The Bonds will be treated as newly originated debt instruments for federal
income tax purposes. It is anticipated that the Bonds will be issued without
original issue discount for federal income tax purposes. However, it is possible
that the Internal Revenue Service could treat a portion of the additional
interest which would become payable on the Bonds after the Pool Redemption Date
as original issue discount. Bondholders are urged to consult their tax advisors
with respect to the tax consequences of holding the Bonds.
The Prepayment Assumption that is to be used in determining whether the
Bonds are issued with original issue discount and the rate of accrual of
original issue discount is a CPR of 25%. No representation is made as to the
actual rate at which the Mortgage Loans will prepay. See "Certain Federal Income
Tax Consequences -- Taxation of Bonds" in the Prospectus.
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<PAGE> 58
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), plans described in section 4975(e)(1) of the
Code, including individual retirement accounts or Keogh plans, and any entities
whose underlying assets include plan assets by reason of a plan's investment in
such entities (each a "Plan") and (b) persons who have certain specified
relationships to such Plans ("Parties-in-Interest" under ERISA and "Disqualified
Persons" under the Code). Moreover, based on the reasoning of the United States
Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114
S. Ct. 517 (1993), an insurance company's general account may be deemed to
include assets of the Plans investing in the general account (e.g., through the
purchase of an annuity contract). ERISA also imposes certain duties on persons
who are fiduciaries of Plans subject to ERISA and prohibits certain transactions
between a Plan and Parties-in-Interest or Disqualified Persons with respect to
such Plans.
Certain transactions involving the purchase, holding or transfer of the
Bonds might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the Bond Issuer were deemed to be assets of a Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Bond Issuer would be treated as plan assets of a
Plan for the purposes of ERISA and the Code only if the Plan acquires an "equity
interest" in the Bond Issuer and none of the exceptions contained in the Plan
Assets Regulation is applicable. An equity interest is defined under the Plan
Assets Regulation as an interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. Although there can be no assurances in this regard, it appears
that the Bonds should be treated as debt without substantial equity features for
purposes of the Plan Assets Regulation and that the Bonds do not constitute
beneficial interests in the Bond Issuer for purposes of the Plan Assets
Regulation and, consequently, are eligible for purchase by Plans.
However, without regard to whether the Bonds are treated as an equity
interest for such purposes, the acquisition or holding of Bonds by or on behalf
of a Plan could be considered to give rise to a prohibited transaction if the
Bond Issuer or the Indenture Trustee, or any of their respective affiliates is
or becomes a "party in interest" under ERISA or a "disqualified person" under
the Code with respect to such Plan. In such case, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire Bonds.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 96-23, regarding transactions effected by "in-house asset managers";
PTCE 90-1, regarding investments by insurance company pooled separate accounts;
PTCE 95-60, regarding transactions effected by "insurance company general
accounts"; PTCE 91-38, regarding investments by bank collective investment
funds; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." A purchaser of a Bond should be aware, however,
that even if the conditions specified in one or more exemptions are met, the
scope of the relief provided by an exemption might not cover all acts that might
be construed as prohibited transactions. The purchase of a Bond will be deemed a
representation by the acquirer that either: (i) it is not, and is not purchasing
a Bond for or on behalf of, a "benefit plan investor" as such term is defined in
29 C.F.R. Section 2510.3-101 which is subject to Title I of ERISA or Section
4975 of the Code, or (ii) the acquisition or holding of a Bond by the acquirer
qualifies for prohibited transaction exemptive relief under PTCE 95-60, PTCE
96-23, PTCE 91-38, PTCE 90-1, PTCE 84-14 or some other applicable exemption.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such a governmental plan may be subject to
a federal, state, or local law, which is, to a material extent, similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and the
availability of any exemptive relief under Similar Law.
The sale of Bonds to a Plan is in no respect a representation by the Bond
Issuer or the Underwriters that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan. See "ERISA Considerations" in the Prospectus.
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<PAGE> 59
USE OF PROCEEDS
The Bond Issuer intends to use the net proceeds to be received from the
sale of the Bonds to acquire the Initial Mortgage Loans from the Transferor, to
fund the Prefunding Account and the Capitalized Interest Account and to pay
other expenses associated with the pooling of the Mortgage Loans and the
issuance of the Bonds.
LEGAL INVESTMENT CONSIDERATIONS
The Bonds will not constitute "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal authority to invest in
comparably rated securities may not be legally authorized to invest in the
Bonds. No representation is made herein as to whether the Bonds constitute legal
investments for any entity under any applicable statute, law, rule, regulation
or order. Prospective purchasers are urged to consult with their counsel
concerning the status of the Bonds as legal investments for such purchasers
prior to investing in the Bonds.
UNDERWRITING
Under the terms set forth in the Underwriting Agreement and the related
Pricing Agreement for the sale of the Bonds, dated March 18, 1997 (collectively,
the "Underwriting Agreement"), the Transferor has agreed to cause the Bond
Issuer to sell, and the Underwriters have severally agreed to purchase, the
respective principal amount of Bonds set forth opposite their respective names.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase the entire principal amount
of the Bonds.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF BONDS
------------------------------------------------------------- ----------------
<S> <C>
Credit Suisse First Boston Corporation....................... $166,000,000
Donaldson, Lufkin & Jenrette Securities Corporation.......... $124,500,000
Lehman Brothers Inc. ........................................ $ 62,250,000
Prudential Securities Incorporated........................... $ 62,250,000
------------
Total.............................................. $415,000,000
============
</TABLE>
The Underwriters have informed the Transferor that they propose to offer
the Bonds for sale from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined, in each case, at the time of the
related sale. The Underwriters may effect such transactions by selling the Bonds
to or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters. In
connection with the sale of the Bonds, the Underwriters may be deemed to have
received compensation from the Transferor in the form of underwriting
compensation. The Underwriters and any dealers that participate with the
Underwriters in the distribution of the Bonds may be deemed to be underwriters
and any commissions received by them and any profit on the resale of the Bonds
by them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended (the "Securities Act").
The Transferor has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act.
The Transferor has been advised by the Underwriters that the Underwriters
intend to make a market in the Bonds, as permitted by applicable laws and
regulations. The Underwriters are not obligated, however, to make a market in
the Bonds and such market-making may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Bonds.
The Underwriters have represented that: (i) they have not offered or sold
and will not offer or sell, prior to the date six months after their date of
issuance, any Bonds to persons in the United Kingdom, except to
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<PAGE> 60
persons whose activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted in and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (ii) they have complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Bonds in, from or otherwise
involving the United Kingdom; and (iii) they have only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the Bonds to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom the document can lawfully be
issued or passed on.
REPORT OF EXPERTS
The consolidated balance sheets of the Financial Guaranty Insurer and
Subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1995, incorporated by reference
in this Prospectus Supplement, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the Bonds will be passed upon for the
Bond Issuer by Andrews & Kurth L.L.P., Washington, D.C. Stroock & Stroock &
Lavan LLP will act as counsel for the Underwriters. Certain legal matters
relating to the Financial Guaranty Insurer and the Financial Guaranty Insurance
Policy will be passed upon by inside counsel to the Financial Guaranty Insurer.
RATING OF THE BONDS
It is a condition to the issuance of the Bonds that each shall be rated
"Aaa" by Moody's and "AAA" by S&P.
Explanations of the significance of such ratings may be obtained from
Moody's, 99 Church Street, New York, New York 10007, and S&P, 25 Broadway, New
York, New York 10004. Each rating will be the view only of the assigning Rating
Agency.
The ratings on the Bonds are based in substantial part on the claims-paying
ability of the Financial Guaranty Insurer. Any change in the ratings of the
Financial Guaranty Insurer by the Rating Agencies may result in a change in the
ratings of the Bonds.
There is no assurance that any rating assigned to the Bonds will continue
for any period of time or that such ratings will not be revised or withdrawn.
Any such revision or withdrawal of such ratings may have an adverse effect on
the market price or liquidity of the Bonds.
The ratings of the Bonds should be evaluated independently from similar
ratings on other types of securities. A security rating is not a recommendation
to buy, sell or hold securities.
There can be no assurance as to whether any other rating agency will rate
the Bonds, or, if one does, what rating will be assigned by such other rating
agency. A rating on the Bonds by another rating agency, if assigned at all, may
be lower than the ratings assigned to the Bonds by Moody's or S&P.
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<PAGE> 61
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
-----------------
<S> <C>
Aames' Guidelines.......................................................... S-43
ACC........................................................................ ii, S-3
Additional Mortgage Loans.................................................. ii, S-4
Adjustable Rate Cap........................................................ S-6, S-26
AFC........................................................................ ii, S-3
Affiliated Originators..................................................... S-11
Aggregate Principal Balance................................................ S-11
Aggregate Risks............................................................ S-52
Available Funds............................................................ S-5, S-28
Bond Account............................................................... S-29
Bond Balance............................................................... S-6, S-26
Bond Interest.............................................................. S-6, S-25
Bond Interest Rate......................................................... S-6, S-26
Bond Issuer................................................................ cover, S-3
Bond Owner................................................................. S-4
Bondholder................................................................. S-5, S-20
Bonds...................................................................... cover, S-3
Book-Entry Bonds........................................................... S-20
Bulk Purchase Mortgage Loans............................................... S-4
Business day............................................................... S-5
Capitalized Interest Account............................................... S-9
Cedel...................................................................... S-4
Cedel Participants......................................................... S-21
Citibank................................................................... S-20
Closing Date............................................................... S-4
Code....................................................................... S-12
Collection Account......................................................... S-44
Collection Period.......................................................... S-5
Commission................................................................. S-1
Compensating Interest Payment.............................................. S-10, S-46
Constant Prepayment Rate................................................... S-42
Cooperative................................................................ S-21
Coverage Amount............................................................ S-7, S-31
Coverage Deficit........................................................... S-8, S-32
Coverage Surplus........................................................... S-8, S-32
CPR........................................................................ S-42
Cut-off Dates.............................................................. S-3
Defective Mortgage Loan.................................................... S-24
Definitive Bond............................................................ S-4
Deposit Date............................................................... S-44
Determination Date......................................................... S-27
Disqualified Persons....................................................... S-55
DTC........................................................................ S-1, S-4
ERISA...................................................................... S-12, S-55
Euroclear.................................................................. S-4
Euroclear Operator......................................................... S-21
Euroclear Participants..................................................... S-21
European Depositaries...................................................... S-20
Excess Cash................................................................ S-7, S-31
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
PAGE
-----------------
<S> <C>
Federal Reserve Board...................................................... S-22
Final Maturity Date........................................................ ii, S-9
Financial Guaranty Insurance Policy........................................ S-4
Financial Guaranty Insurer................................................. S-4, S-51
Financial Guaranty Insurer Premium......................................... S-10, S-34
Financial Intermediary..................................................... S-20
Funding Period............................................................. S-9
Holdings................................................................... S-51
Indenture.................................................................. cover, S-4
Indenture Trustee.......................................................... cover, S-3
Initial Cut-off Date Pool Balance.......................................... S-7
Initial Mortgage Loans..................................................... ii, S-4
Initial Pool Balance....................................................... cover, S-11
Insolvency Event........................................................... S-18
Insolvency Laws............................................................ S-18
Insurance Proceeds......................................................... S-28
Insured Amount............................................................. S-33
Insurer Premium Rate....................................................... S-10, S-34
Interest Period............................................................ S-6
LIBOR...................................................................... S-26
LIBOR Determination Date................................................... S-26
Liquidated Mortgage Loan................................................... S-28
Liquidation Proceeds....................................................... S-28
Loan-to-Value Ratios....................................................... S-37
Maximum Rates.............................................................. S-37
Minimum Rates.............................................................. S-37
Monthly Advance............................................................ S-10, S-45
Monthly Principal.......................................................... S-7, S-27
Moody's.................................................................... S-12
Morgan..................................................................... S-20
Mortgage Files............................................................. S-24
Mortgage Interest Rates.................................................... S-37
Mortgage Loan Schedule..................................................... S-23
Mortgage Loans............................................................. cover
Mortgage Note.............................................................. S-4
Mortgage Pool.............................................................. cover, S-4
Mortgaged Properties....................................................... S-4
Net Liquidation Proceeds................................................... S-28
Nonrecoverable Advances.................................................... S-45
One-year CMT index......................................................... S-13
Order...................................................................... S-53
Original Bond Balance...................................................... S-3
Original Mortgage Loans.................................................... S-3
Originators................................................................ S-11
Participants............................................................... S-21
Parties-in-Interest........................................................ S-55
Paying Agent............................................................... S-25
Payment Ahead.............................................................. S-27
Payment Date............................................................... S-5
Percentage Interest........................................................ S-25
Permitted Investments...................................................... S-29
Plan....................................................................... S-55
Plan Assets Regulation..................................................... S-55
</TABLE>
S-59
<PAGE> 63
<TABLE>
<CAPTION>
PAGE
-----------------
<S> <C>
Pool Redemption Date....................................................... S-34
Prefunding Account......................................................... S-9
Prefunding Account Deposit................................................. S-9, S-30
Principal Balance.......................................................... S-27
Principal Payment.......................................................... S-27
Principal Prepayment....................................................... S-27
PTCE....................................................................... S-55
Qualified Replacement Mortgage............................................. S-24
Rating Agencies............................................................ S-12
Realized Loss.............................................................. S-32
Receipt.................................................................... S-53
Received................................................................... S-53
Record Date................................................................ S-5
Reference Banks............................................................ S-26
Release Price.............................................................. S-24
Relevant Depositary........................................................ S-20
REMIC...................................................................... ii, S-12
REO Property............................................................... S-45
Required Coverage Amount................................................... S-8, S-31
Reserve Interest Rate...................................................... S-26
Reuters Screen LIBO Page................................................... S-26
Rules...................................................................... S-20
S&P........................................................................ S-12
Securities Act............................................................. S-56
Servicer................................................................... ii, S-3
Servicer Event of Default.................................................. S-47
Servicing Advance.......................................................... S-49
Servicing Agreement........................................................ ii, S-3
Servicing Fee.............................................................. S-10
Servicing Fee Rate......................................................... S-10, S-49
Similar Law................................................................ S-55
Single risks............................................................... S-52
Six-month London Interbank Offered Rate.................................... S-13
SMMEA...................................................................... S-12
Statistical Calculation Date............................................... S-11
Sub-Servicer............................................................... S-3, S-49
Subsequent Transfer Date................................................... S-9
Terms and Conditions....................................................... S-22
Transferor................................................................. ii, S-3
Trigger Event Date......................................................... S-8, S-17, S-32
Trust Agreement............................................................ S-3
Trust Estate............................................................... cover, S-4
Unaffiliated Originators................................................... S-11
Underwriters............................................................... cover
Underwriting Agreement..................................................... S-56
Voting Interests........................................................... S-35
Weighted average life...................................................... S-42
</TABLE>
S-60
<PAGE> 64
ANNEX A
DESCRIPTION OF THE MORTGAGE POOL
The following is a brief description of certain terms of the Initial
Mortgage Loans as of the Statistical Calculation Date. Certain mortgage loans
may prepay in full or be removed, prior to the Closing Date, from the Mortgage
Pool as described herein, in which case an amount equal to the aggregate
principal balances of such mortgage loans, but in no event more than
$10,000,000, will be added to the Prefunding Account Deposit on the Closing
Date. The statistical information presented below does not take into account any
amortization of the Initial Mortgage Loans prior to the Closing Date or any
Additional Mortgage Loans that may be added to the Mortgage Pool during the
Funding Period. As a result, the statistical information presented below
regarding the Initial Mortgage Loans may vary in certain limited respects from
comparable information based on the actual composition of the Mortgage Pool at
the Closing Date.
The information expressed as a percentage of the Initial Pool Balance may
not total 100% due to rounding.
All of the Initial Mortgage Loans will be secured by first liens with
respect to the related Mortgaged Properties and will bear interest at rates that
adjust based on the index described in the related Mortgage Notes. Payments on
the Bonds will be derived primarily from amounts received, collected or
recovered from the Mortgage Loans in the Mortgage Pool.
COMPOSITION OF INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL PERCENTAGE OF
INITIAL MORTGAGE LOAN CATEGORY MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
Original Mortgage Loans....................... 2,615 $ 258,829,307.10 76.05%
Bulk Purchase Mortgage Loans.................. 727 81,517,353.85 23.95
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ ========
</TABLE>
INITIAL POOL BALANCE
<TABLE>
<CAPTION>
AGGREGATE UNPAID
RANGE OF NUMBER OF PRINCIPAL PERCENTAGE OF
PRINCIPAL BALANCES MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
0.00 to 25,000.00....................... 102 $ 2,240,648.46 0.66%
25,000.01 to 50,000.00...................... 593 23,312,806.86 6.85
50,000.01 to 75,000.00...................... 752 47,085,660.51 13.83
75,000.01 to 100,000.00...................... 629 55,107,185.89 16.19
100,000.01 to 125,000.00...................... 434 48,509,924.81 14.25
125,000.01 to 150,000.00...................... 268 36,732,678.07 10.79
150,000.01 to 175,000.00...................... 172 27,767,789.86 8.16
175,000.01 to 200,000.00...................... 114 21,534,011.97 6.33
200,000.01 to 225,000.00...................... 73 15,560,363.36 4.57
225,000.01 to 250,000.00...................... 61 14,564,700.77 4.28
250,000.01 to 275,000.00...................... 32 8,429,738.07 2.48
275,000.01 to 300,000.00...................... 36 10,349,544.73 3.04
300,000.01 to 325,000.00...................... 18 5,665,923.76 1.66
325,000.01 to 350,000.00...................... 19 6,415,108.71 1.88
350,000.01 to 400,000.00...................... 20 7,667,578.24 2.25
Above 400,000.00.............................. 19 9,402,996.88 2.76
------ --------------- -------
Total............................... 3,342 $340,346,660.95 100.00%
====== =============== =======
</TABLE>
A-1
<PAGE> 65
ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE UNPAID
ORIGINAL TERMS TO NUMBER OF PRINCIPAL PERCENTAGE OF
MATURITY (MONTHS) MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
60........................................... 1 $ 25,788.76 0.01%
180........................................... 30 1,544,800.65 0.45
360........................................... 3,311 338,776,071.54 99.54
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ =======
</TABLE>
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
RANGE OF AGGREGATE UNPAID
REMAINING TERMS TO NUMBER OF PRINCIPAL PERCENTAGE OF
MATURITY (MONTHS) MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
0 to 120.................................... 1 $ 25,788.76 0.01%
121 to 180.................................... 30 1,544,800.65 0.45
301 to 360.................................... 3,311 338,776,071.54 99.54
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ ========
</TABLE>
RANGE OF MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
AGGREGATE UNPAID
RANGE OF MORTGAGE NUMBER OF PRINCIPAL PERCENTAGE OF
INTEREST RATES MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
5.000 to 5.999.............................. 8 $ 1,071,053.39 0.31%
6.000 to 6.999.............................. 15 1,459,781.44 0.43
7.000 to 7.999.............................. 128 16,468,278.49 4.84
8.000 to 8.999.............................. 569 66,836,520.43 19.64
9.000 to 9.999.............................. 894 100,282,134.43 29.46
10.000 to 10.999.............................. 709 71,020,500.60 20.87
11.000 to 11.999.............................. 401 34,760,003.58 10.21
12.000 to 12.999.............................. 335 26,721,225.12 7.85
13.000 to 13.999.............................. 195 14,112,096.46 4.15
14.000 to 14.999.............................. 73 6,496,623.78 1.91
15.000 to 15.999.............................. 15 1,118,443.23 0.33
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ ========
</TABLE>
A-2
<PAGE> 66
RANGE OF MAXIMUM MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
AGGREGATE UNPAID
RANGE OF NUMBER OF PRINCIPAL PERCENTAGE OF
MAXIMUM RATES MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
8.001 to 9.000.............................. 1 $ 138,000.00 0.04%
12.001 to 13.000.............................. 14 1,813,124.41 0.53
13.001 to 14.000.............................. 63 8,296,847.42 2.44
14.001 to 15.000.............................. 329 40,091,627.53 11.78
15.001 to 16.000.............................. 806 94,190,288.56 27.67
16.001 to 17.000.............................. 837 87,711,080.38 25.77
17.001 to 18.000.............................. 543 49,581,930.96 14.57
18.001 to 19.000.............................. 375 31,525,634.34 9.26
19.001 to 20.000.............................. 234 16,513,335.21 4.85
20.001 to 21.000.............................. 109 7,912,058.20 2.32
21.001 to 22.000.............................. 31 2,572,733.94 0.76
------ ---------------- ------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ =======
</TABLE>
RANGE OF MINIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
AGGREGATE UNPAID
RANGE OF MINIMUM NUMBER OF PRINCIPAL PERCENTAGE OF
MORTGAGE RATES MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
4.001 to 5.000.............................. 2 $ 471,171.66 0.14%
5.001 to 6.000.............................. 29 4,595,849.69 1.35
6.001 to 7.000.............................. 69 8,290,026.14 2.44
7.001 to 8.000.............................. 125 15,401,285.06 4.53
8.001 to 9.000.............................. 555 63,683,028.06 18.71
9.001 to 10.000.............................. 853 94,961,749.31 27.90
10.001 to 11.000.............................. 713 71,660,512.21 21.06
11.001 to 12.000.............................. 407 34,992,048.65 10.28
12.001 to 13.000.............................. 334 26,718,737.64 7.85
13.001 to 14.000.............................. 171 12,499,223.30 3.67
14.001 to 15.000.............................. 74 6,249,226.08 1.84
15.001 to 16.000.............................. 10 823,803.15 0.24
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ =======
</TABLE>
RANGE OF GROSS MARGINS
<TABLE>
<CAPTION>
AGGREGATE UNPAID
RANGE OF NUMBER OF PRINCIPAL PERCENTAGE OF
GROSS MARGINS MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
3.000 to 3.999.............................. 6 $ 903,652.77 0.27%
4.000 to 4.999.............................. 154 18,293,285.71 5.37
5.000 to 5.999.............................. 740 83,653,012.45 24.58
6.000 to 6.999.............................. 812 89,749,738.59 26.37
7.000 to 7.999.............................. 901 87,887,944.89 25.82
8.000 to 8.999.............................. 552 45,122,325.18 13.26
9.000 to 9.999.............................. 152 13,016,042.28 3.82
10.000 to 10.999.............................. 24 1,689,659.08 0.50
14.000 to 14.999.............................. 1 31,000.00 0.01
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
======= ================ =======
</TABLE>
A-3
<PAGE> 67
MORTGAGE INTEREST RATE ADJUSTMENT FREQUENCY
<TABLE>
<CAPTION>
AGGREGATE UNPAID
FREQUENCY OF NUMBER OF PRINCIPAL PERCENTAGE OF
ADJUSTMENT MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
6............................................ 2,638 $ 261,776,349.24 76.91%
12............................................ 704 78,570,311.71 23.09
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ ========
</TABLE>
PERIODS TO NEXT ADJUSTMENT OF MORTGAGE INTEREST RATE
<TABLE>
<CAPTION>
RANGE OF AGGREGATE UNPAID
PERIODS TO NEXT NUMBER OF PRINCIPAL PERCENTAGE OF
ADJUSTMENT MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
0 to 1...................................... 35 $ 4,104,115.60 1.21%
2 to 12...................................... 1,545 169,010,077.50 49.66
13 to 24...................................... 1,629 154,233,820.38 45.32
25 to 36...................................... 132 12,898,929.52 3.79
37 to 48...................................... 1 99,717.95 0.03
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ =======
</TABLE>
INDEX USED TO DETERMINE MORTGAGE INTEREST RATE
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL PERCENTAGE OF
INDEX MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
One-year CMT index............................ 623 $ 71,587,481.83 21.03%
Six-month London Interbank Offered Rate....... 2,719 268,759,179.12 78.97
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
===== ================ =======
</TABLE>
A-4
<PAGE> 68
LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
AGGREGATE UNPAID
RANGE OF NUMBER OF PRINCIPAL PERCENTAGE OF
LOAN-TO-VALUE RATIOS MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
10.01 to 15.00................................ 1 $ 30,000.00 0.01%
15.01 to 20.00................................ 4 134,769.18 0.04
20.01 to 25.00................................ 12 537,839.25 0.16
25.01 to 30.00................................ 14 1,074,939.19 0.32
30.01 to 35.00................................ 26 1,324,756.73 0.39
35.01 to 40.00................................ 23 2,194,915.92 0.64
40.01 to 45.00................................ 43 3,337,412.64 0.98
45.01 to 50.00................................ 92 8,493,814.16 2.50
50.01 to 55.00................................ 95 7,884,811.99 2.32
55.01 to 60.00................................ 233 20,031,331.47 5.89
60.01 to 65.00................................ 672 54,936,070.28 16.14
65.01 to 70.00................................ 444 46,317,278.24 13.61
70.01 to 75.00................................ 710 79,006,618.20 23.21
75.01 to 80.00................................ 726 84,254,808.73 24.76
80.01 to 85.00................................ 201 24,599,930.47 7.23
85.01 to 90.00................................ 42 5,605,612.00 1.65
90.01 to 95.00................................ 2 455,781.00 0.13
Over 100.01................................... 2 125,971.50 0.04
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ ========
</TABLE>
TYPE OF MORTGAGED PROPERTY
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL PERCENTAGE OF
PROPERTY TYPE MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
Manufactured Housing.......................... 2 $ 99,966.31 0.03%
Two- to Four-Family Residences................ 201 17,519,314.84 5.15
Condominiums and Planned Unit Developments.... 245 26,595,670.81 7.81
Single Family Residence....................... 2,894 296,131,708.99 87.01
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ ========
</TABLE>
OCCUPANCY STATUS
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL PERCENTAGE OF
OCCUPANCY STATUS MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
Not Owner Occupied/Investment................. 269 $ 16,530,484.75 4.86%
Owner Occupied/2nd Home....................... 3,073 323,816,176.20 95.14
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ =======
</TABLE>
A-5
<PAGE> 69
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL PERCENTAGE OF
STATE MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
Alaska........................................ 3 $ 237,950.00 0.07%
Arizona....................................... 120 11,892,887.92 3.49
Arkansas...................................... 8 670,880.27 0.20
California.................................... 325 44,946,697.74 13.21
Colorado...................................... 182 21,054,876.17 6.19
Connecticut................................... 141 13,897,740.84 4.08
Delaware...................................... 5 419,269.25 0.12
Florida....................................... 281 28,302,735.21 8.32
Georgia....................................... 79 7,818,811.50 2.30
Hawaii........................................ 46 8,948,919.13 2.63
Idaho......................................... 15 1,057,757.96 0.31
Illinois...................................... 287 28,300,085.68 8.32
Indiana....................................... 47 3,545,639.67 1.04
Iowa.......................................... 9 457,123.46 0.13
Kansas........................................ 10 747,495.95 0.22
Kentucky...................................... 29 1,579,239.52 0.46
Louisiana..................................... 8 1,015,594.87 0.30
Maine......................................... 4 245,214.82 0.07
Maryland...................................... 151 14,881,051.52 4.37
Massachusetts................................. 97 11,305,855.66 3.32
Michigan...................................... 93 8,413,064.98 2.47
Minnesota..................................... 51 4,684,355.18 1.38
Mississippi................................... 4 288,000.00 0.08
Missouri...................................... 69 4,217,779.08 1.24
Montana....................................... 9 750,474.46 0.22
Nebraska...................................... 1 27,625.00 0.01
Nevada........................................ 20 1,999,466.32 0.59
New Hampshire................................. 14 1,465,220.94 0.43
New Jersey.................................... 93 11,741,576.37 3.45
New Mexico.................................... 10 870,987.30 0.26
New York...................................... 109 13,957,592.22 4.10
North Carolina................................ 112 7,622,840.73 2.24
Ohio.......................................... 201 14,921,600.32 4.38
Oklahoma...................................... 8 458,033.63 0.13
Oregon........................................ 85 8,864,755.41 2.60
Other......................................... 1 55,900.00 0.02
Pennsylvania.................................. 99 7,166,234.07 2.11
Rhode Island.................................. 22 1,913,267.71 0.56
South Carolina................................ 31 2,077,661.27 0.61
South Dakota.................................. 4 198,490.44 0.06
Tennessee..................................... 12 953,148.12 0.28
Texas......................................... 61 5,224,692.35 1.54
Utah.......................................... 125 12,995,504.62 3.82
Vermont....................................... 6 483,724.11 0.14
Virginia...................................... 44 5,538,274.98 1.63
Washington.................................... 156 18,138,178.80 5.33
Washington DC................................. 30 2,408,638.94 0.71
West Virginia................................. 4 152,810.36 0.04
Wisconsin..................................... 17 1,143,414.02 0.34
Wyoming....................................... 4 287,522.08 0.08
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ ========
</TABLE>
A-6
<PAGE> 70
TYPE OF LOAN BY AMORTIZATION METHOD
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL PERCENTAGE OF
AMORTIZATION METHOD MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
Fully Amortizing.............................. 3,340 $ 340,249,360.95 99.97%
Balloon....................................... 2 97,300.00 0.03
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ =======
</TABLE>
ORIGINATORS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE UNPAID
NUMBER OF PRINCIPAL PERCENTAGE OF
ORIGINATOR MORTGAGE LOANS BALANCE INITIAL POOL BALANCE
- ---------------------------------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
Affiliated.................................... 1,218 $ 108,398,331.77 31.85%
Unaffiliated.................................. 2,124 231,948,329.18 68.15
------ ---------------- -------
Total............................... 3,342 $ 340,346,660.95 100.00%
====== ================ =======
</TABLE>
A-7
<PAGE> 71
ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Adjustable
Rate Asset-Backed Bonds, Series 1997-1 (the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through DTC, Cedel or Euroclear. The Global Securities
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedure applicable to
U.S. corporate debt obligations.
Secondary cross-market trading between participants of Cedel or Euroclear
and Participants holding Bonds will be effected on a delivery-against-payment
basis through the Relevant Depositaries of Cedel and Euroclear (in such
capacity) and as Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede, as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their Relevant Depositaries,
which in turn will hold such positions in accounts as Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practice. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Because 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 Participants. Second market trading between Participants
will be settled using the procedures applicable to prior asset-backed bond
issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participant will be settled
using the Procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the 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
B-1
<PAGE> 72
the settlement date, on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days. For transactions settling on
the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. Payment will then be made by the
respective Depositary to the Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participant and Euroclear Participant will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they clear the
overdraft when the Global Securities are 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 Cedel. Participants or
Euroclear Participant's particular cost of funds.
Because the settlement is taking place during New York business hours,
Participant can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the Participants a cross-market transaction will
settle no differently than a trade between two Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a Participant. The seller will send instructions to
Cedel or Euroclear through a Cedel Participant or Euroclear Participant at least
one business day prior to settlement. In these cases, Cedel or Euroclear will
instruct the Relevant Depositary, as appropriate, to deliver the Global
Securities to the Participant's account against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment to and excluding the settlement date on the basis of the actual number
of days in such accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of the Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing though Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
B-2
<PAGE> 73
(b) borrowing the Global Securities in the U.S. from a Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are Non-U.S. Persons can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form
W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a
tax treaty with the United States can obtain an exemption or reduced tax
rate depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Bond Owners or
their agents.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Bond Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person though whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years, and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate that is
subject to United States federal income tax, regardless of the source of its
income or (iv) a trust if (a) a court in the United States is able to exercise
primary supervision over the administration of the trust, and (b) one or more
United States fiduciaries have the authority to control all substantial
decisions of the trust. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This summary does not deal with all aspects of U.S. federal income
tax withholding that may be relevant to foreign holders of Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
B-3
<PAGE> 74
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE BONDS OFFERED HEREBY NOR AN OFFER OF THE BONDS TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THE
PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT
INFORMATION THEREIN OR HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS SUPPLEMENT
OR PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Reports to Bondholders.......................... S-1
Available Information........................... S-1
Incorporation of Certain Documents by
Reference..................................... S-1
Summary of Terms................................ S-3
Risk Factors.................................... S-13
Description of the Bonds........................ S-19
The Bond Issuer................................. S-36
The Mortgage Loans.............................. S-36
Prepayment and Yield Considerations............. S-38
Origination of the Mortgage Loans............... S-42
Servicing of the Mortgage Loans................. S-43
The Financial Guaranty Insurance Policy and the
Financial Guaranty Insurer.................... S-51
Certain Federal Income Tax Consequences......... S-54
ERISA Considerations............................ S-55
Use of Proceeds................................. S-56
Legal Investment Considerations................. S-56
Underwriting.................................... S-56
Report of Experts............................... S-57
Legal Matters................................... S-57
Rating of the Bonds............................. S-57
Index of Principal Terms........................ S-58
ANNEX A: Description of the Mortgage Pool....... A-1
ANNEX B: Global Clearance, Settlement and Tax
Documentation Procedures............... B-1
PROSPECTUS
Prospectus Supplement........................... 3
Available Information........................... 3
Incorporation of Certain Documents by
Reference..................................... 3
Reports to Securityholders...................... 4
Summary......................................... 6
Risk Factors.................................... 20
The Trusts and Trust Estates.................... 27
Use of Proceeds................................. 29
Aames Capital Corporation....................... 31
Aames Capital Acceptance Corp. ................. 31
The Servicer.................................... 31
The Originators................................. 33
Description of the Securities................... 35
Credit Enhancement.............................. 42
Maturity, Prepayment and Yield Considerations... 47
The Pooling and Servicing Agreement............. 49
The Indenture................................... 60
Certain Legal Aspects of the Mortgage Loans and
Related Matters............................... 64
Certain Federal Income Tax Consequences......... 69
State Tax Considerations........................ 91
ERISA Considerations............................ 91
Legal Investment Considerations................. 93
Method of Distribution.......................... 94
Legal Matters................................... 95
Financial Information........................... 95
Rating.......................................... 95
Index of Principal Terms........................ 97
</TABLE>
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AAMES CAPITAL OWNER TRUST
1997-1
$415,000,000
ADJUSTABLE RATE
ASSET-BACKED BONDS,
SERIES 1997-1
DUE JUNE 15, 2029
AAMES CAPITAL
ACCEPTANCE CORP.
Transferor
AAMES CAPITAL CORPORATION
Servicer
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN AND JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
PRUDENTIAL SECURITIES INCORPORATED
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