<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BE ACCEPTED PRIOR TO THE TIME A
FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION DATED MARCH 7, 1997
PRELIMINARY PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 7, 1997)
$1,000,000,000
MAIN PLACE REAL ESTATE INVESTMENT TRUST
MORTGAGE-BACKED BONDS, SERIES 1997-1
DUE
Main Place Real Estate Investment Trust (the "Issuer") is offering
$1,000,000,000 aggregate principal amount of Mortgage-Backed Bonds, Series
1997-1 due (the "Bonds"). Terms used but not otherwise defined herein shall
have the respective meanings ascribed to such terms in the Prospectus dated
February 7, 1997 attached hereto (the "Prospectus").
Interest on the Bonds is payable on the 25th day of each of March, June,
September and December (or, if such day is not a Business Day (as defined
herein), on the next Business Day), commencing June 25, 1997. The Bonds will
bear interest on their unpaid principal balance during each Interest Period (as
defined herein) at a floating rate equal to LIBOR (defined and determined as set
forth herein) plus % per annum. The principal amount of each Bond is due and
payable on (the "Stated Maturity"). The Bonds are not redeemable
at the option of the Issuer prior to their Stated Maturity, but are subject to
mandatory redemption in part if certain collateral maintenance requirements are
not met. The Bonds will be issued in minimum denominations of $100,000 and in
integral multiples of $1,000 in excess thereof.
There currently is no secondary market for the Bonds. The Underwriters
intend to make a secondary market in the Bonds, but none of the Underwriters has
any obligation to do so. There is no assurance that a secondary market in the
Bonds will develop or, if one does develop, that it will continue until the
Bonds are paid in full. Application has been made to list the Bonds on the
Luxembourg Stock Exchange.
The Issuer expects to qualify as a real estate investment trust for federal
income tax purposes, commencing with the taxable year ended December 31, 1996.
No person or persons acting as a group, except NationsBank Corporation and its
affiliates or subsidiaries, is permitted to beneficially own more than 9.9% of
the equity of the Issuer.
PROSPECTIVE INVESTORS IN THE BONDS SHOULD CONSIDER THE FACTORS DISCUSSED IN
THE ACCOMPANYING PROSPECTUS BEGINNING ON PAGE 3 UNDER "SPECIAL CONSIDERATIONS."
NON-U.S. PERSONS CONSIDERING PURCHASING THE BONDS SHOULD CONSIDER THE
INFORMATION DISCUSSED IN THE APPENDIX TO THIS PROSPECTUS SUPPLEMENT ENTITLED
"ADDITIONAL INFORMATION FOR NON-U.S. PERSONS."
THE BONDS REPRESENT LIMITED RECOURSE OBLIGATIONS SOLELY OF THE ISSUER AND ARE
NOT INSURED OR GUARANTEED BY NATIONSBANK, N.A. OR ANY OF ITS AFFILIATES. THE
BONDS ARE NOT DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THE BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT (1) ISSUER (2)
<S> <C> <C> <C>
Per Bond.................................. % % %
Total..................................... $ $ $
</TABLE>
(1) The Issuer has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting" herein.
(2) Before deduction of expenses payable by the Issuer estimated at $ .
The Bonds are offered by the Underwriters listed below (the "Underwriters"),
subject to prior sale, when, as and if issued to and accepted by the
Underwriters and subject to their rights to reject orders in whole or in part
and certain other conditions. It is expected that delivery of the Bonds will be
made in book-entry only form through the facilities of The Depository Trust
Company ("DTC"), Cedel Bank, societe anonyme ("CEDEL"), and Morgan Guaranty
Trust Company of New York, Brussels office, as operator of the Euroclear System
(the "Euroclear Operator" or "Euroclear") on or about March , 1997 (the
"Closing Date").
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
UBS SECURITIES INC.
The date of this Prospectus Supplement is March , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE BONDS, INCLUDING
PURCHASES OF THE BONDS TO STABILIZE THEIR MARKET PRICE, PURCHASES OF THE BONDS
TO COVER SOME OR ALL OF A SHORT POSITION IN THE BONDS MAINTAINED BY THE
UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THIS PROSPECTUS SUPPLEMENT AND THE RELATED PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE BONDS IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE BONDS MAY NOT
BE OFFERED OR SOLD IN THE UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY
ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF
INVESTMENTS, WHETHER AS PRINCIPAL OR AGENT (EXCEPT IN CIRCUMSTANCES THAT DO NOT
CONSTITUTE AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF
THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995), AND THIS PROSPECTUS
SUPPLEMENT MAY ONLY BE ISSUED OR PASSED ON TO ANY PERSON IN THE UNITED KINGDOM
IF THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES
ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996 OR A PERSON TO WHOM
THIS PROSPECTUS SUPPLEMENT MAY OTHERWISE LAWFULLY BE PASSED ON.
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
Prospectus relating thereto. This is in addition to the obligation of dealers to
deliver a Prospectus Supplement and Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
This Prospectus Supplement does not contain complete information about the
offering of the Bonds. Additional information is contained in the Prospectus
dated February 7, 1997 attached hereto and purchasers are urged to read both
this Prospectus Supplement and the Prospectus in full. Sales of the Bonds may
not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus.
S-2
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT. CERTAIN
CAPITALIZED TERMS ARE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT.
CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS PROSPECTUS SUPPLEMENT ARE DEFINED
IN THE ACCOMPANYING PROSPECTUS.
<TABLE>
<S> <C>
Issuer................................................ Main Place Real Estate Investment Trust, a Maryland business trust
(the "Issuer").
Securities Offered.................................... $1,000,000,000 principal amount of Mortgage-Backed Bonds, Series
1997-1 due (the "Bonds"). The Bonds will be issued pursuant
to an indenture of trust (the "Indenture") dated as of
, 1997 between the Issuer and First Trust National Association, as
trustee (the "Trustee").
Denominations and Form................................ The Bonds will be issued in book-entry only form in minimum
denominations of $100,000 and integral multiples of $1,000 in
excess thereof. See "Description of the Bonds -- General" and
" -- Book-Entry Registration" in the Prospectus.
Interest Payments..................................... Interest will be payable on the 25th day of March, June, September
and December (or, if any such day is not a Business Day (as defined
herein), on the next Business Day), commencing June 25, 1997 (each,
an "Interest Payment Date"). Interest will accrue on the unpaid
principal balance of the Bonds during each Interest Period at a
floating rate equal to LIBOR (defined and determined as described
herein) plus % per annum. An "Interest Period" with respect to
each Interest Payment Date is the period from and including the
preceding Interest Payment Date (or, in the case of the initial
Interest Payment Date, from and including the Closing Date) and
ending on and including the day prior to such Interest Payment
Date. Interest will be calculated on the basis of the actual number
of days in each Interest Period and a 360-day year.
Redemption............................................ The Bonds are not subject to redemption at the option of the Issuer
prior to their Stated Maturity, but may be purchased by the Issuer
in open market transactions. The Bonds are subject to mandatory
redemption in part at 100% of the principal amount of the Bonds
redeemed plus accrued interest if certain collateral maintenance
requirements are not met as described in this summary under
" -- Collateral Valuation and Maintenance" and under "Description
of the Bonds -- Basic Maintenance Amount" herein.
Security for the Bonds; Pledged Property; Eligible
Collateral and Deposit Securities................... The Bonds will be secured by "Pledged Property," which will include
Eligible Collateral and Deposit Securities (each as defined below).
The "Eligible Collateral" securing the Bonds may include Eligible
Mortgage Notes (as defined herein under "Description of the
Bonds -- Eligible Mortgage Notes"), guaranteed mortgage
participation certificates ("FHLMC Certificates") issued by the
Federal Home Loan Mortgage Corporation ("FHLMC"), guar-
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
anteed mortgage pass-through certificates ("FNMA Certificates")
issued by the Federal National Mortgage Association ("FNMA"), fully
modified pass-through mortgage-backed certificates ("GNMA
Certificates") issued by the Government National Mortgage
Association ("GNMA"), other Government Securities (as defined under
"Description of the Bonds -- Government Securities" in the
Prospectus), and cash, including cash on deposit in the Collection
Account, the Distribution Account and the Reserve Fund, to the
extent described herein. Notwithstanding the foregoing definitions,
Eligible Collateral will not include any classes of multi-class
FNMA Certificates, GNMA Certificates or FHLMC Certificates. In
addition, Eligible Collateral for the Bonds will not include
Eligible Mortgage Pass-Through Certificates or Short-Term Money
Market Instruments (as defined under "Description of the Bonds
Eligible Mortgage Pass-Through Certificates" and "Short-Term Money
Market Instruments" in the Prospectus). See "Description of the
Bonds -- Security for the Bonds" herein. The types, characteristics
and permitted amounts of Eligible Collateral are subject to change
from time to time without the consent of the Holders of the Bonds
if such changes would not adversely affect the ratings then
assigned to the Bonds. In addition, in order to fund the return of
principal at the Stated Maturity, the Issuer will be obligated, no
later than 15 days (or, in the circumstances described herein, 30
days) in advance of the date of such payment, to (i) pledge to the
Trustee cash or Government Securities (other than FHLMC
Certificates, FNMA Certificates and GNMA Certificates) which have a
remaining term to maturity of 30 days or less and actually mature
on or before the date in respect of which they are delivered
("Deposit Securities") or (ii) make other arrangements acceptable
to each Rating Agency (as defined herein) to provide liquidity for
such payment. See "Description of the Bonds -- Liquidity" herein.
Initial Collateral.................................... As of January 31, 1997 (the "Cut-Off Date"), the Eligible Collateral
initially pledged to secure the Bonds (the "Initial Collateral")
consisted of 8,595 Eligible Mortgage Notes as described herein
having an aggregate unpaid principal balance of $2,050,032,618.09.
See "Description of the Bonds -- Eligible Mortgage Notes" herein.
First Chicago National Processing Corporation (the "Custodian")
will be appointed by the Trustee under the Indenture to hold the
Initial Collateral, as well as any other portion of the Pledged
Property consisting of Eligible Mortgage Notes.
Collateral Valuation and Maintenance.................. The Issuer is required to maintain Eligible Collateral pledged to
secure the Bonds having a Discounted Value (as defined herein) at
least equal to the Basic Maintenance Amount. The Discounted Value
of the Eligible Collateral will be determined as set forth herein
under "Description of the Bonds -- Basic Maintenance Amount"
herein. The
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Trustee is required to value the collateral on the 5th and 20th day
of each month (or, if such day is not a Business Day, on the next
Business Day), commencing on , 1997 (each, a
"Valuation Date"), and to deliver a report concerning its valuation
to the Issuer and to each Rating Agency within two Business Days
after a Valuation Date.
In the event that on any Valuation Date the Discounted Value of the
Eligible Collateral pledged to secure the Bonds is less than the
Basic Maintenance Amount, the Issuer is required, within 10 days
after receipt of such report, either (i) to deliver to the Trustee
or the Custodian additional Eligible Collateral and/or substitute
Eligible Collateral and/or (ii) to repurchase Bonds Outstanding (as
defined herein) such that, after such actions are taken, the
Discounted Value of the Eligible Collateral is at least equal to
the Basic Maintenance Amount. See "Description of the
Bonds -- Basic Maintenance Amount" herein. If the Issuer is unable
to deliver additional Eligible Collateral or to substitute Eligible
Collateral or to repurchase Bonds Outstanding, the Issuer must
redeem an amount of the Bonds Outstanding sufficient to render the
Discounted Value of the Eligible Collateral at least equal to the
Basic Maintenance Amount. In such event, Pledged Property will be
liquidated to provide funds for such redemptions. See "Description
of the Bonds -- Redemption" herein and "Special
Considerations -- Limited Recourse Obligation" in the Prospectus.
The Issuer may withdraw or substitute collateral at any time if,
after giving effect to any such withdrawal and any proposed
additions of substitute collateral, the Discounted Value of the
Eligible Collateral pledged to secure the Bonds is at least equal
to the Basic Maintenance Amount and no Event of Default shall have
occurred and be continuing. See "Description of the
Bonds -- Withdrawals and Substitutions of Collateral" herein.
Collection Account.................................... All payments in respect of the Initial Collateral and any other
Eligible Mortgage Notes pledged to secure the Bonds will be
remitted directly to a collection account (the "Collection
Account") to be established by NationsBanc Mortgage Corporation
(the "Servicer") on the Closing Date in the name of the Trustee for
the benefit of the Holders. On each Servicer Remittance Date (as
defined herein), the Servicer will withdraw amounts on deposit in
the Collection Account as of the end of the preceding Collection
Period (as defined herein) and remit such amounts to the Trustee
(i) for deposit into the Distribution Account for payment to
Bondholders on the following Interest Payment Date, (ii) for
deposit into the Reserve Fund and (iii) for release to the Issuer,
all as described herein. See "Description of the Bonds --
Distribution Account" and " -- Reserve Fund" herein. The Servicer
will not be required to make advances in respect of delinquent
monthly payments on Eligible Mortgage
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Notes. Amounts on deposit in the Collection Account from time to
time will constitute a portion of the Pledged Property securing the
Bonds and Eligible Collateral for purposes of satisfying the Basic
Maintenance Amount. See "Description of the Bonds -- Servicing of
Eligible Mortgage Notes -- Collection Account" herein.
Distribution Account.................................. All payments in respect of any other Eligible Collateral securing the
Bonds from time to time will be made directly to the Trustee for
deposit in a distribution account (the "Distribution Account") to
be established by the Trustee on the Closing Date for the benefit
of the Holders. In addition, if an Event of Default under the
Indenture should occur and be continuing, all payments in respect
of Eligible Mortgage Notes will be remitted directly to the Trustee
for deposit into the Distribution Account. All payments of interest
and principal on the Bonds will be made with amounts on deposit in
the Distribution Account. Amounts held in the Distribution Account
from time to time will constitute a portion of the Pledged Property
securing the Bonds and Eligible Collateral for purposes of
satisfying the Basic Maintenance Amount. See "Description of the
Bonds -- Distribution Account" herein.
Reserve Fund.......................................... On the Closing Date, the Trustee will establish a reserve fund (the
"Reserve Fund") for the benefit of the Holders. Amounts held in the
Reserve Fund from time to time will constitute a portion of the
Pledged Property securing the Bonds and Eligible Collateral for
purposes of satisfying the Basic Maintenance Amount. At the request
of the Issuer, amounts on deposit in the Reserve Fund will be
withdrawn by the Trustee and released to the Issuer free of the
lien of the Indenture if, as of the Valuation Date immediately
preceding such release, the Discounted Value of the remaining
Eligible Collateral is at least equal to the Basic Maintenance
Amount and no Event of Default has occurred and is continuing. See
"Description of the Bonds -- Reserve Fund."
Servicer.............................................. NationsBanc Mortgage Corporation, a Texas corporation. The Servicer
is an affiliate of the Issuer and NationsBanc Capital Markets, Inc.
("NCMI"), one of the Underwriters. See "Description of the
Bonds -- Servicing of Eligible Mortgage Notes -- The Servicer"
herein.
Use of Proceeds....................................... The Issuer intends to use all or substantially all of the net
proceeds from the sale of the Bonds offered hereby to purchase
additional mortgage loans, and/or pay dividends to its shareholders
and/or reduce certain subordinated indebtedness of the Issuer. See
"The Issuer" herein.
Rating................................................ It is a condition of closing that the Bonds be rated "AAA" by Fitch
Investors Service, L.P. ("Fitch") and "Aaa" by Moody's Investors
Service, Inc. ("Moody's") (each, a "Rating Agency"). See "Bond
Ratings" herein.
Federal Income Tax Consequences....................... See "United States Federal Income Tax Consequences" in the Prospectus
for a discussion of the United States
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
federal income tax consequences of the acquisition of the Bonds at
a market discount or premium, by foreign investors and certain
other matters.
ERISA Considerations.................................. See "ERISA Considerations" herein and in the Prospectus relating to
investment in the Bonds by employee benefit plans or other
retirement arrangements subject to either the Employee Retirement
Income Security Act of 1974, as amended, or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code").
Special Considerations................................ See "Special Considerations" beginning on page 3 of the Prospectus
for important information relating to an investment in the Bonds.
</TABLE>
S-7
<PAGE>
THE ISSUER
GENERAL
The Issuer is a Maryland business trust and an indirect subsidiary of
NationsBank, N.A. which is itself an indirect, wholly-owned subsidiary of
NationsBank Corporation. The Issuer is the successor by merger of Main Place
Funding Corporation with and into the Issuer. Such merger was effective on
November 1, 1996, as more fully described under "The Issuer" in the Prospectus.
The Issuer has no subsidiaries. The financial statements of the Issuer and its
predecessor are included in the consolidated financial statements of NationsBank
Corporation.
CAPITALIZATION
The following table sets forth the capitalization of the Issuer as of
December 31, 1996 and a pro forma capitalization table of the Issuer as of the
same date. The pro forma capitalization table gives effect to the issuance of
the Bonds offered hereby. There have been no material adverse changes in the
capitalization of the Issuer since December 31, 1996.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996
ACTUAL PRO FORMA
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Indebtedness
Mortgage-Backed Bonds, Series 1995-1....................................................... $ 1,500,000 $ 1,500,000
Mortgage-Backed Bonds, Series 1995-2....................................................... 1,500,000 1,500,000
Mortgage-Backed Bonds, Series 1997-1....................................................... -- 1,000,000
Subordinated indebtedness.................................................................. 1,072,277 1,072,277
Total indebtedness...................................................................... 4,072,277 5,072,277
Shareholder's equity
Shares of beneficial interest:
Class A shares, $1.00 par value, 100,000 shares
issued and outstanding................................................................ 100 100
Class B shares, $10,000 par value, 110 shares
issued and outstanding................................................................ 1,100 1,100
Additional paid-in capital................................................................. 12,044,801 12,044,801
Retained earnings.......................................................................... 13,315 13,315
Net unrealized gains on securities available for sale...................................... 8,530 8,530
Total shareholders' equity.............................................................. 12,067,846 12,067,846
Total indebtedness and shareholders' equity........................................... $16,140,123 $17,140,123
</TABLE>
S-8
<PAGE>
SUMMARY FINANCIAL DATA
The following summary data of the Issuer for the years ended December 31,
1996 and December 31, 1995, respectively, is derived from the audited financial
statements and should be read in conjunction with such financial statements
which are contained in the Issuer's Annual Report on Form 10-K for the year
ended December 31, 1996, which has been incorporated by reference herein. The
financial data for the year ended December 31, 1996 reflects the transactions
described in the Prospectus under "The Issuer." See "Listing of Bonds and
Related Matters" in the Appendix hereto and "Incorporation of Certain Documents
by Reference" in the Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Income Statement Data
Interest and fees on mortgage loans.......................................................... $ 484,191 $ 204,024
Interest on securities available for sale.................................................... 8,335 --
Interest expense............................................................................. 258,174 146,805
Income before income taxes................................................................... 216,709 48,070
Net income................................................................................... 192,972 31,245
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1996 1995
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Balance Sheet Data
Total assets................................................................................. $16,167,439 $4,654,815
Mortgage loans, net of unearned income....................................................... 14,704,375 4,523,744
Securities available for sale................................................................ 836,938 --
Mortgage-backed bonds and subordinated notes................................................. 4,072,277 4,319,525
Total shareholders' equity................................................................... 12,067,846 306,784
</TABLE>
TRUSTEES
The board of trustees of the Issuer is composed of John E. Mack (President
and Treasurer), G. Patrick Phillips and James H. Luther. Mr. Mack is a Senior
Vice President and Treasurer of NationsBank Corporation and each of its
subsidiary banks. Mr. Phillips is an Executive Vice President of NationsBank
Corporation. Mr. Luther is a retired Senior Vice President of NationsBank, N.A.
DESCRIPTION OF THE BONDS
GENERAL
The issuance of the Bonds was authorized by unanimous written consent of
the Board of Trustees of the Issuer on March 6, 1997. The Bonds will be issued
under the Indenture. As of any date, all Bonds so issued, except Bonds (i)
previously canceled or to be canceled by the Trustee, (ii) held by the Issuer or
its affiliates (other than NCMI) and (iii) for whose payment Deposit Securities
in the necessary amount have been delivered to the Trustee or other arrangements
satisfactory to each Rating Agency have been made as described herein under
" -- Liquidity," will be deemed to be "Outstanding."
The following summaries of certain provisions of the Indenture do not
purport to be complete, and, where particular provisions of the Indenture are
referred to, the actual provisions are incorporated by reference as a part of
such summaries, which are qualified in their entirety by such reference. Copies
of the Indenture may be obtained by writing to the principal corporate trust
office of the Trustee, 180 East Fifth Street, 2nd Floor, St. Paul, Minnesota
55101, Attention: Structured Finance, and will also be available for inspection
during normal business hours at the principal executive offices of the Issuer,
and at the principal corporate trust office of the Trustee.
The Bonds will be limited to $1,000,000,000 aggregate principal amount, all
of which is being offered hereby and will be direct obligations of the Issuer.
The principal amount of each Bond is due and payable on the
S-9
<PAGE>
Stated Maturity. The Bonds will bear interest on the unpaid principal balance
thereof at a floating rate calculated as set forth below under " -- Interest
Payments," payable in arrears on each Interest Payment Date commencing on June
25, 1997, to the persons in whose names the Bonds are registered (each, a
"Bondholder" or "Holder") at the close of business on the Record Date (as
defined herein) next preceding such Interest Payment Date (except in the case of
Defaulted Interest, as provided in the Indenture). A "Business Day" is any day
other than (i) a Saturday, (ii) a Sunday or (iii) a day that is either a legal
holiday or a day on which banking institutions are authorized or obligated by
law or regulation to close in the States of Kentucky or North Carolina or the
state in which the principal office of the Trustee is located (or, for purposes
of remittances by the Servicer, any state in which functions relating to the
Collection Account are performed). A "Record Date" is the third Business Day
immediately preceding each Interest Payment Date and the date any payment of
principal or redemption price of any Bond is due.
The Bonds will be secured by collateral (the "Pledged Property") as
described herein under " -- Security for the Bonds." Pursuant to the Indenture,
the Issuer is required to maintain Pledged Property of the type permitted under
the Indenture ("Eligible Collateral") having a Discounted Value sufficient to
meet certain levels of collateralization required from time to time as described
herein under " -- Basic Maintenance Amount." The Eligible Collateral will be
valued by the Trustee on the 5th and 20th day of each month (or, if such day is
not a Business Day, on the next Business Day), commencing on , 1997
(each such date, a "Valuation Date"), using Market Values (as defined in the
Prospectus under "Description of the Bonds -- Basic Maintenance Amount") for
such property obtained no more than three Business Days prior to the applicable
Valuation Date. The Trustee will deliver reports to the Issuer and to each
Rating Agency with respect to each such Valuation Date within two Business Days
thereafter. See " -- Reports on Pledged Property."
The Bonds and Indenture will be governed by the laws of the State of New
York.
The Indenture will provide that if any payment of interest or principal on
the Bonds remains unclaimed by Holders for two years after such payment has
become due, whether at the Stated Maturity or otherwise, the Trustee will remit
the amount of such payment to the Issuer, upon Issuer request. Thereafter, such
payment will constitute a general unsecured obligation of the Issuer only, and
Holders may look only to the Issuer for payment. Prior to making such
remittance, the Trustee may, at the expense of the Issuer, cause notice to be
given to the Holders that such payment remains unclaimed and that, after a
specified date, any remaining portion of such payment will be remitted to the
Issuer.
INTEREST PAYMENTS
Interest will be payable in arrears on each Interest Payment Date
commencing on June 25, 1997. Interest will accrue on the unpaid principal
balance of the Bonds during each Interest Period at a floating rate equal to
LIBOR (determined as described below) plus % per annum. Interest will be
calculated on the basis of the actual number of days in each Interest Period and
a 360-day year.
CALCULATION OF LIBOR
On the second LIBOR Business Day (as defined herein) preceding the first
day of each Interest Period (each such date, a "LIBOR Determination Date"),
commencing on , 1997, the Trustee will determine the
London interbank offered rate for three-month U.S. dollar deposits ("LIBOR") for
such Interest Period by reference to the rate which appears on the Telerate Page
3750 as of 11:00 a.m. (London time) on such LIBOR Determination Date. "Telerate
Page 3750" means the display page designated "3750" on the Dow Jones Telerate
Service (or replacement page or successor service for displaying comparable
rates). "LIBOR Business Day" means a day that is not a Saturday, Sunday or other
day on which banking institutions in London, New York City or the state in which
the principal office of the Trustee is located are authorized or required by
law, regulation or executive order to be closed.
If on any LIBOR Determination Date, no rate appears on Telerate Page 3750
or Telerate Page 3750 is no longer available, the Trustee will determine LIBOR
by reference to the rate which appears on Reuters Monitor Money Rates Page LIBO
("Reuters Page LIBO") as of 11:00 a.m. (London time) on such LIBOR Determination
Date for three-month U.S. dollar deposits. If such rate does not appear on
Reuters Page LIBO as of 11:00 a.m. (London time) on the LIBOR Determination
Date, the Trustee will determine LIBOR on the basis of quotations provided by
the Reference Banks (as defined herein) to leading banks in the London interbank
market for
S-10
<PAGE>
a period of three months as of 11:00 a.m. (London time) on such LIBOR
Determination Date. LIBOR as determined by the Trustee is the arithmetic mean of
such quotations (rounding such arithmetic mean upwards, if necessary, to the
nearest whole multiple of 1/16%). If on any LIBOR Determination Date at least
two of the Reference Banks provide quotations, LIBOR will be determined in
accordance with the preceding sentence on the basis of the offered quotations of
those Reference Banks providing such quotations. If on any such LIBOR
Determination Date only one or none of the Reference Banks provides such offered
quotations, the Trustee will request four major New York City banks to provide
such banks' offered quotations to leading European banks for loans in
Eurodollars having a three-month maturity as of 11:00 a.m. (London time) on such
LIBOR Determination Date. If at least two such quotations are provided, LIBOR
will be the arithmetic mean of such quotations (rounding such arithmetic mean
upwards, if necessary, to the nearest whole multiple of 1/16%) or if fewer than
two such quotations are provided, LIBOR will be LIBOR as determined on the
previous LIBOR Determination Date.
"Reference Banks" means four banks in the London interbank market selected
by the Trustee. Each Reference Bank will be a leading bank engaged in
transactions in Eurodollar deposits in the international Eurocurrency market
with an established place of business in London, which does not control, is not
controlled by or is not under common control with the Issuer and which has been
designated as such by the Trustee and is able and willing to provide such
quotations to the Trustee on each LIBOR Determination Date.
The establishment of LIBOR on each LIBOR Determination Date for each
Interest Period and the Trustee's calculation of the rate of interest applicable
to the Bonds for the related Interest Period will (in the absence of manifest
error) be final and binding. Each such rate of interest may be obtained by
telephoning the Trustee at (612) 244-0444.
REDEMPTION
The Bonds will mature and will be paid at 100% of their respective
principal amounts plus accrued interest at the Stated Maturity. See
" -- Liquidity." The Bonds are not subject to redemption at the option of the
Issuer.
The Bonds are subject to mandatory partial redemption upon not more than 10
nor less than 5 days' notice, in the event that (i) on any semi-monthly
Valuation Date, the Discounted Value of the Eligible Collateral is less than the
Basic Maintenance Amount (as defined below under " -- Basic Maintenance Amount")
and (ii) the Issuer is unable within a maximum of 10 days after receipt of the
Trustee's valuation report following such Valuation Date (the "Cure Date") to
pledge and deliver additional Eligible Collateral and/or to substitute Eligible
Collateral in an amount such that, after such pledge, the Discounted Value of
the Eligible Collateral is at least equal to the Basic Maintenance Amount, and
the Issuer does not deliver to the Trustee prior to the Cure Date for
cancellation Bonds theretofore issued and reacquired by it in a principal amount
sufficient to cause the Discounted Value of the Eligible Collateral to be at
least equal to the Basic Maintenance Amount. Notwithstanding the foregoing, if
the report prepared by the Trustee with respect to any Valuation Date following
the Cure Date and prior to the date on which the Trustee gives notice of
redemption to the Holders shows that the Discounted Value of the Eligible
Collateral is at least equal to the Basic Maintenance Amount as of such
Valuation Date, the Issuer will no longer be required to make a mandatory
redemption of the Bonds. See "Special Considerations -- Limited Recourse
Obligation" in the Prospectus.
Any such mandatory partial redemption shall require the redemption of Bonds
in an aggregate principal amount that is the smallest principal amount (rounded
to the next higher integral multiple of $1,000) necessary to make the Discounted
Value of the Eligible Collateral at least equal to the Basic Maintenance Amount
(calculated in each case as of the Valuation Date immediately preceding the date
on which the Trustee gives notice of redemption to the Holders), after giving
effect to (i) the pledge of any additional Eligible Collateral and/or
substitution of Eligible Collateral by the Issuer, (ii) the delivery to the
Trustee for cancellation of any Bonds repurchased by or on behalf of the Issuer
and (iii) such redemption. Any such mandatory partial redemption shall be made
within 30 days after the Cure Date at a redemption price equal to 100% of the
principal amount (or portion thereof) of the Bonds to be redeemed together with
accrued interest to the date fixed for redemption. Any partial redemption may be
made on a pro rata basis or by any method deemed fair and appropriate by the
Trustee, provided, that such method shall not result in a Bond Outstanding in a
denomination of less than $100,000.
S-11
<PAGE>
After notice of any redemption has been given to the Holders of the Bonds,
the principal amount (or portion thereof) of the Bonds to be redeemed shall be
due and payable on the date fixed for such redemption at the place set forth in
such notice. From and after the date fixed for such redemption, the Bonds chosen
to be redeemed shall cease to bear interest thereon (unless the Issuer shall
default in the payment of the redemption price, in which case the principal
amount of such Bonds shall continue to bear interest at the rate borne by the
Bonds until paid), and the only right of the Holders of such Bonds shall be to
receive the redemption price; except that, in the case of any redemption date on
which Bonds are redeemed in part, new Bonds representing the principal amounts
of such Bonds that have not been redeemed will be issued to the Holders of such
Bonds. The Holders of such new Bonds shall continue to have the right to receive
the principal amount thereof and interest payments on such principal amount.
Bonds that are redeemed will be canceled by the Trustee.
If the Issuer fails to cure a collateral shortfall by the applicable Cure
Date, the Trustee must liquidate Pledged Property to the extent required to pay
the redemption price of the Bonds to be redeemed; provided, that the Trustee
will not do so if concurrently with such notice the Issuer delivers Deposit
Securities to the Trustee, as described under " -- Liquidity," in an amount
sufficient to provide for full payment of the redemption price of the Bonds
required to be redeemed.
SECURITY FOR THE BONDS
The Bonds will be secured by the Pledged Property, which will include the
Initial Collateral and may include any of the types of Eligible Collateral
described in the Prospectus as modified herein. See "Summary of
Terms -- Security for the Bonds; Pledged Property; Eligible Collateral and
Deposit Securities" herein and "Description of the Bonds -- Security for the
Bonds" in the Prospectus. In addition, the Pledged Property will include, and
the Bonds will be secured from time to time by, (i) cash held in the Collection
Account from time to time, representing scheduled monthly interest and principal
payments, principal prepayments and various other amounts with respect to the
Eligible Mortgage Notes received during each Collection Period, as described
below under " -- Collection Account," (ii) cash held in the Reserve Fund as
described below under " -- Reserve Fund," (iii) cash held in the Distribution
Account representing payments on all types of Pledged Property other than
Eligible Mortgage Notes and any amounts that are transferred from the Collection
Account for payment on the Bonds, as described below under " -- Distribution
Account" and (iv) the Deposit Securities described below under " -- Liquidity."
Notwithstanding the foregoing, Eligible Collateral will not include any classes
of multi-class FNMA Certificates, GNMA Certificates or FHLMC Certificates. In
addition, Eligible Collateral for the Bonds will not include Eligible Mortgage
Pass-Through Certificates or Short-Term Money Market Instruments. The Initial
Collateral will consist of the Eligible Mortgage Notes described more fully
below.
The types and characteristics of Eligible Collateral, the percentage
limitations on certain types of Eligible Collateral as described in the
Prospectus, the frequency of the Valuation Dates, the Discount Factors used in
valuing the Eligible Collateral, the methodology used in calculating the Market
Value of the Eligible Collateral and the definition of "Basic Maintenance
Amount" are subject to change from time to time without the consent of the
Holders of the Bonds if such changes (i) are permitted by applicable law and
(ii) will not impair the rating then assigned to the Bonds by each Rating
Agency, as confirmed in writing by such Rating Agencies. The Rating Agencies
have no obligation to review or approve any proposed changes in the types,
characteristics, permitted amounts or Discount Factors of Eligible Collateral or
in the definition of Basic Maintenance Amount and may, at any time, change or
withdraw any rating on the Bonds.
ELIGIBLE MORTGAGE NOTES
GENERAL
The Mortgage Notes constituting the Initial Collateral or pledged from time
to time to secure the Bonds will be "Eligible Mortgage Notes," having the
characteristics set forth in the Prospectus under "Description of the
Bonds -- Eligible Mortgage Notes," subject to permitted changes in such
characteristics as described above.
INITIAL COLLATERAL
All of the Eligible Mortgage Notes constituting the Initial Collateral were
contributed to the Issuer by NationsBank, N.A. or its affiliates as of November
1, 1996. Such Eligible Mortgage Notes were either originated or purchased by the
Servicer on behalf of, and in accordance with underwriting guidelines of the
S-12
<PAGE>
Servicer, which are in conformity with the underwriting guidelines of
NationsBank, N.A., NationsBank of Texas, N.A. ("NationsBank Texas") and
NationsBank, N.A. (South) ("NationsBank South"). All of such Eligible Mortgage
Notes are Eligible Adjustable-Rate Mortgage Notes. Each such Eligible
Adjustable-Rate Mortgage Note is a jumbo mortgage loan (i.e., a mortgage loan
originated in an amount in excess of FNMA or FHLMC purchase limits, currently
$214,600) otherwise generally underwritten in accordance with guidelines of FNMA
and FHLMC, having an original term to maturity of not more than 30 years and
providing for a fixed rate of interest for an initial period of approximately
either 5 or 10 years. All of such Eligible Adjustable-Rate Mortgage Notes
provide for level, amortizing payments over such initial periods. Thereafter,
the interest rate on each such Eligible Adjustable-Rate Mortgage Note will
adjust annually to a rate equal to the one-year Constant Maturity Treasury Index
(as defined below) plus the applicable fixed percentage (the "Gross Margin"),
subject to a maximum annual interest rate increase or decrease and a maximum
lifetime interest rate (the "Lifetime Cap") specified in the related Eligible
Adjustable-Rate Mortgage Note. As of the Cut-Off Date, the weighted average
Gross Margin of such Eligible Adjustable-Rate Notes was approximately 2.788%,
and the weighted average Lifetime Cap on such Eligible Adjustable-Rate Mortgage
Notes was approximately 12.767%. The interest rates on such Eligible
Adjustable-Rate Mortgage Notes are not subject to maximum lifetime decreases. As
of the Cut-Off Date, approximately 2.98% by aggregate unpaid principal balance
of the Eligible Adjustable-Rate Mortgage Notes are convertible into fixed-rate
loans at the option of the mortgagor.
The interest rate for each Eligible Adjustable-Rate Mortgage Note included
in the Initial Collateral will generally adjust on the first day of the month in
which the initial fixed-rate period ends and annually thereafter (each, an "ARM
Interest Adjustment Date"). Effective with the first payment due on each such
Eligible Adjustable-Rate Mortgage Note after each related ARM Interest
Adjustment Date, the monthly principal and interest payment will be adjusted to
an amount that will fully amortize the then-outstanding principal balance of
such Eligible Adjustable-Rate Mortgage Note over its remaining term to maturity
and that will be sufficient to pay interest at the adjusted interest rate for
such Eligible Adjustable-Rate Mortgage Note. The "Constant Maturity Treasury
Index" is the weekly average yield on U.S. Treasury securities adjusted to a
constant maturity of one year as published by the Federal Reserve Board in
Statistical Release H.15 (519) or any similar publication or, if not so
published, as reported by any Federal Reserve Bank or by any U.S. Government
department or agency and made available to the Servicer as of a date 45 days
prior to each ARM Interest Adjustment Date for such Eligible Adjustable-Rate
Mortgage Note. Should the Constant Maturity Treasury Index not be published or
become otherwise unavailable, the Servicer will select a comparable alternative
index over which it has no control and which is readily verifiable.
As of the Cut-Off Date, the Initial Collateral consisted of 8,595 Eligible
Adjustable-Rate Mortgage Notes and had an aggregate unpaid principal balance of
$2,050,032,618.09. As of the Cut-Off Date, each Eligible Adjustable Rate
Mortgage Note constituting the Initial Collateral had an unpaid principal
balance of not less than $5,587.82 or more than $599,099.37 and the average
unpaid principal balance of such Eligible Adjustable-Rate Mortgage Notes was
$238,514.56.
Set forth below is a description of certain additional characteristics of
the Initial Collateral as of the Cut-Off Date (except as otherwise indicated).
The Issuer believes that the information set forth below with respect to the
Initial Collateral is representative of the characteristics of the Initial
Collateral as it will be constituted on the Closing Date. The Issuer will file a
Current Report on Form 8-K with the Securities and Exchange Commission in
accordance with the rules thereof which will set forth information with respect
to the Mortgage Notes ultimately pledged to the Trustee on the Closing Date. For
purposes of the following tables, the Initial Collateral has been divided into
two groups: jumbo Eligible Adjustable-Rate Mortgage Notes having an original
term to maturity of not more than 30 years and a fixed rate of interest for an
initial period of approximately 5 years ("Jumbo 5/1 Eligible Adjustable-Rate
Mortgage Notes") and jumbo Eligible Adjustable-Rate Mortgage Notes having an
original term to maturity of not more than 30 years and a fixed rate of interest
for an initial period of approximately 10 years ("Jumbo 10/1 Eligible
Adjustable-Rate Mortgage Notes"). The sums of the percentage columns set forth
in the following tables may not equal 100% due to rounding.
S-13
<PAGE>
MORTGAGE NOTE INTEREST RATES
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
INTEREST RATE BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
5.001-5.500%.......................... $ 5,146,324.49 0.55% $ 223,904.21 0.02%
5.501-6.000%.......................... 37,791,967.71 4.01 12,746,944.54 1.15
6.001-6.500%.......................... 76,306,076.50 8.09 110,271,698.19 9.96
6.501-7.000%.......................... 160,156,477.67 16.99 240,941,096.27 21.76
7.001-7.500%.......................... 398,890,306.48 42.31 281,339,613.44 25.41
7.501-8.000%.......................... 228,416,797.67 24.23 334,377,726.46 30.20
8.001-8.500%.......................... 34,071,935.63 3.61 109,945,049.10 9.93
8.501-9.000%.......................... 1,832,892.76 0.19 17,027,137.11 1.54
9.001-9.500%.......................... 232,899.57 0.02 313,770.29 0.03
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
<CAPTION>
Weighted Average Weighted Average
Interest Rate is Interest Rate is
7.241% 7.365%
</TABLE>
With the exception of approximately 0.09% of the aggregate unpaid principal
balance of the Eligible Adjustable-Rate Mortgage Notes, none of the remaining
Eligible Adjustable-Rate Mortgage Notes included in the Initial Collateral had
reached their first ARM Interest Adjustment Date as of the Cut-Off Date. As of
the Cut-Off Date, the weighted average remaining period of time until the next
ARM Interest Adjustment Date for the Jumbo 5/1 Eligible Adjustable-Rate Mortgage
Notes and Jumbo 10/1 Adjustable-Rate Mortgage Notes was approximately 39.59
months and 95.17 months, respectively.
MORTGAGE NOTE NET INTEREST RATES
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
NET INTEREST RATE BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
4.501-5.000%.......................... $ 896,833.14 0.10% $ 0.00 0.00%
5.001-5.500%.......................... 17,385,272.92 1.84 2,660,370.97 0.24
5.501-6.000%.......................... 58,692,457.05 6.23 36,914,537.57 3.33
6.001-6.500%.......................... 104,467,605.13 11.08 212,377,913.17 19.18
6.501-7.000%.......................... 267,391,485.69 28.36 214,070,794.25 19.33
7.001-7.500%.......................... 393,554,758.70 41.74 376,841,094.01 34.04
7.501-8.000%.......................... 91,062,021.04 9.66 212,908,766.35 19.23
8.001-8.500%.......................... 8,680,190.52 0.92 46,923,919.37 4.24
8.501-9.000%.......................... 482,154.72 0.05 4,280,688.85 0.39
9.001-9.500%.......................... 232,899.57 0.02 208,855.07 0.02
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
<CAPTION>
Weighted Average Weighted Average
Net Interest Net Interest Rate
Rate is 6.990% is 7.115%
</TABLE>
S-14
<PAGE>
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
REMAINING TERM TO STATED MATURITY PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
(MONTHS) BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
121-132............................... $ 302,903.17 0.03% $ 594,145.80 0.05%
133-144............................... 1,725,112.26 0.18 608,482.39 0.05
145-156............................... 2,556,861.41 0.27 30,714.17 *
157-168............................... 3,897,067.24 0.41 1,851,234.47 0.17
169-180............................... 238,359.17 0.03 0.00 0.00
181-192............................... 0.00 0.00 581,218.67 0.05
193-204............................... 54,320.26 0.01 591,573.73 0.05
205-216............................... 0.00 0.00 721,276.84 0.07
217-228............................... 259,472.50 0.03 1,410,311.59 0.13
229-240............................... 221,360.86 0.02 0.00 0.00
277-288............................... 0.00 0.00 508,696.41 0.05
289-300............................... 1,781,037.43 0.19 336,953.50 0.03
301-312............................... 19,944,350.25 2.12 45,236,478.54 4.09
313-324............................... 83,833,290.69 8.89 267,350,815.52 24.15
325-336............................... 257,677,068.11 27.33 238,981,244.89 21.58
337-348............................... 349,242,030.35 37.04 387,788,568.64 35.02
349-360............................... 221,112,444.78 23.45 160,595,224.45 14.50
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
<CAPTION>
Weighted Average
Remaining Term Weighted Average
to Stated Remaining Term to
Maturity is Stated Maturity
337.835 months is 334.263 months
</TABLE>
* Less than 1/100th of a percent.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
YEAR OF ORIGINATION BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
1991.................................. $ 1,781,037.43 0.19% $ 0.00 0.00%
1992.................................. 19,861,536.71 2.11 45,978,577.46 4.15
1993.................................. 83,203,828.68 8.82 264,320,692.38 23.87
1994.................................. 262,374,348.28 27.83 244,530,017.81 22.09
1995.................................. 343,865,163.76 36.47 383,017,811.29 34.59
1996.................................. 231,759,763.62 24.58 169,339,840.67 15.29
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
</TABLE>
The earliest month and year of origination of any Eligible Mortgage Note is
expected to be November 1991 and the latest month and year of origination is
expected to be August 1996.
S-15
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS*
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
ORIGINAL LOAN-TO-VALUE RATIO BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
Under 50.001%......................... $ 40,611,738.88 4.31% $ 48,654,322.42 4.39%
50.001-55.000%........................ 22,531,774.26 2.39 26,000,134.84 2.35
55.001-60.000%........................ 31,903,289.23 3.38 40,790,505.04 3.68
60.001-65.000%........................ 38,267,770.11 4.06 47,992,582.36 4.33
65.001-70.000%........................ 58,608,318.00 6.22 72,086,725.71 6.51
70.001-75.000%........................ 127,157,435.50 13.49 127,860,345.83 11.55
75.001-80.000%........................ 443,194,510.54 47.01 515,685,807.50 46.58
85.001-90.000%........................ 143,509,361.45 15.22 146,374,907.98 13.22
90.001-95.000%........................ 37,061,480.51 3.93 81,741,607.93 7.38
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
<CAPTION>
Weighted Average
Original Weighted Average
Loan-to- Original Loan-to-
Value Ratio is Value Ratio is
76.366% 76.580%
</TABLE>
* The loan-to-value ratio of an Eligible Mortgage Note is calculated using the
lesser of (i) the appraised value of the related mortgaged property, as
established by an appraisal obtained by the originator from an appraiser in
connection with the origination of such Eligible Mortgage Note, and (ii) the
sale price for such property. For the purpose of calculating the loan-to-value
ratio of any Eligible Mortgage Note that is the result of the refinancing
(including a refinancing for "equity take-out" purposes) of an existing
mortgage loan, the appraised value of the related mortgaged property is
generally determined by reference to an appraisal obtained in connection with
the origination of the replacement loan.
ORIGINAL MORTGAGE NOTE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
ORIGINAL PRINCIPAL BALANCE BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
Under $200,000.01..................... $120,196,199.62 12.75% $ 158,908,886.72 14.35%
200,000.01-250,000.00................. 230,864,039.22 24.49 250,189,312.86 22.60
250,000.01-300,000.00................. 221,491,019.21 23.49 256,486,565.29 23.17
300,000.01-350,000.00................. 158,692,961.15 16.83 157,613,533.82 14.24
350,000.01-400,000.00................. 98,481,183.56 10.45 127,888,263.37 11.55
400,000.01-450,000.00................. 6,874,174.25 0.73 11,560,623.85 1.04
450,000.01-500,000.00................. 42,151,808.92 4.47 42,013,247.29 3.79
500,000.01-550,000.00................. 27,350,379.91 2.90 43,383,285.63 3.92
550,000.01-600,000.00................. 31,089,276.03 3.30 39,303,578.41 3.55
600,000.01-650,000.00................. 5,654,636.61 0.60 19,254,634.13 1.74
800,000.01-850,000.00................. 0.00 0.00 585,008.24 0.05
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
<CAPTION>
Average Original
Principal Average Original
Balance is Principal Balance
$245,395.97 is $247,739.15
</TABLE>
S-16
<PAGE>
CURRENT MORTGAGE NOTE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
CURRENT PRINCIPAL BALANCE BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
Under $200,000.01..................... $133,781,191.85 14.19% $ 176,312,999.20 15.92%
200,000.01-250000.00.................. 239,815,911.75 25.44 271,669,520.73 24.54
250,000.01-300000.00.................. 218,810,753.80 23.21 240,944,357.60 21.76
300,000.01-350000.00.................. 156,118,516.12 16.56 157,260,563.84 14.20
350,000.01-400000.00.................. 91,766,911.97 9.73 118,539,414.82 10.71
450,000.01-500000.00.................. 44,759,893.06 4.75 49,042,096.08 4.43
500,000.01-550000.00.................. 27,895,092.84 2.96 41,750,536.45 3.77
550,000.01-600000.00.................. 29,897,407.09 3.17 51,667,450.89 4.67
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
<CAPTION>
Average Current
Principal Average Current
Balance is Principal Balance
$237,373.03 is $239,495.34
</TABLE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
PROPERTY TYPE BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
Condominium........................... $ 15,898,536.24 1.69% $ 12,441,589.95 1.12%
Planned Unit Development.............. 141,446,081.25 15.00 195,013,565.84 17.61
1 to 4 Family Detached................ 775,609,567.65 82.26 890,649,195.52 80.44
Town House............................ 9,891,493.34 1.05 9,082,588.30 0.82
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
</TABLE>
S-17
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
STATE BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
AL.................................... $ 3,823,071.46 0.41% $ 1,418,368.13 0.13%
AR.................................... 0.00 0.00 389,682.30 0.04
AZ.................................... 14,253,592.26 1.51 8,669,542.59 0.78
CA.................................... 328,971,715.38 34.89 294,951,656.25 26.64
CO.................................... 28,460,290.80 3.02 10,340,520.40 0.93
CT.................................... 1,780,242.35 0.19 448,377.99 0.04
DC.................................... 25,288,209.30 2.68 42,439,732.81 3.83
DE.................................... 1,178,457.26 0.12 2,194,060.49 0.20
FL.................................... 51,558,311.23 5.47 52,271,335.91 4.72
GA.................................... 25,215,511.01 2.67 40,413,466.02 3.65
ID.................................... 999,359.84 0.11 0.00 0.00
IL.................................... 20,180,617.86 2.14 13,607,281.09 1.23
IN.................................... 1,199,591.76 0.13 276,838.79 0.03
KS.................................... 2,502,805.03 0.27 1,587,861.91 0.14
KY.................................... 3,628,249.02 0.38 545,404.71 0.05
LA.................................... 337,949.27 0.04 0.00 0.00
MA.................................... 8,383,904.60 0.89 6,083,599.06 0.55
MD.................................... 59,257,535.21 6.28 121,955,317.95 11.01
MI.................................... 10,736,143.38 1.14 2,735,158.90 0.25
MN.................................... 11,633,867.73 1.23 10,606,424.94 0.96
MO.................................... 3,761,254.04 0.40 2,294,292.87 0.21
MS.................................... 242,924.65 0.03 0.00 0.00
NC.................................... 55,883,988.96 5.93 72,427,661.14 6.54
NE.................................... 2,513,402.48 0.27 742,244.39 0.07
NH.................................... 0.00 0.00 210,290.61 0.02
NJ.................................... 704,802.74 0.07 1,490,973.11 0.13
NM.................................... 3,231,655.04 0.34 558,482.32 0.05
NV.................................... 6,717,438.94 0.71 1,151,783.97 0.10
NY.................................... 1,651,676.72 0.18 1,786,816.32 0.16
OH.................................... 13,967,066.39 1.48 4,956,863.19 0.45
OK.................................... 1,560,656.29 0.17 919,676.76 0.08
OR.................................... 3,367,936.07 0.36 1,035,235.46 0.09
PA.................................... 4,583,090.18 0.49 6,983,336.58 0.63
SC.................................... 33,255,512.20 3.53 40,434,798.09 3.65
TN.................................... 14,764,177.29 1.57 22,677,158.76 2.05
TX.................................... 76,982,196.39 8.16 71,970,306.93 6.50
UT.................................... 4,971,908.44 0.53 483,343.54 0.04
VA.................................... 102,422,662.55 10.86 259,795,193.06 23.46
WA.................................... 12,616,243.12 1.34 5,880,813.08 0.53
WI.................................... 0.00 0.00 203,424.65 0.02
WV.................................... 0.00 0.00 249,614.54 0.02
WY.................................... 257,661.24 0.03 0.00 0.00
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
</TABLE>
No more than approximately 0.88% of the aggregate unpaid principal balance
of the Jumbo 5/1 Eligible Adjustable-Rate Mortgage Notes and approximately 1.82%
of the aggregate unpaid principal balance of the Jumbo 10/1 Eligible
Adjustable-Rate Mortgage Notes are secured by Mortgaged Properties located in
any one five-digit zip code region.
S-18
<PAGE>
PURPOSES OF ELIGIBLE MORTGAGE NOTES
<TABLE>
<CAPTION>
JUMBO 5/1 ELIGIBLE JUMBO 10/1 ELIGIBLE
ADJUSTABLE-RATE MORTGAGE NOTES ADJUSTABLE-RATE MORTGAGE NOTES
PERCENTAGE OF PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
AGGREGATE UNPAID AGGREGATE UNPAID CUT-OFF DATE AGGREGATE UNPAID
PRINCIPAL PRINCIPAL AGGREGATE UNPAID PRINCIPAL
LOAN PURPOSE BALANCE BALANCE PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C> <C>
Purchase.............................. $581,971,122.34 61.72% $ 749,548,204.02 67.70%
Refinance -- No Cashout............... 295,912,944.31 31.39 279,895,398.14 25.28
Refinance -- Cashout.................. 64,961,611.83 6.89 77,743,337.45 7.02
Total............................... $942,845,678.48 100.00% $1,107,186,939.61 100.00%
</TABLE>
In the case of an Eligible Mortgage Note made for "No Cashout" refinance
purposes, substantially all of the proceeds are used to pay in full the
principal balance of a previous mortgage loan of the mortgagor with respect to a
mortgaged property and to pay origination and closing costs associated with such
refinancing. However, in the case of an Eligible Mortgage Note made for
"Cashout" refinance purposes, all or a portion of the proceeds are generally
retained by the mortgagor for uses unrelated to the mortgaged property. The
amount of such proceeds retained by the mortgagor may be substantial.
UNDERWRITING GUIDELINES FOR ELIGIBLE MORTGAGE NOTES
Each Eligible Mortgage Note has satisfied the credit, appraisal and
underwriting guidelines established by the Servicer and which are in conformity
with those of NationsBank, N.A., NationsBank Texas and NationsBank South, which
may be varied in cases deemed appropriate by the Servicer.
The Servicer's underwriting guidelines are intended to evaluate the
mortgagor's credit standing and repayment ability and the value and adequacy of
the mortgaged property as collateral. The Servicer's underwriting guidelines are
applied in a standard procedure which is intended to comply with applicable
federal and state laws and regulations. Initially, a prospective mortgagor is
required to fill out a detailed application designed to provide pertinent credit
information. As part of the description of the mortgagor's financial condition,
the mortgagor is required to provide a current balance sheet describing assets
and liabilities and a statement of income and expenses, as well as an
authorization to apply for a credit report which summarizes the mortgagor's
credit history with local merchants and lenders and any record of bankruptcy. In
addition, an employment verification is obtained from the mortgagor's employer
wherein the employer reports the length of employment with that organization,
the current salary and an indication as to whether it is expected that the
mortgagor will continue such employment in the future. If a prospective
mortgagor is self-employed, the mortgagor is required to submit copies of signed
tax returns. The mortgagor also authorizes deposit verification at all financial
institutions where the mortgagor has demand or savings accounts. In lieu of
employment and deposit verifications, the Servicer will accept copies of federal
withholding (W-2) forms, pay stubs and account statements.
Once the employment and deposit documentation and the credit report are
received, a determination is made as to whether the prospective mortgagor has
sufficient monthly income available (i) to meet the mortgagor's monthly
obligations on the proposed mortgage loan and other expenses related to the
mortgaged property (such as property taxes, hazard insurance and maintenance and
utility costs) and (ii) to meet other financial obligations and monthly living
expenses.
In determining the adequacy of the property as collateral, an independent
appraisal is made of each property considered for financing. The appraiser is
required to inspect fully the property and verify that it is in good condition
and that construction, if new, has been completed. The appraisal is based on the
appraiser's judgment of values, giving appropriate weight to both the market
value of comparable homes and the cost of replacing the property.
Certain states where the properties securing the Eligible Mortgage Notes
are located are "anti-deficiency" states where, in general, lenders providing
credit on one- to four-family properties must look solely to the property for
repayment in the event of foreclosure. The Servicer's underwriting guidelines in
all states (including anti-deficiency states) require that the underwriting
officers be satisfied that the value of the property being financed, as
indicated by the independent appraisal, currently supports and is anticipated to
support in the
S-19
<PAGE>
future the outstanding loan balance and provides sufficient value to mitigate
the effects of adverse shifts in real estate values.
The Servicer has employed different underwriting guidelines for certain
qualifying mortgage loans underwritten by the Servicer through an underwriting
program ("Reduced Documentation Guidelines") designed to streamline the loan
review process by eliminating the requirement for income verification. The
objective of the use of limited documentation has been to shift the emphasis of
the underwriting process from the credit standing of the mortgagor to the value
and adequacy of the mortgaged property as collateral. The maximum loan-to-value
ratio of any mortgage loan originated under the Reduced Documentation Guidelines
was 75% at the time of origination. Certain of the Eligible Mortgage Notes may
have been originated under the Reduced Documentation Guidelines.
SERVICING OF ELIGIBLE MORTGAGE NOTES
THE SERVICER
The Servicer is a wholly-owned subsidiary of NationsBank Texas, which is an
indirect, wholly-owned subsidiary of NationsBank Corporation. The Servicer is
primarily engaged in the origination, purchase and sale of mortgage loans, the
performance of servicing functions and the underwriting of mortgage loans. The
Servicer's principal executive offices are located at 101 South Tryon Street,
39th Floor, Charlotte, North Carolina 28255 and the telephone number is (704)
388-4545, and the Servicer's operations offices are located at 101 East Main
Street, Suite 400, Louisville, Kentucky 40202 and the telephone number is (502)
566-5100.
SERVICING PROCEDURES
On or before the Closing Date, the Issuer and the Servicer will enter into
a servicing agreement (the "Servicing Agreement"). Pursuant to the Servicing
Agreement, the Servicer will be responsible for servicing and administering the
Eligible Mortgage Notes. The Servicer will at all times remain responsible for
the performance of its duties under the Servicing Agreement. On the Closing
Date, the Issuer will assign its rights under the Servicing Agreement to the
Trustee for the benefit of the Holders.
The Servicer will agree to perform diligently all services and duties
customary to the servicing by prudent mortgage lending institutions of mortgages
of the same type as the Eligible Mortgage Notes in those jurisdictions where the
related mortgaged properties are located. The duties to be performed by a
servicer include collection and remittance of principal and interest payments,
administration of mortgage escrow accounts (as to which the Servicer will be
expected to make advances when a deficiency exists therein, as described more
fully in the Servicing Agreement), collection of insurance claims and, if
necessary, foreclosure. The Servicer will not be required to make advances in
respect of delinquent monthly payments of principal and interest on Eligible
Mortgage Notes.
The Servicer will be entitled to a monthly servicing fee for each Eligible
Mortgage Note, payable only from the interest portion of any monthly payment
collected on an Eligible Mortgage Note, ranging from 0.25% to 0.50% of the
unpaid principal balance of such Eligible Mortgage Note, based on, among other
things, its date of origination, the size of its original principal balance and
whether it is a fixed or adjustable rate mortgage note. The Servicer will be
entitled to retain its servicing fee from interest payments collected prior to
depositing such payments into the Collection Account. In addition, the Servicer
will be entitled to investment income from amounts on deposit in the Collection
Account as described below and to retain late payment charges and other fees and
expenses related to loan assumptions, delinquencies, modifications, partial
releases of security and releases for payment in full, if any, to the extent
collected from mortgagors.
For a more detailed description of the servicing procedures applicable to
the Servicer with respect to the Eligible Mortgage Notes, see "Servicing of
Eligible Mortgage Notes" in the Prospectus.
COLLECTION ACCOUNT
The Servicer will establish the Collection Account and collect and deposit
therein payments on the Eligible Mortgage Notes in accordance with the
procedures described in the Prospectus under "Servicing of Eligible Mortgage
Notes." Amounts on deposit from time to time in the Collection Account will be
invested by the Servicer in Eligible Investments. "Eligible Investments" include
Deposit Securities and any other investments that are acceptable to each Rating
Agency. Amounts on deposit in the Collection Account from time to time will
S-20
<PAGE>
constitute a portion of the Pledged Property securing the Bonds and Eligible
Collateral for purposes of satisfying the Basic Maintenance Amount.
On the 18th day of each month (or, if such day is not a Business Day, the
preceding Business Day), the Servicer will deliver a report to the Trustee
detailing collections on the Eligible Mortgage Notes during the preceding
calendar month (each, a "Collection Period") and stating the total amount of
funds on deposit in the Collection Account and the aggregate principal balance
of the Eligible Mortgage Notes, in each case, as of the end of the preceding
day. On the 23rd day of each month (or, if such day is not a Business Day, the
preceding Business Day) (each, a "Servicer Remittance Date"), the Servicer will
withdraw and remit to the Trustee the amount of cash on deposit in the
Collection Account that was collected during the preceding Collection Period
after deducting amounts permitted to be withdrawn by the Servicer, including its
fee, as described under "Servicing of Eligible Mortgage Notes -- Payments on
Eligible Mortgage Notes" in the Prospectus (the "Available Amount"). In
addition, on the 3rd day of each month (or, if such day is not a Business Day,
the preceding Business Day), the Servicer will deliver a similar report to the
Trustee stating the total amount of funds on deposit in the Collection Account
and the aggregate principal balance of the Eligible Mortgage Notes, in each
case, as of the end of the preceding day.
THE SERVICER'S FORECLOSURE AND DELINQUENCY EXPERIENCE
Historically, a variety of factors including the appreciation of real
estate values have limited the Servicer's loss and delinquency experience on its
portfolio of mortgage loans. There can be no assurance that factors beyond the
Servicer's control, such as national or local economic conditions or downturns
in the real estate markets in its lending areas, will not result in increased
rates of delinquencies and foreclosure losses in the future.
The information in the table below has not been adjusted to eliminate the
effect of the significant growth in the size of the portfolio of mortgage loans
serviced by the Servicer during the periods shown. Accordingly, foreclosures and
delinquencies as percentages of aggregate principal balance of mortgage loans
serviced for each period may be higher than those that would be shown if a group
of mortgage loans were artificially isolated at a point in time and the
information disclosed the activity only in that isolated group. However, since
most of the mortgage loans in the portfolio of mortgage loans serviced by the
Servicer during the periods shown are not fully seasoned, the foreclosure and
delinquency information for such an isolated group would also be distorted to
some degree.
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated on conventional first trust deed or
mortgage loans serviced by the Servicer and which were originated in a manner
consistent with the underwriting criteria of the Servicer described above under
" -- Underwriting Standards." The Servicer's portfolio of first trust deed and
mortgage loans contains fixed and adjustable rate mortgage loans having a
variety of original terms to maturity and payment characteristics and may
therefore differ significantly from the Eligible Mortgage Notes constituting a
portion of the Pledged Property at any time in terms of interest rates,
principal balances, geographic distribution, loan-to-value ratios and other
possibly relevant characteristics. There can be no assurance, and no
representation is made, that the delinquency and foreclosure experience with
respect to the Eligible Mortgage Notes included in the Pledged Property will be
similar to that reflected in the table below, nor is any representation made as
to the rate at which losses may be experienced on liquidation of defaulted
Mortgage Notes. The actual delinquency and foreclosure experience on the
Eligible Mortgage Notes included in the Pledged Property will depend, among
other things, upon the value of the real estate securing such Mortgage Notes and
the ability of borrowers to make required payments. The sums of the Percent
Delinquent and Percent in Foreclosure set forth in the following table may not
equal the Percent Delinquent and in Foreclosure due to rounding.
S-21
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995 AT DECEMBER 31, 1994
NUMBER/% OF OUTSTANDING NUMBER/% OF OUTSTANDING NUMBER/% OF OUTSTANDING
MORTGAGE PRINCIPAL MORTGAGE PRINCIPAL MORTGAGE PRINCIPAL
NOTES AMOUNT NOTES AMOUNT NOTES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio.................. 304,921 $32,561,189,618 260,568 $27,820,905,542 227,068 $21,477,365,031
Delinquencies*
One installment delinquent..... 6,261 $ 477,968,358 4,727 $ 371,425,718 3,575 $ 248,651,462
Percent Delinquent............. 2.1% 1.5% 1.8% 1.3% 1.6% 1.2%
Two installments delinquent.... 1,249 $ 90,683,948 827 $ 58,519,191 679 $ 40,584,938
Percent Delinquent............. 0.4% 0.3% 0.3% 0.2% 0.3% 0.2%
Three or more installments
delinquent................... 1,465 $ 105,654,522 875 $ 61,929,401 676 $ 43,458,765
Percent Delinquent............. 0.5% 0.3% 0.3% 0.2% 0.3% 0.2%
In Foreclosure................... 1,358 $ 112,445,453 499 $ 38,350,914 383 $ 28,626,045
Percent in Foreclosure......... 0.4% 0.3% 0.2% 0.1% 0.2% 0.1%
Delinquent and in Foreclosure.... 10,333 $ 786,752,281 6,928 $ 530,225,224 5,313 $ 361,321,210
Percent Delinquent and in
Foreclosure.................. 3.4% 2.4% 2.7% 1.9% 2.3% 1.7%
</TABLE>
* A mortgage loan is deemed to have "one installment delinquent" if any
scheduled payment of principal or interest is delinquent past the end of the
month in which such payment was due, "two installments delinquent" if such
delinquency persists past the end of the month following the month in which
such payment was due, and so forth.
DISTRIBUTION ACCOUNT
On the Closing Date, the Trustee will establish the Distribution Account for
the benefit of the Holders. All payments in respect of any Eligible Collateral
securing the Bonds from time to time other than Eligible Mortgage Notes will be
made directly to the Trustee for deposit into the Distribution Account. In
addition, if an Event of Default under the Indenture should occur and be
continuing, all payments in respect of Eligible Mortgage Notes will be remitted
directly to the Trustee for deposit into the Distribution Account.
On each Servicer Remittance Date, upon receipt of the Available Amount from
the Servicer, the Trustee will apply such funds in the following order of
priority:
(i) first, for deposit into the Distribution Account, an amount (first from
the interest portion of the Available Amount and then from the principal portion
of the Available Amount) equal to the amount of interest accrued or to accrue on
the Bonds from and including the 25th day of the preceding month to and
including the 24th day of the month of the Servicer Remittance Date less in each
month other than March, June, September and December any amounts deposited in
the Distribution Account since the immediately preceding Servicer Remittance
Date and available for payment on the Bonds, and in the case of Servicer
Remittance dates occurring in March, June, September and December, the amount
payable on the next Interest Payment Date less any amounts then on deposit in
the Distribution Account and available for payments on the Bonds; and
(ii) second, for deposit into the Reserve Fund, the remaining portion of the
Available Amount.
On each Interest Payment Date, the Trustee will withdraw from the
Distribution Account an amount equal to the amount of interest accrued on the
principal amount of the Bonds during the related Interest Period and distribute
such amount to the Holders of the Bonds as of the immediately preceding Record
Date. In addition, on any mandatory redemption date and at the Stated Maturity
of the Bonds, the Trustee will withdraw sufficient amounts from the Distribution
Account to make required interest and principal payments on the Bonds on such
date and distribute such amounts to the Holders of the Bonds as of the
immediately preceding Record Date.
If, on any Interest Payment Date or mandatory redemption date or at the
Stated Maturity of the Bonds, the amount on deposit in the Distribution Account
is less than the amount necessary to make required interest and principal
payments on the Bonds on such date, the Trustee will withdraw from the Reserve
Fund and deposit into the Distribution Account, to the extent of amounts
available in the Reserve Fund, an amount equal to the difference between such
required amount and the amount then on deposit in the Distribution Account.
S-22
<PAGE>
Amounts on deposit from time to time in the Distribution Account will be
invested by the Trustee at the direction of the Issuer in Eligible Investments.
Investment earnings from Eligible Investments will be credited to the
Distribution Account. Amounts held in the Distribution Account from time to time
will constitute a portion of the Pledged Property securing the Bonds and
Eligible Collateral for purposes of satisfying the Basic Maintenance Amount.
RESERVE FUND
On the Closing Date, the Trustee will establish the Reserve Fund for the
benefit of the Holders. On each Servicer Remittance Date, the Trustee will
deposit into the Reserve Fund the portion of the Available Amount remaining
after making the required deposit into the Distribution Account described above.
Amounts on deposit from time to time in the Reserve Fund will be invested by
the Trustee at the direction of the Issuer in Eligible Investments. Investment
earnings from Eligible Investments will be credited to the Reserve Fund. Amounts
held in the Reserve Fund from time to time will constitute a portion of the
Pledged Property securing the Bonds and Eligible Collateral for purposes of
satisfying the Basic Maintenance Amount.
At the request of the Issuer, amounts on deposit in the Reserve Fund will be
withdrawn by the Trustee and released to the Issuer free of the lien of the
Indenture if, as of the Valuation Date immediately preceding such release, the
Discounted Value of the Eligible Collateral, after giving effect to such
release, is at least equal to the Basic Maintenance Amount and no Event of
Default has occurred and is continuing. It is the present intention of the
Issuer to cause the Trustee to release to the Issuer on each Servicer Remittance
Date, subject to the limitations described in the preceding sentence, any
portion of the related Available Amount deposited therein on such date
representing principal and interest payments on the Eligible Mortgage Notes. In
addition, as more fully described above under " -- Distribution Account," the
Trustee will withdraw amounts from the Reserve Fund and deposit such amounts
into the Distribution Account to the extent amounts on deposit in the
Distribution Account are insufficient to make required payments of interest and
principal on the Bonds on any date.
BASIC MAINTENANCE AMOUNT
The Issuer will be required under the terms of the Indenture to maintain
Eligible Collateral with an aggregate Discounted Value at least equal to the
Basic Maintenance Amount, which means that such Eligible Collateral would have a
Market Value (as defined under "Description of the Bonds -- Basic Maintenance
Amount" in the Prospectus) of as much as 104% to 132% of the Basic Maintenance
Amount to the extent that the Eligible Collateral consists of collateral other
than cash and would have a Market Value of 100% of the Basic Maintenance Amount
if the Eligible Collateral consisted solely of cash or certain cash equivalents.
For purposes of such calculation, Eligible Collateral will include amounts on
deposit in the Collection Account, the Distribution Account and the Reserve
Fund. In determining the Market Value of Eligible Mortgage Notes as to which
there is currently a Late Payment, such Market Value will be reduced by 15% if
such Mortgage Note is one installment delinquent, by 50% if such Mortgage Note
is two installments delinquent and by 75% if such Mortgage Note is three
installments delinquent. An Eligible Mortgage Note that is more than three
installments delinquent will have a Market Value of zero.
The "Basic Maintenance Amount" as of each Valuation Date (or any other date
of valuation) means an amount equal to the sum of (i) the aggregate principal
amount of Bonds Outstanding plus (ii) an amount equal to 90 days' accrued
interest on the Bonds Outstanding at a rate of 22% per annum.
S-23
<PAGE>
The "Discounted Value" of the Eligible Collateral as of any date will be the
lesser of the aggregate weighted average amount determined for either of the
Rating Agencies by multiplying for each Rating Agency such Rating Agency's
Discount Factor for the applicable type of Eligible Collateral by the Market
Value of such Eligible Collateral. The weighted average is determined based upon
the relative percentage that the Market Value of each such type of Eligible
Collateral constitutes of the aggregate Market Value of the Eligible Collateral.
The ranges of Discount Factors required by the Rating Agencies for certain types
of Eligible Collateral, including the types of Eligible Mortgage Notes included
in the Initial Collateral, are as follows:
<TABLE>
<CAPTION>
DISCOUNT FACTORS
<S> <C>
Cash, demand deposits................................................................................... 1.000000
Direct obligations of the United States Government...................................................... .965000-.805000(a)
Eligible Fixed-Rate Mortgage Notes
Jumbo 30-Year Eligible Fixed-Rate Mortgage Notes...................................................... .769231-.760000
Jumbo 15-Year Eligible Fixed-Rate Mortgage Notes...................................................... .781250-.780000
Eligible Adjustable-Rate Mortgage Notes
Jumbo 1/1 Eligible Adjustable Rate Mortgage Notes..................................................... .890000-.877193
Jumbo 3/1 Eligible Adjustable Rate Mortgage Notes..................................................... .862069-.860000
Jumbo 5/1 Eligible Adjustable-Rate Mortgage Notes..................................................... .847458-.830000
Jumbo 7/1 Eligible Adjustable Rate Mortgage Notes..................................................... .840336-.810000
Jumbo 10/1 Eligible Adjustable-Rate Mortgage Notes.................................................... .833333-.800000
GNMA Certificates....................................................................................... .909091-.805000
FHLMC Certificates or FNMA Certificates................................................................. .900901-.805000
</TABLE>
(a) The Discount Factor applied within the range shown depends upon the
particular Rating Agency as well as the period to maturity of each
obligation, which varies from 30 days to 30 years.
The Trustee is required to deliver a report containing the information
described below under " -- Reports on Pledged Property" to the Issuer within two
Business Days after each Valuation Date with respect to the status of the
Pledged Property as of the Valuation Date using Market Values determined as of a
date not more than three Business Days prior to such Valuation Date (a
"Determination Date"). Scheduled reductions in the principal amounts of the
Eligible Collateral included in the Pledged Property or possible prepayments or
decreases in the Market Value thereof may cause the Discounted Value of the
Eligible Collateral to be less than the Basic Maintenance Amount. In such event,
the Indenture requires the Issuer, no later than the Cure Date, either (i) to
deliver additional Eligible Collateral to the Trustee or if Eligible Mortgage
Notes are delivered, to the Custodian and/or substitute Eligible Collateral
and/or (ii) to the extent it elects to do so, to repurchase a number of Bonds
Outstanding so that the Trustee can, no later than the Cure Date, deliver a new
report showing that, as of the date of such report, the Discounted Value of the
Eligible Collateral (determined as of the date that the Basic Maintenance Amount
was not met, or, at the option of the Issuer, as of a later date of valuation,
but no later than the Cure Date) is at least equal to the Basic Maintenance
Amount. If the Issuer elects to satisfy the foregoing obligation to restore the
Discounted Value of the Eligible Collateral to the Basic Maintenance Amount by
delivering Mortgage Notes to the Custodian, the Mortgage Notes included in the
Pledged Property after the delivery of such Mortgage Notes must meet the
requirements relating to the limits on the types and characteristics of such
Mortgage Notes in order to ensure that all Mortgage Notes delivered to the
Custodian are Eligible Mortgage Notes. In the event that the Issuer is unable by
the Cure Date to cause the Discounted Value of the Eligible Collateral to be at
least equal to the Basic Maintenance Amount by pledging additional Eligible
Collateral or substituting Eligible Collateral or repurchasing Bonds Outstanding
to the extent necessary to cause the Discounted Value of the Eligible Collateral
to be at least equal to the Basic Maintenance Amount, then the Issuer must no
more than 30 days after the Cure Date, redeem Bonds as described above under
" -- Redemption."
WITHDRAWALS AND SUBSTITUTIONS OF COLLATERAL
The Issuer may, at its option, at any time and from time to time, withdraw
or substitute Pledged Property; provided, that either (i) the Discounted Value
of the Eligible Collateral (based upon the then most recent report
S-24
<PAGE>
of the Trustee valuing the Eligible Collateral) remaining in the Pledged
Property following the proposed withdrawal or substitution (after giving effect
to withdrawals from and substitutions of Pledged Property during the period
following such report) would at least equal the Basic Maintenance Amount as of
the then most recent report of the Trustee valuing the Eligible Collateral or
(ii) the Issuer causes the Trustee to prepare a new report, containing
information as of the date thereof, showing that the Discounted Value of the
Eligible Collateral (calculated as of a date no more than three Business Days
prior to the date of such report) included in the Pledged Property following the
proposed withdrawal, and after giving effect to any proposed substitution, will
at least equal the Basic Maintenance Amount as calculated in such new report.
Pledged Property which was not included in the Discounted Value of the
Eligible Collateral as of the most recent Valuation Date may be withdrawn at any
time so long as the Discounted Value of the Eligible Collateral was at least
equal to the Basic Maintenance Amount as of such Valuation Date, and no
withdrawals of Eligible Collateral were made after such Valuation Date. During
the continuance of any Event of Default, the Issuer may not withdraw or
substitute Pledged Property.
The Issuer may pledge additional Eligible Collateral at any time.
The Indenture permits the Issuer to consent to certain modifications or
waivers with respect to the Eligible Collateral, including, for example,
assumptions of Mortgage Notes and related mortgages.
LIQUIDITY
No later than 15 days before the Stated Maturity, the Issuer must either (i)
pledge Deposit Securities to the Trustee or (ii) make other arrangements
acceptable to each Rating Agency to deposit cash on the Business Day preceding
the Stated Maturity, in each case in an amount sufficient, together with the
amount of cash that will otherwise be available in the Distribution Account and
the Reserve Fund on the Stated Maturity, to pay all of the interest and
principal payable on the Bonds on the Stated Maturity. If, as of the 45th day
preceding the Stated Maturity, the rating of the long-term unsecured debt of
NationsBank Corporation has fallen below "BBB" by Fitch or "Baa2" by Moody's,
then no later than 30 days before the Stated Maturity, the Issuer must pledge
Deposit Securities to the Trustee as described in the preceding sentence. In
order to satisfy the foregoing obligations, the Issuer may, for example, sell
all or a portion of the Pledged Property at fair market value to one or more
purchasers (which may include affiliates of the Issuer, although no such
affiliate or any other entity has any obligation to make any purchase of Pledged
Property) and deposit the proceeds of such sale with the Trustee. If the Issuer
fails to effect any of the options described above within the prescribed period,
then the Trustee must immediately liquidate Pledged Property in an amount
sufficient to pay all of the interest and principal payable on the Bonds on the
Stated Maturity. Upon delivery of such Deposit Securities or cash, the Bonds
will no longer be deemed to be Outstanding, and the Trustee will be obligated to
release all other Pledged Property held by the Trustee from the lien of the
Indenture.
In addition, if the Issuer elects to deliver Deposit Securities to the
Trustee to provide for payment of the redemption price pursuant to a mandatory
partial redemption of the Bonds in lieu of having the Trustee liquidate Pledged
Property, then, on the Cure Date on which it is required to notify the Trustee
of such redemption, the Issuer must deliver Deposit Securities in the full
amount of the redemption price of the Bonds to be redeemed.
Deposit Securities delivered in accordance with the preceding paragraphs
must mature prior to the date in respect of which such Deposit Securities were
delivered. Deposit Securities include (i) cash and (ii) Government Securities
(other than FHLMC Certificates, FNMA Certificates and GNMA Certificates),
provided that such investments must have a remaining term to maturity of 30 days
or less on the date they are delivered to the Trustee.
PURCHASE AND RESALE OF BONDS
The Issuer may at any time and from time to time purchase Bonds Outstanding
on the open market or by private sale. Bonds held by the Issuer or its
affiliates (other than NCMI) shall not be deemed to be Outstanding for purposes
of determining the Basic Maintenance Amount or for other purposes under the
Indenture. The Indenture provides that the Issuer shall not, and it shall not
permit any affiliate (other than NCMI) to, sell any Bonds acquired by the Issuer
or any such affiliate unless the Trustee is able to prepare a report dated no
more
S-25
<PAGE>
than five days prior to the date of sale, showing that, after giving effect to
such sale, the Discounted Value of the Eligible Collateral (determined at the
option of the Issuer, as of the then most recent Valuation Date or as of any
date subsequent thereto but no later than the date of such report) would not be
less than the Basic Maintenance Amount.
REPORTS ON PLEDGED PROPERTY
Upon issuance of the Bonds, the Issuer is required to deliver to the
Trustee, and, within two Business Days after each Valuation Date commencing with
the , 1997 Valuation Date, the Trustee is required to deliver to the
Issuer, reports with respect to the status of the Pledged Property (with Market
Values having been determined as of the related Determination Date), which set
forth the Discounted Value of the Eligible Collateral. Copies of such reports
will also be delivered to each Rating Agency. The Issuer may also cause the
Trustee to deliver similar reports in connection with the withdrawal or
substitution of Pledged Property, as described above under " -- Withdrawals and
Substitutions of Collateral." In preparing such reports, the Trustee will use
information provided by the Servicer in its semi-monthly reports preceding the
related Valuation Dates as to the amounts on deposit in the Collection Account,
the aggregate principal balance of the Eligible Mortgage Notes and the weighted
average interest rate, weighted average maturity and principal balance of
specified groups of Eligible Mortgage Notes. Such reports will also contain
information obtained from the Servicer concerning the occurrence of Late
Payments with respect to the Eligible Mortgage Notes. In addition, the report to
be delivered by the Issuer upon issuance of the Bonds, each report delivered by
the Trustee in connection with the withdrawal or substitution of Pledged
Property and each report delivered by the Trustee in connection with the
Valuation Date following the pledge by the Issuer of additional Eligible
Collateral (other than in connection with a substitution) will also contain
information on specified characteristics of the Mortgage Notes (as described in
the Prospectus under "Description of the Bonds -- Eligible Mortgage Notes") and
the percentages of the Mortgage Notes having such characteristics.
The Issuer's initial report upon the issuance of the Bonds, the Trustee's
report delivered in connection with each Cure Date and certain of the Trustee's
semi-monthly Valuation Date reports will be accompanied by letters from a firm
of independent accountants selected by the Issuer regarding the calculations
made by the Issuer and the Trustee, as applicable, in the applicable reports.
With respect to the Trustee's reports, such letter will be delivered quarterly,
commencing with the report delivered in connection with the July 5, 1997
Valuation Date, and will relate to (i) the Trustee's report delivered with
respect to such quarterly Valuation Date and (ii) one of the Trustee's reports
delivered during the three-month period ending on the last day of the preceding
month, which report will be selected at random by such firm of accountants.
EXAMPLE OF COLLECTION AND DISTRIBUTION OF PAYMENTS
The following chart sets forth an example of (i) the application of
collections on the Eligible Collateral received during a Collection Period to
the payment of the Bonds and other amounts on the following Interest Payment
Date and (ii) a one-month cycle of collateral valuations and reports. Each month
in a three month period will be the same except that the Record Date, LIBOR
Determination Date and Interest Payment Date will occur only in March, June,
September and December. For purposes of the following chart, each day shown is
assumed to be a Business Day.
<TABLE>
<S> <C>
May 1-May 31.......................................... Collection Period. The Servicer receives scheduled monthly payments,
prepayments, and other payments in respect of the Eligible Mortgage
Notes and deposits them in the Collection Account, net of its
servicing fee. The Trustee receives payments on all other Eligible
Collateral and deposits them in the Distribution Account.
June 2................................................ Determination Date for the June 5 Valuation Date.
June 3................................................ The Servicer delivers a report to the Trustee stating the total
amount of funds on deposit in the Collection Account and the
aggregate principal balance of the Eligible Mortgage Notes, in each
case, as of the end of the preceding day.
June 5................................................ Valuation Date. The Trustee prepares a valuation report showing the
Discounted Value of the Eligible Collateral as of a date no earlier
than the preceding Determination Date.
</TABLE>
S-26
<PAGE>
<TABLE>
<S> <C>
June 7................................................ The Trustee delivers the valuation report to the Issuer. If the
Discounted Value of the Eligible Collateral is less than the Basic
Maintenance Amount as of the June 5 Valuation Date, the Issuer has
until the next Cure Date (10 days following receipt of the report) to
pledge additional Eligible Collateral and/or substitute Eligible
Collateral and/or repurchase Bonds so as to make them no longer
Outstanding in order to remove the collateral shortfall.
June 17............................................... Cure Date. If the Issuer has not remedied the collateral shortfall
described above by this date, the Trustee will be required to cause a
partial mandatory redemption of the Bonds within 30 days of the Cure
Date in an amount such that, after giving effect to such redemption,
the Discounted Value of the Eligible Collateral is at least equal to
the Basic Maintenance amount, unless the collateral value test is met
on a subsequent Valuation Date and no notice of redemption has yet
been sent to the Holders.
June 17............................................... Determination Date for the June 20 Valuation Date.
June 18............................................... The Servicer delivers a report to the Trustee detailing collections
on the Eligible Mortgage Notes during the preceding Collection Period
and stating the total amount of funds on deposit in the Collection
Account and the aggregate principal balance of the Eligible Mortgage
Notes, in each case, as of the end of the preceding day.
June 20............................................... Valuation Date. The Trustee prepares a valuation report similar to
that described above.
June 22............................................... The Trustee delivers the valuation report to the Issuer. The Issuer
again has 10 days to remedy any collateral shortfall evidenced by
such report.
June 22............................................... Record Date for the June 25 Interest Payment Date.
June 23............................................... Servicer Remittance Date. The Servicer remits the Available Amount to
the Trustee. The Trustee (i) deposits into the Distribution Account
and the Reserve Fund, as applicable, the required portions of the
Available Amount and (ii) upon request of the Issuer and subject to
the limitations discussed above under " -- Reserve Fund," releases
amounts on deposit in the Reserve Fund to the Issuer, free of the
lien of the Indenture, if the Discounted Value of the Eligible
Collateral as of the most recent Valuation Date, after giving effect
to such release, is at least equal to the Basic Maintenance Amount.
June 23............................................... LIBOR Determination Date. The Trustee determines LIBOR and the
applicable interest rate on the Bonds for the next Interest Period
(June 25 through September 24).
June 25............................................... Interest Payment Date. The Trustee distributes to the Holder (DTC)
interest payable on the Bonds on such date.
</TABLE>
S-27
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is the ratio of earnings to fixed charges for the Issuer for
the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED DECEMBER
31, JUNE 24 THROUGH
1996 1995 DECEMBER 31, 1994(1)
<S> <C> <C> <C>
Ratio of Earnings to Fixed Charges (2)(3)........................................ 1.84 1.33 1.21
</TABLE>
(1) The Issuer's predecessor, Main Place Funding Corporation, was incorporated
on June 24, 1994.
(2) For purposes of computing the ratio of earnings to fixed charges, (i)
earnings consist of net income plus applicable income taxes and fixed
charges less capitalized interest and (ii) fixed charges consist of interest
expense, capitalized interest, amortization of debt discount and appropriate
issuance costs and one-third (the amount deemed to represent an appropriate
interest factor) of net rent expense under all lease commitments.
(3) For the periods indicated, the Issuer's sole fixed charge consisted of
interest expense.
ERISA CONSIDERATIONS
The Bonds may be purchased by those employee benefit plans or other
retirement arrangements subject to either the Employee Retirement Income
Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code"), or any entity (including an insurance company
separate or general account) whose underlying assets include plan assets (as
defined in 29 C.F.R. (section mark) 2510.3-101) by reason of such plan or
arrangement investing in such entity ("Plans") whose purchase or holding of the
Bonds would be eligible for the prohibited transaction exemptive relief provided
under one of the following prohibited transaction class exemptions issued by the
Department of Labor ("PTEs"): PTE 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers);
PTE 91-38 (Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds); PTE 90-1 (Class Exemption for Certain Transactions Involving
Insurance Company Pooled Separate Accounts); PTE 95-60 (Class Exemption for
Certain Transactions Involving Insurance Company General Accounts); and PTE
96-23 (Class Exemption for Certain Transactions Determined by "In-house Asset
Managers"), or under some other applicable exemption.
The acquisition of a Bond by a Plan will be deemed a representation by the
transferee that at least one of the above referenced PTEs or some other
exemption will be applicable to the purchase and holding of such Bond. See
"ERISA Considerations" in the Prospectus for a discussion of the potential
prohibited transactions relating to the acquisition and holding of a Bond for
which exemptive relief is required.
UNDERWRITING
Upon the terms and subject to the conditions contained in an underwriting
agreement dated March , 1997 between the Issuer and the Underwriters (the
"Underwriting Agreement"), the Underwriters named below have severally agreed to
purchase, and the Issuer has agreed to sell to them, severally, the respective
principal amounts of the Bonds set forth opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
<S> <C>
NationsBanc Capital Markets, Inc.................................................. $
Bear, Stearns & Co. Inc...........................................................
Lehman Government Securities Inc..................................................
UBS Securities Inc................................................................
Total...................................................................... $1,000,000,000
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Bonds offered
hereby if any of the Bonds are purchased.
S-28
<PAGE>
The Underwriters propose initially to offer the Bonds in part to the public
at the price set forth on the cover page of this Prospectus Supplement and in
part to certain dealers at such price less concessions not in excess of % of
the principal amount of the Bonds. The Underwriters may allow, and such dealers
may reallow, concessions not in excess of % of the principal amount of the
Bonds to certain brokers and dealers. After the initial public offering, the
public offering price and other selling terms may be changed by the
Underwriters.
The Bonds will be offered simultaneously in the United States and abroad.
Each Underwriter has represented and agreed that (a) it has not offered or
sold and will not offer or sell in the United Kingdom any Bonds to persons in
the United Kingdom except to persons whose ordinary 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 and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation 1995 or the
Financial Services Act 1986 (the "Act") and (b) it has 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 issue of the Bonds, other than any document which
consists of or any part of listing particulars, supplementary listing
particulars or any other document required or permitted to be published by
listing rules under Part IV of the Act, to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom the document may otherwise
lawfully be issued or passed on.
The Bonds have not been and will not be registered under the Securities and
Exchange Law of Japan (the "Securities and Exchange Law") and each Underwriter
has agreed and each other purchaser will be required to agree that it will not
offer or sell any Bonds, directly or indirectly, in Japan or to, or for the
benefit of, any resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity organized under the
laws of Japan) except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Securities and Exchange
Law and any relevant laws and regulations of Japan.
The Issuer has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
There currently is no secondary market for this series of Bonds. The
Underwriters intend to make a secondary market in the Bonds, but none of the
Underwriters has any obligation to do so. There is no assurance that a secondary
market in the Bonds will develop or, if one does develop, that it will continue
until the Bonds are paid in full.
In connection with the offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Bonds. Such transactions
may include stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which such person may bid for or purchase Bonds for
the purpose of stabilizing their market price. The Underwriters also may create
a short position for the account of the Underwriters by selling more Bonds in
connection with the offering than they are committed to purchase from the
Issuer, and in such case may purchase Bonds in the open market following
completion of the offering to cover all or a portion of such short position. In
addition, NCMI, on behalf of the Underwriters may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the offering) for the account of the
other Underwriters, the selling concessions with respect to the Bonds that are
distributed in the offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Bonds at a level
above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
LEGAL MATTERS
The legality of the Bonds will be passed upon for the Issuer and the
Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. Certain other
legal matters with respect to the issuance of the Bonds will be passed upon by
Jennifer E. Bennett, Counsel of NationsBank Corporation, Charlotte, North
Carolina. Miles & Stockbridge will opine as to certain matters of Maryland law.
S-29
<PAGE>
BOND RATINGS
It is a condition of the issuance of the Bonds that they be rated "Aaa" by
Moody's and "AAA" by Fitch. 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 organization.
The Issuer has not requested a rating of the Bonds by any rating agency
other than the Rating Agencies. However, there can be no assurance as to whether
any other rating agency will rate the Bonds or, in such event, what rating would
be assigned to the Bonds by such other rating agency. The rating assigned by
such other rating agency to the Bonds may be lower than the ratings assigned by
the Rating Agencies.
S-30
<PAGE>
INDEX OF PRINCIPAL TERMS IN THE PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Act................................................ S-28
ARM Interest Adjustment Date....................... S-13
Available Amount................................... S-21
Basic Maintenance Amount........................... S-23
Bondholder......................................... S-10
Bonds.............................................. S-1
Business Day....................................... S-10
CEDEL.............................................. S-1
Closing Date....................................... S-1
Code............................................... S-7
Collection Account................................. S-5
Collection Period.................................. S-21
Constant Maturity Treasury Index................... S-13
Cure Date.......................................... S-11
Custodian.......................................... S-4
Cut-Off Date....................................... S-4
Deposit Securities................................. S-4
DTC................................................ S-1
Determination Date................................. S-24
Discounted Value................................... S-24
Distribution Account............................... S-6
Eligible Collateral................................ S-3
Eligible Investments............................... S-20
Eligible Mortgage Notes............................ S-12
Euroclear.......................................... S-1
Euroclear Operator................................. S-1
FHLMC.............................................. S-3
FHLMC Certificates................................. S-3
Fitch.............................................. S-6
FNMA............................................... S-4
FNMA Certificates.................................. S-4
GNMA............................................... S-4
GNMA Certificates.................................. S-4
Gross Margin....................................... S-12
Holder............................................. S-10
Indenture.......................................... S-3
Initial Collateral................................. S-4
Interest Payment Date.............................. S-3
Interest Period.................................... S-3
Issuer............................................. S-1
Jumbo 5/1 Eligible Adjustable-Rate Mortgage
Loans............................................ S-13
Jumbo 10/1 Eligible Adjustable-Rate Mortgage
Loans............................................ S-13
LIBOR.............................................. S-10
LIBOR Business Day................................. S-10
LIBOR Determination Date........................... S-10
Lifetime Cap....................................... S-13
Moody's............................................ S-6
NationsBank, N.A................................... S-8
NationsBank South.................................. S-13
NationsBank Texas.................................. S-13
NCMI............................................... S-6
Outstanding........................................ S-9
Plans.............................................. S-28
Pledged Property................................... S-3
Prospectus......................................... S-1
PTEs............................................... S-28
Rating Agency...................................... S-6
Record Date........................................ S-10
Reduced Documentation Guidelines................... S-20
Reference Banks.................................... S-10
Reserve Fund....................................... S-6
Reuters Page LIBO.................................. S-10
Securities and Exchange Law........................ S-29
Servicer........................................... S-5
Servicer Remittance Date........................... S-21
Servicing Agreement................................ S-20
Stated Maturity.................................... S-1
Telerate Page 3750................................. S-10
Trustee............................................ S-3
Underwriters....................................... S-1
Underwriting Agreement............................. S-28
Valuation Date..................................... S-5
</TABLE>
S-31
<PAGE>
APPENDIX
ADDITIONAL INFORMATION FOR NON-U.S. PERSONS
THIS APPENDIX CONTAINS CERTAIN ADDITIONAL LIMITED INFORMATION ABOUT THE
OFFERING OF THE BONDS WHICH IS RELEVANT TO NON-U.S. PERSONS. DETAILED
INFORMATION CONCERNING THE OFFERING IS CONTAINED IN THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT AND PURCHASERS ARE URGED TO READ BOTH THIS APPENDIX AND
THE PROSPECTUS AND PROSPECTUS SUPPLEMENT IN FULL.
The distribution of the Prospectus Supplement containing this Appendix and
the Prospectus and the offering of the Bonds in certain jurisdictions may be
restricted by law. Persons into whose possession the Prospectus Supplement
containing this Appendix and the Prospectus come are required by the Issuer to
inform themselves about and to observe any such restrictions.
The Prospectus Supplement containing this Appendix and the Prospectus do
not constitute an offer to sell or the solicitation of an offer to buy the Bonds
in any jurisdiction in which such offer or solicitation is unlawful.
As used in the Prospectus Supplement containing this Appendix and the
Prospectus, all references to "dollars" and "$" are to United States dollars.
Sales of the Bonds may not be consummated unless the purchaser has received
both the Prospectus Supplement containing this Appendix and the Prospectus.
The Issuer has taken all reasonable care to ensure that the information
contained in the Prospectus Supplement containing this Appendix and the
Prospectus in relation to the Issuer and the Bonds is true and accurate in all
material respects and that in relation to the Issuer and the Bonds there are no
material facts the omission of which would make misleading any statement herein
or therein, whether fact or opinion. The Issuer accepts responsibility for the
information contained in the Prospectus Supplement containing this Appendix and
the Prospectus.
MATTERS RELATED TO THE BONDS
DEFINITIVE BONDS
In the event that Definitive Bonds are issued, the Issuer will appoint a
paying and transfer agent in Luxembourg at whose offices such Definitive Bonds
may be presented for payment and/or transfer for so long as they are
outstanding. The paying and transfer agent that is expected to be appointed in
such circumstances is the Listing Agent (as defined herein), whose name and
address is set forth at the end of this Appendix. In addition, at the Stated
Maturity of the Bonds or otherwise upon final payment, such Definitive Bonds may
be presented for payment at the offices of such paying and transfer agent in
Luxembourg up to two years after the Stated Maturity or final payment. See
"Description of the Bonds -- General" in the Prospectus Supplement. Pending the
issuance of the Definitive Bonds, the Listing Agent will serve as a special
agent to act as an intermediary in Luxembourg between Holders of the Bonds and
the Issuer.
NOTICES
Any notices required to be given to Holders under the Indenture will be
given to DTC or its nominee, as the registered Holder of the Bonds, and by
publication in a daily newspaper in Luxembourg, which is expected to be the
LUXEMBURGER WORT. Promptly after the determination of the interest rate on the
Bonds applicable to each Interest Period (and in no event later than the first
day of each Interest Period), the Trustee (as defined in the Prospectus
Supplement) will give notice of such interest rate, the related Interest Payment
Date and the amount of interest payable on the Bonds on such Interest Payment
Date to the Listing Agent and the Luxembourg Stock Exchange. In the event that
Definitive Bonds are issued, notices to Holders will also be given by mail to
the addresses of such Holders as they appear in the register maintained by the
Trustee. See "Description of the Bonds -- Definitive Bonds" in the Prospectus.
In addition, in the event that Definitive Bonds are
A-1
<PAGE>
issued, the Issuer will cause the interest rate on the Bonds applicable to each
Interest Period, the related Interest Payment Date and the amount of interest
payable on the Bonds on such Interest Payment Date to be published in a daily
newspaper in Luxembourg, as described above. Any changes of the type described
under "Description of the Bonds -- Security for the Bonds" in the Prospectus
Supplement will be published as set forth above and made available to the
Listing Agent.
REDEMPTION
The Bonds will be subject to mandatory redemption upon notice to the
Holders and under the circumstances described in the Prospectus Supplement under
"Description of the Bonds -- Redemption." In the event that Definitive Bonds
have been issued and notice of redemption has been given to the Holders, the
principal amount (or portion thereof) of the Bonds to be redeemed will be due
and payable in Luxembourg on the date fixed for such redemption at the place set
forth in such notice. In the case of any redemption of such Definitive Bonds in
part, new Definitive Bonds representing the principal amounts of such Bonds that
have not been redeemed will be issued to the Holders of such Definitive Bonds at
the office of the transfer agent in Luxembourg.
TAXATION
For a discussion of the United States federal income tax consequences of
the acquisition of the Bonds by foreign investors, including the possible
imposition of withholding taxes, see "United States Federal Income Tax
Consequences" in the Prospectus. Foreign holders of the Bonds should consult
their tax advisors as to the tax consequences of holding a Bond in the
applicable foreign jurisdictions.
LISTING OF BONDS AND RELATED MATTERS
Application has been made to list the Bonds on the Luxembourg Stock
Exchange. However, there can be no assurance that the Bonds will be accepted for
listing. The Issuer does not intend to list the Bonds on any other securities
exchange. Prior to listing, a legal notice relating to the issuance of the
Bonds, the Declaration of Trust, the Indenture and the Underwriting Agreement
will be deposited with the Chief Registrar of the District Court of Luxembourg,
where such documents may be inspected and copies thereof obtained upon request.
As long as any of the Bonds are outstanding, copies of the Declaration of
Trust, the Indenture and the Underwriting Agreement and copies of the documents
referred to under "Available Information" in the accompanying Prospectus,
including the Current Report on Form 8-K to be filed by the Issuer with the
Commission shortly after completion of the offering, will be available at the
offices of Kredietbank S.A. Luxembourgeoise (the "Listing Agent") in the City of
Luxembourg. In addition, the 1994 and 1995 annual financial statements and the
quarterly and annual financial statements commencing with the September 30, 1996
statements of NationsBank Corporation will be available on demand free of charge
at the offices of the Listing Agent in the City of Luxembourg.
Copies of all documents incorporated by reference herein will be available
on demand free of charge from the Listing Agent in Luxembourg.
There has been no material adverse change in the consolidated financial
condition of the Issuer since December 31, 1996.
The Issuer is not a party to any legal proceeding which, if determined
adversely, would materially and adversely affect its condition or operations or
would materially and adversely affect its ability to perform its obligations
under the Indenture.
The Bonds have been accepted for clearance through Euroclear and CEDEL with
a Common Code number of and an international securities identification
number ("ISIN") of US . The CUSIP number of the Bonds is
. The issuance and sale of the Bonds were authorized by a
resolution of the Board of Trustees dated March 6, 1997.
A-2
<PAGE>
PRINCIPAL OFFICE OF THE ISSUER
MAIN PLACE REAL ESTATE INVESTMENT TRUST
100 North Tryon Street, 23rd Floor
Charlotte, North Carolina 28255
U.S.A.
TRUSTEE AND PRINCIPAL PAYING AGENT
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street, 2nd Floor
St. Paul, Minnesota 55101
U.S.A.
TRANSFER, PAYING AND LISTING AGENT IN LUXEMBOURG
KREDIETBANK S.A. LUXEMBOURGEOISE
43 Boulevard Royal
L-2955 Luxembourg
INDEPENDENT ACCOUNTANTS OF THE ISSUER
PRICE WATERHOUSE LLP
NationsBank Corporate Center
Suite 5400
Charlotte, North Carolina 28202
U.S.A.
LEGAL ADVISOR
TO THE ISSUER AND THE UNDERWRITERS
(as to United States law)
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
U.S.A.
<PAGE>
PROSPECTUS
MAIN PLACE REAL ESTATE INVESTMENT TRUST
MORTGAGE-BACKED BONDS
(ISSUABLE IN SERIES)
Main Place Real Estate Investment Trust (the "Issuer") may sell from time
to time by means of this Prospectus and a separate Prospectus Supplement (a
"Prospectus Supplement") up to $4,000,000,000 aggregate principal amount of its
Mortgage-Backed Bonds (the "Bonds") issuable in Series (each, a "Series").
Each Series of Bonds will consist of a single class of Bonds. Interest on
the Bonds will be payable on each Interest Payment Date specified in the related
Prospectus Supplement.
The Bonds of each Series will be secured by Pledged Property, which will
include Eligible Collateral and may include Deposit Securities, one or more
Collection Accounts and Distribution Accounts and one or more Reserve Funds
(each as defined herein). In addition, in order to fund the return of principal
at the Stated Maturity (as defined herein) of each such Series, the Issuer will
be required, prior to the applicable Stated Maturity, to deliver additional
collateral to the Trustee (as defined herein) for such Series in the form of
Deposit Securities or to take other actions as described more fully herein to
provide liquidity for such payments.
Each Series of Bonds may be redeemable at the option of the Issuer, if so
provided in the related Prospectus Supplement. In addition, each Series of Bonds
will be subject to mandatory partial redemption under the circumstances
described herein and in the related Prospectus Supplement.
The Issuer expects to qualify as a real estate investment trust for federal
income tax purposes, commencing with the taxable year ended December 31, 1996.
No person or persons acting as a group is permitted to beneficially own more
than 9.9% of the equity of the Issuer, except NationsBank Corporation and its
affiliates or subsidiaries.
THE BONDS REPRESENT LIMITED RECOURSE OBLIGATIONS SOLELY OF THE ISSUER AND ARE
NOT INSURED OR GUARANTEED BY NATIONSBANK, N.A. OR ANY AFFILIATES
THEREOF. THE BONDS ARE NOT DEPOSITS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
THE BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Offers of each Series of Bonds may be made through one or more different
methods, as more fully described under "Plan of Distribution" herein and
"Underwriting" in the related Prospectus Supplement.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE
USED TO CONSUMMATE SALES OF BONDS UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this Prospectus is February 7, 1997
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Bonds to be offered
hereunder will, among other things, set forth with respect to such Series of
Bonds: (i) the aggregate principal amount, interest rate or method of
calculating the interest rate and authorized denominations of such Bonds; (ii)
certain information concerning the Pledged Property (as defined herein) securing
such Bonds; (iii) the Stated Maturity of such Bonds; (iv) the Interest Payment
Dates for such Series of Bonds; and (v) additional information with respect to
the plan of distribution of such Bonds. In addition, if a Series of Bonds is to
be offered in whole or in part to foreign investors, such Prospectus Supplement
will contain information about such Series relevant to such investors, including
any information with respect to the listing of such Series of Bonds on a foreign
stock exchange.
AVAILABLE INFORMATION
Copies of the Registration Statement of which this Prospectus forms a part
and the exhibits thereto are on file at the offices of the Securities and
Exchange Commission (the "Commission") in Washington, D.C. Copies may be
obtained at rates prescribed by the Commission upon request to the Commission,
and may be inspected, without charge, at the offices of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549.
The Issuer will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance
therewith will file (in reduced format) reports and other information with the
Commission. Such reports and other information filed by the Issuer can be
inspected and copied at the public reference facilities maintained by the
Commission at its Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its Regional Offices located as follows: Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048 and Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained by mail from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding Issuers who file electronically with
the Commission. The address of that site is http://www.sec.gov. The Issuer does
not intend to send any financial reports to Holders (as defined herein) of the
Bonds.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by Main Place Funding Corporation
with the Commission pursuant to Section 15(d) of the 1934 Act are incorporated
herein by reference:
(a) The Annual Report on Form 10-K for the year ended December 31, 1995;
(b) The Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996; and
(c) The Current Report on Form 8-K filed May 20, 1996.
The following documents, previously filed by the Issuer with the Commission
pursuant to Section 15(d) of the 1934 Act are incorporated herein by reference:
(a) The Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
There are incorporated herein by reference all documents filed by the
Issuer with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
1934 Act, on or subsequent to the date of this Prospectus and prior to the
termination of the offering of Bonds made hereby and by the related Prospectus
Supplements. The Issuer will provide without charge to each person to whom this
Prospectus is delivered, on request of any such person, a copy of any or all of
the documents incorporated herein by reference other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests should be directed to the Issuer in writing at 100
North Tryon Street, 23rd Floor, Charlotte, North Carolina 28255 or by telephone
at (704) 388-7436.
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<PAGE>
SPECIAL CONSIDERATIONS
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING
FACTORS IN CONNECTION WITH THE PURCHASE OF THE BONDS.
LIMITED LIQUIDITY. It is anticipated that, to the extent permitted, the
Underwriters of each Series of Bonds offered hereby will make a secondary market
in such Bonds, but in no event will any such Underwriter be under an obligation
to do so. There is no assurance that a secondary market will develop with
respect to the Bonds of any Series offered hereby, or if it does develop, that
it will provide Holders with liquidity of investment or that it will continue
for the life of such Bonds.
LIMITED RECOURSE OBLIGATION. The Bonds of each Series will represent
obligations solely of the Issuer. If certain collateral maintenance
requirements, described more fully below under "Description of the Bonds --
Redemption," are not met with respect to a Series of Bonds, the Issuer must
pledge additional collateral to secure such Series, substitute new collateral
for collateral previously pledged and/or repurchase Bonds in order to remedy
such collateral shortfall. If the Issuer is unable to pledge additional
collateral to the Trustee (as defined herein) for a Series, Holders may receive
mandatory unscheduled redemptions of principal in an amount sufficient to remedy
such collateral shortfall. In addition, the Issuer will be required a certain
number of days prior to the Stated Maturity of a Series of Bonds to pledge
Deposit Securities to the Trustee or to make other arrangements acceptable to
each Rating Agency (as defined herein) rating such Series sufficient to pay all
of the interest and principal payable on the Bonds of such Series at their
Stated Maturity. If the Issuer is unable to take such action, the Trustee will
be obligated immediately to liquidate Pledged Property securing such Series in
an amount sufficient to pay all of the interest and principal payable on the
Bonds of such Series at their Stated Maturity. See "Description of the
Bonds -- Liquidity."
INSOLVENCY RELATED MATTERS. The Issuer has been established as a limited
purpose indirect subsidiary of NationsBank, N.A. to reduce the risk of
bankruptcy of the Issuer and its resulting effect on the Bonds of each Series.
In addition, the Issuer, Main Place Holdings Corporation, the Issuer's direct
parent ("MP Holdings"), and NationsBank, N.A., the Issuer's indirect parent and
a subsidiary of NationsBank Corporation (the "Corporation"), have undertaken to
follow certain procedures to preserve the corporate separateness of the Issuer,
with a view to maintaining the assets of the Issuer separate from the assets of
NationsBank, N.A. and MP Holdings, with the result that the assets of the Issuer
would not be available directly to creditors of NationsBank, N.A. or MP Holdings
or to any receiver or conservator which may be appointed with respect to
NationsBank, N.A. or MP Holdings. There can be no assurance, however, that,
despite the bankruptcy remote nature of the Issuer and the procedures described
above, the Federal Deposit Insurance Corporation ("FDIC") would not seek to
consolidate the assets and liabilities of the Issuer with those of NationsBank,
N.A. or NationsBank Corporation, or that the appointment of the FDIC as receiver
or conservator of NationsBank, N.A. would not have an impact on one or more
Series of Bonds. Although the position runs contrary to traditional notions of
corporate law and to the statutory language of the Federal Deposit Insurance
Act, as amended, the FDIC has, on limited occasions, taken the position that it
can "repudiate," at least in limited circumstances, the contracts of
subsidiaries of banks for which it has been appointed receiver or conservator.
The Issuer is not aware of an instance in which the FDIC has attempted to
repudiate an indenture with respect to the publicly-held indebtedness of a
subsidiary of a failed bank, and there is no case law directly on point. A
repudiation of the Indenture governing a Series of Bonds by the FDIC would cause
an acceleration of the maturity of such Bonds, but would not impair the validity
or ultimate enforceability of the lien of the Indenture with respect to the
collateral securing such Bonds. The Issuer does not believe that the FDIC has
the authority to assert such a position, but whether any such effort by the FDIC
would be successful cannot be determined with certainty.
BOOK-ENTRY REGISTRATION. Unless fully registered, certificated Bonds are
initially issued to Holders as specified in the related Prospectus Supplement
relating to a Series, the Bonds of each Series initially will be represented by
one or more certificates registered in the name of Cede, the nominee for DTC
(each as defined herein), and will not be registered in the names of the Bond
Owners (as defined herein) or their nominees. Unless and until Definitive Bonds
(as defined herein) are issued for a Series, Bond Owners relating to such Series
will not be recognized by the Trustee as Holders, as that term will be used in
the Indenture. Hence, until such time, Bond Owners will only be able to exercise
the rights of Holders indirectly through DTC, and, in the case of certain
investors outside of the United States, further indirectly through CEDEL or
Euroclear (each as defined herein) and their participating organizations.
Because DTC can only act on behalf of individuals who
3
<PAGE>
are Participants (as defined herein) in DTC's system (or participate indirectly
through a Participant), the ability of a Bond Owner to pledge its Bonds to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such Bonds, may be limited due to the lack of a physical
certificate representing such Bonds. See "Description of the Bonds -- Book-Entry
Registration" and " -- Definitive Bonds."
THE ISSUER
GENERAL. The Issuer was formed in the State of Maryland on October 29, 1996
as a business trust for the purpose of consolidating the acquisition, holding
and management of certain closed-end residential mortgage loans of NationsBank,
N.A. and its affiliate banks, including those of NationsBank, N.A. (South)
("NationsBank South"), formerly the corporate parent of Main Place Funding
Corporation ("Main Place"), and NationsBank of Texas, N.A. ("NationsBank
Texas"). NationsBank South and NationsBank Texas contributed certain of their
residential mortgage loans to the Issuer in exchange for common shares of
beneficial interest of the Issuer which shares were, in turn, sold to
NationsBank, N.A. NationsBank, N.A. then contributed certain of its residential
mortgage loans to the Issuer in exchange for common shares of beneficial
interest in the Issuer. NationsBank, N.A., in turn, contributed all of its
interest in the Issuer to its wholly-owned subsidiary, MP Holdings, which was
incorporated in Delaware on September 23, 1996. NationsBank South sold its
shares in Main Place for cash to NationsBank, N.A. which contributed them to MP
Holdings. MP Holdings caused Main Place to merge with and into the Issuer,
pursuant to Section 254 of the Delaware General Corporation Law and Section
3-109 of the Corporations and Associations Article of the Annotated Code of
Maryland, as amended, with the Issuer as the surviving entity.
All of the issued shares of the Issuer's Class A common shares of
beneficial interest (the "Class A Common Shares"), $1.00 par value per share,
are held by MP Holdings. The Issuer has authorized for issuance 200 Class B
common shares of beneficial interest (the "Class B Common Shares"), $10,000 par
value per share (the Class A Common Shares and the Class B Common Shares are
collectively referred to herein as the "Common Shares"). Of the 200 authorized
Class B Common Shares, 110 were sold to NationsBank, N.A., of which 109 were
contributed to various organizations. The Class B Common Shares have no voting
rights.
The Issuer assumed the obligations of Main Place under the Indenture dated
as of October 31, 1995 between Main Place and First Trust National Association
("First Trust"), as Trustee, and the Indenture dated as of July 18, 1995 between
Main Place and First Trust, as Trustee, relating to the Mortgage-Backed Bonds,
Series 1995-2 due 2000 and the Mortgage-Backed Bonds, Series 1995-1 due 1998,
respectively, pursuant to supplemental indentures between the Issuer and First
Trust, both dated November 1, 1996 relating to the two outstanding Series of
Bonds.
The Issuer will not engage in any business other than (i) consolidating the
acquisition, holding and management of certain residential mortgage assets of
NationsBank, N.A. and its affiliate banks; (ii) issuing and selling the Bonds of
each Series under a separate Indenture (as defined herein) and acquiring,
owning, holding and pledging the related Pledged Property in connection
therewith; (iii) issuing certain subordinated indebtedness; and (iv) engaging in
other activities which are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith. The Indenture
related to each Series will limit the Issuer's purpose to the foregoing
activities.
ADVISORY AGREEMENT. The Issuer entered into an advisory agreement dated as
of November 1, 1996 (the "Advisory Agreement") with NationsBank, N.A. pursuant
to which NationsBank, N.A. will administer the day-to-day operations of the
Issuer. NationsBank, N.A. in its role as advisor under the terms of the Advisory
Agreement, is hereinafter referred to as the "Advisor." The Advisor will be
responsible for (i) administering the day-to-day operations and affairs of the
Issuer, (ii) monitoring the credit quality of the mortgage assets held by the
Issuer and (iii) advising the Issuer with respect to the acquisition,
management, financing and disposition of the Issuer's mortgage assets. The
Advisory Agreement has an initial term of five years (the "Initial Term"), and
will be renewed automatically for additional five-year periods unless notice of
nonrenewal is delivered to the Advisor by the Issuer. The Advisory Agreement may
be terminated by the Issuer at any time after the Initial Term upon 90 days'
prior notice. The Advisor will be entitled to receive an annual advisory fee
equal to $500,000 per year with respect to the advisory and management services
provided to the Issuer.
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<PAGE>
TAX STATUS OF THE ISSUER. The Issuer expects to qualify as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Code, commencing
with its taxable year ended December 31, 1996. As a REIT, the Issuer generally
will not be subject to federal income tax on net income and capital gains that
it distributes to the holders of the Common Shares.
A REIT is subject to a number of organizational and operational
requirements, including the requirement that it currently distribute to
beneficial holders at least 95% of its "REIT taxable income." Notwithstanding
qualification for taxation as a REIT, the Issuer may be subject to federal,
state and/or local tax.
USE OF PROCEEDS
The Issuer intends to use all or substantially all of the net proceeds from
the sale of a Series of Bonds offered hereby and by the related Prospectus
Supplement to purchase additional mortgage loans, and/or pay dividends to its
shareholders and/or reduce certain subordinated indebtedness of the Issuer.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds of each Series will be issued under a separate indenture (each,
an "Indenture") relating to each such Series of Bonds to be entered into between
the Issuer and an independent trustee (the "Trustee"). As of any date, all Bonds
so issued, except Bonds (i) previously canceled or to be canceled by the
Trustee, (ii) held by the Issuer or its affiliates (other than NationsBanc
Capital Markets, Inc. ("NCMI")) and (iii) for whose payment Deposit Securities
in the necessary amount have been delivered to the Trustee or other arrangements
satisfactory to each Rating Agency have been made as described herein under
" -- Liquidity," will be deemed to be "Outstanding."
The following summaries of certain provisions of the Indenture for a Series
do not purport to be complete, and, where particular provisions of the Indenture
are referred to, the actual provisions are incorporated by reference as a part
of such summaries, which are qualified in their entirety by such reference.
The Bonds of each Series will be direct obligations of the Issuer. The
Bonds of each Series will mature at the date specified in the related Prospectus
Supplement (the "Stated Maturity") and will bear interest on the unpaid
principal balance thereof from the date of issuance, at the rate stated or
calculated as provided on the cover page of the related Prospectus Supplement,
payable in arrears on the dates specified in the related Prospectus Supplement
(the "Interest Payment Dates"), to the persons in whose names the Bonds are
registered (each, a "Holder") at the close of business on the record date
applicable to such Series. Accrued interest on the Bonds of each Series will be
computed as provided in the related Prospectus Supplement. If so provided in the
Prospectus Supplement for a Series, principal payments may be made on the Bonds
of such Series prior to their Stated Maturity.
The Bonds of each Series will be secured by collateral (the "Pledged
Property") as described herein and in the related Prospectus Supplement under
" -- Security for the Bonds." Pursuant to the Indenture, the Issuer is required
to maintain Pledged Property of the type permitted under the Indenture
("Eligible Collateral") having a Discounted Value (as defined herein under
" -- Basic Maintenance Amount") sufficient to meet certain levels of
collateralization required from time to time as described herein under
" -- Basic Maintenance Amount." The Eligible Collateral will be valued by the
Trustee periodically on the dates specified in the related Prospectus Supplement
(each such date, a "Valuation Date"), using Market Values (as defined under
" -- Basic Maintenance Amount") for such property obtained no more than three
business days prior to the applicable Valuation Date. The Trustee will deliver
reports to the Issuer with respect to each such Valuation Date within the period
of time thereafter set forth in the related Prospectus Supplement. See
" -- Reports on Pledged Property" herein.
Unless the Bonds of a Series are initially issued in fully registered,
certificated form to Holders as specified in the related Prospectus Supplement,
the Bonds of each Series initially will be represented by certificates
registered in the name of the nominee of The Depository Trust Company ("DTC"),
and beneficial interests in the Bonds will be available for purchase in the
minimum denominations and integral multiples thereof specified in the related
Prospectus Supplement in book-entry form only. The Issuer has been informed by
DTC that
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DTC's nominee will be Cede & Co. ("Cede"). Accordingly, Cede is expected to be
the holder of record of each Series of the Bonds. Unless and until Definitive
Bonds are issued for any Series under the limited circumstances described
herein, (i) no person acquiring a beneficial interest in the Bonds (each, a
"Bond Owner") will be entitled to receive a certificate representing such
person's interest in the Bonds, (ii) all references herein to actions by Holders
shall refer to actions taken by DTC upon instructions from its Participants (as
defined herein) and (iii) all references herein to distributions, notices,
reports and statements to Holders shall refer to distributions, notices, reports
and statements to DTC or Cede, as the registered Holder of the Bonds, as the
case may be, for distribution to Bond Owners in accordance with DTC procedures.
See " -- Book-Entry Registration" and " -- Definitive Bonds" herein.
If so specified in the Prospectus Supplement application will be made to
list all or any portion of the Series of the Bonds on the Luxembourg Stock
Exchange and/or another specified exchange.
BOOK-ENTRY REGISTRATION
Unless another form of book-entry registration is specified in the related
Prospectus Supplement, with respect to each Series of the Bonds, Bond Owners may
hold their Bonds through DTC (in the United States) or CEDEL or Euroclear (in
Europe) (each as defined herein), which in turn hold through DTC, if they are
participants of such systems, or indirectly through organizations that are
participants in such systems.
Cede, as nominee for DTC, will hold the certificates for the Bonds. CEDEL
and Euroclear will hold omnibus positions on behalf of the CEDEL Participants
and the Euroclear Participants (each as defined herein), respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositories (collectively, the "Depositories"), which in turn
will hold such positions in customers' securities accounts in the Depositories'
names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
1934 Act. DTC was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers (who may
include the underwriters of any Series), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through CEDEL 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 its Depository; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depository 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 Depositories.
Because of time-zone differences, credits or securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
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<PAGE>
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
Bond Owners that are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of, or other interest in, the
Bonds may do so only through Participants and Indirect Participants. In
addition, Bond Owners will receive all distributions of principal of and
interest on the Bonds from the Trustee through the Participants who in turn will
receive them from DTC. Under a book-entry format, Bond Owners may experience
some delay in their receipt of payments, since such payments will be forwarded
by the Trustee to Cede, as nominee for DTC. DTC will forward such payments to
its Participants which thereafter will forward them to Indirect Participants or
Bond Owners. It is anticipated that the only "Holder" will be Cede, as nominee
of DTC. Bond Owners will not be recognized by the Trustee as Holders, as such
term is used in the Indenture, and Bond Owners will only be permitted to
exercise the rights of Holders indirectly through the Participants who in turn
will exercise the rights of Holders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, 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 distributions of principal and interest on the Bonds. Participants and
Indirect Participants with which Bond Owners have accounts with respect to the
Bonds similarly are 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 Bonds, Bond Owners will receive payments
and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Bond Owner
to pledge the Bonds to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Bonds, may be limited due
to the lack of a physical certificate for such Bonds.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Holder under any related Indenture only at the direction of one or
more Participants to whose account with DTC the Bonds are credited.
Additionally, DTC has advised the Issuer that it will take such actions with
respect to specified percentages of the Bonds only at the direction of and on
behalf of Participants whose holdings include undivided interests that satisfy
such specified percentages. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Cedel Bank, societe anonyme ("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 by 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 and may include the underwriters of any Series
of the Bonds. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
The Euroclear System (the "Euroclear System") was created in 1968 to hold
securities for participants of the Euroclear System ("Euroclear Participants")
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 32 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC
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described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, 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 the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of any Series of the
Bonds. Indirect access to the Euroclear System is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly. The Euroclear Operator is the
Belgian branch of a New York banking corporation which is a member bank of the
Federal Reserve System. As such, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission. Securities clearance
accounts and cash accounts with the Euroclear Operator are governed by the Terms
and Conditions Governing Use of Euroclear and the related Operating Procedures
of the Euroclear System and applicable Belgian law (collectively, the "Terms and
Conditions"). The Terms and Conditions govern transfers of securities and cash
within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a fungible
basis without attribution of specific 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.
Distributions with respect to the 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 its Depository. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "United States Federal Income Tax Consequences -- Tax Treatment of Foreign
Investors" herein. CEDEL or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Holder under the related
Indenture on behalf of a CEDEL Participant or a Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depository's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of the 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.
DEFINITIVE BONDS
Unless otherwise specified in the related Prospectus Supplement, the Bonds
of each Series will be issued in fully registered, certificated form to the Bond
Owners or their nominees ("Definitive Bonds"), rather than to DTC or its
nominee, only if (i) the Issuer advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as Depository
with respect to such Series of the Bonds, and the Trustee or the Issuer is
unable to locate a qualified successor or (ii) the Issuer, at its option,
advises the Trustee in writing that it elects to terminate the book-entry system
through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Bonds. Upon surrender by DTC of the
Definitive Bond representing the Bonds and instructions for re-registration, the
Trustee will issue the Bonds as Definitive Bonds, and thereafter the Trustee
will recognize the holders of such Definitive Bonds as Holders under the
Indenture.
Distribution of principal and interest on the Bonds will be made by the
Trustee directly to Holders of Definitive Bonds in accordance with the
procedures set forth herein and in the Indenture. Interest payments and any
principal payments on each Interest Payment Date will be made to Holders in
whose names the Definitive Bonds were registered at the close of business on the
related Record Date. Distributions will be made by check mailed to the address
of such Holder as it appears on the register maintained by the Trustee or by
wire transfer to an account maintained by the Holder, if such Holder holds the
minimum aggregate principal amount of Bonds specified in the related Prospectus
Supplement. The final payment on any Bond (whether Definitive Bonds or the
certificates registered in the name of Cede representing the Bonds), however,
will be
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made only upon presentation and surrender of such certificate at the office or
agency specified in the notice of final distribution to Holders. The Trustee
will provide such notice to registered Holders not later than the fifth day of
the month of such final distribution.
Definitive Bonds will be transferable and exchangeable at the offices of
the Authenticating Agent, which shall initially be the Trustee. No service
charge will be imposed for any registration of transfer or exchange, but the
Authenticating Agent may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
REDEMPTION
The Bonds of each Series will mature and will be paid at 100% of their
respective principal amounts plus accrued interest at the Stated Maturity set
forth in the related Prospectus Supplement. The Bonds of a Series may be subject
to redemption at the option of the Issuer, if so provided in the related
Prospectus Supplement.
If specified in the Prospectus Supplement relating to a Series, the Bonds
of each Series will be subject to mandatory partial redemption upon such number
of days' notice specified in such Prospectus Supplement, in the event that (i)
on any applicable Valuation Date, the Discounted Value of the Eligible
Collateral is less than the Basic Maintenance Amount, and (ii) the Issuer is
unable within the number of days after such Valuation Date specified in such
Prospectus Supplement (the "Cure Date") to pledge and deliver additional
Eligible Collateral and/or to substitute Eligible Collateral in an amount such
that, after such pledge and/or substitution, the Discounted Value of the
Eligible Collateral is at least equal to the Basic Maintenance Amount, and the
Issuer does not deliver to the Trustee prior to the Cure Date for cancellation
thereof Bonds theretofore issued and reacquired by it in a principal amount
sufficient to cause the Discounted Value of the Eligible Collateral to be at
least equal to the Basic Maintenance Amount. Notwithstanding the foregoing, if
the report prepared by the Trustee with respect to any Valuation Date following
the Cure Date and prior to the date on which the Trustee gives notice of
redemption to the Holders shows that the Discounted Value of the Eligible
Collateral is at least equal to the Basic Maintenance Amount as of such
Valuation Date, the Issuer will no longer be required to make a mandatory
redemption of the Bonds.
Any such mandatory partial redemption shall require the redemption of Bonds
in an aggregate principal amount that is the smallest principal amount (rounded
to the next higher integral multiple of $1,000) necessary to make the Discounted
Value of the Eligible Collateral at least equal to the Basic Maintenance Amount
(calculated in each case as of the Valuation Date immediately preceding the date
on which the Trustee gives notice of redemption to the Holders) after giving
effect to (i) the pledge of additional Eligible Collateral, (ii) the delivery to
the Trustee for cancellation of any Bonds repurchased by the Issuer and (iii)
such redemption. Any such mandatory partial redemption shall be made within the
number of days after the Cure Date provided in the applicable Prospectus
Supplement at a redemption price equal to 100% of the principal amount (or
portion thereof) of the Bonds to be redeemed together with accrued interest to
the date fixed for redemption. Any partial redemption may be made on a pro rata
basis or by any method deemed fair and appropriate by the Trustee, provided,
that such method shall not result in a Bond Outstanding in a denomination of
less than the minimum permitted denomination of the applicable Series of Bonds.
After notice of any redemption has been given to the Holders of the Bonds,
the principal amount (or portion thereof) of the Bonds to be redeemed shall be
due and payable on the date fixed for such redemption at the place set forth in
such notice. From and after the date fixed for such redemption, the Bonds chosen
to be redeemed thereon shall cease to bear interest (unless the Issuer shall
default in the payment of the redemption price, in which case the principal
amount of such Bonds shall continue to bear interest at the rate borne by the
Bonds until paid), and the only right of the Holders of such Bonds shall be to
receive the redemption price; except that, in the case of any redemption date on
which Bonds are redeemed in part, new Bonds representing the principal amounts
of such Bonds that have not been redeemed will be issued to the Holders of such
Bonds. The Holders of such new Bonds shall continue to have the right to receive
the principal amount thereof and interest payments on such principal amount.
If the Issuer fails to cure a collateral shortfall by the applicable Cure
Date, the Trustee must liquidate Pledged Property to the extent required to pay
the redemption price of the Bonds required to be redeemed.
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SECURITY FOR THE BONDS
The Bonds of each Series will be secured by the Pledged Property, which may
include any of the types of Eligible Collateral described below and in the
related Prospectus Supplement. In addition, the Bonds of each Series may be
secured from time to time by (i) cash held in a "Collection Account,"
representing payments on the Eligible Mortgage Notes included in the Pledged
Property for a Series, (ii) cash held in a "Distribution Account," representing
distributions to be made to Bond Owners and/or payments on Eligible Collateral
other than Eligible Mortgage Notes, (iii) cash held in a "Reserve Fund" as
described in the related Prospectus Supplement and (iv) the Deposit Securities
described below under " -- Liquidity" and in the related Prospectus Supplement.
Eligible Collateral for a Series of Bonds may consist of Eligible Mortgage
Notes, Eligible Mortgage Pass-Through Certificates, Government Securities,
including FHLMC Certificates, FNMA Certificates and GNMA Certificates,
Short-Term Money Market Instruments (all as described below) and cash.
The types and characteristics of Eligible Collateral, as described below,
the percentage limitations on certain types of Eligible Collateral, the
frequency of the Valuation Dates, the Discount Factors (as defined herein) used
in valuing the Eligible Collateral, the methodology used in calculating the
Market Value of the Eligible Collateral and the definition of "Basic Maintenance
Amount" (as described under " -- Basic Maintenance Amount") are subject to
change from time to time without the consent of the Holders of the Bonds of the
related Series if such changes (i) are permitted by applicable law and (ii) will
not impair the rating then assigned to the Bonds by each of the nationally
recognized statistical rating organizations rating such Series (each, a "Rating
Agency") as confirmed in writing by such Rating Agencies. Such Rating Agencies
have no obligation to review or approve any proposed changes in the types,
characteristics, permitted amounts or Discount Factors of Eligible Collateral or
in the definition of Basic Maintenance Amount and may, at any time, change or
withdraw any rating on the Bonds. In addition, such items may be changed prior
to the issuance of a Series of Bonds with respect to such Series and will be set
forth in the related Prospectus Supplement.
Subject to the foregoing, Eligible Collateral includes the following types
of collateral:
ELIGIBLE MORTGAGE NOTES
"Eligible Mortgage Notes" are promissory notes ("Mortgage Notes") that are
secured by first liens on real estate ("Mortgages") which are either insured by
the FHA ("FHA Insured Mortgage Notes") or partially guaranteed by the VA ("VA
Guaranteed Mortgage Notes") or which are not so insured or guaranteed
("Conventional Mortgage Notes"). The Mortgage Notes will be secured by one or
more of the following types of property (the "Mortgaged Properties"): (i)
one- to four- family detached residences, (ii) townhouses, (iii) condominium
units and (iv) units within planned unit developments. Such Mortgage Notes
bear either a fixed rate of interest ("Eligible Fixed-Rate Mortgage
Notes") or an adjustable rate of interest ("Eligible Adjustable-Rate
Mortgage Notes") and have the additional characteristics described below.
Whenever Eligible Mortgage Notes are included in the Pledged Property for a
Series of Bonds, the Issuer will enter into a servicing agreement with an
eligible servicer to provide for the servicing of the Eligible Mortgage Notes.
See "Servicing of Eligible Mortgage Notes" herein for a description of the
servicing procedures applicable to a Series of Bonds secured in whole or in part
by Eligible Mortgage Notes. In addition, the Indenture for such Series will
permit the Issuer to deliver such Eligible Mortgage Notes to a custodian (the
"Custodian") appointed by the Trustee, with the consent of the Issuer, to hold
such Mortgage Notes.
ELIGIBLE FIXED-RATE MORTGAGE NOTES
Eligible Fixed-Rate Mortgage Notes evidence whole loans serviced or master
serviced by an affiliate of the Issuer, or by an approved GNMA, FNMA or FHLMC
seller-servicer of Mortgage Notes which meets servicing standards similar to
those met by affiliates of the Issuer, provide for monthly payments of principal
and interest in substantially equal installments for the contractual term of the
Mortgage Notes, are fully amortizing, have an original term to maturity of not
more than 30 years and, as of the time of pledge:
(i) have a remaining term to maturity of at least one year;
(ii) have an unpaid principal balance of at least $1,000 and not in
excess of $1,000,000;
(iii) have an original loan-to-value ratio not greater than 95%;
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(iv) are secured by Mortgages which create a valid first lien on
Mortgaged Properties, are duly recorded and are covered by title insurance
policies (such mortgages, "Eligible Mortgages");
(v) are accompanied by appropriate documentation as more fully
described herein under "Servicing of Eligible Mortgage Notes -- Pledge of
Eligible Mortgage Notes;"
(vi) are not Mortgage Notes as to which any scheduled payment of
principal or interest is delinquent past the end of the month in which such
payment was due (a "Late Payment"); and
(vii) as to FHA Insured and VA Guaranteed Mortgage Notes, are secured
by a Mortgage on a one- to four-family dwelling.
The characteristics of Eligible Fixed-Rate Mortgage Notes described above
are required to be met by the Issuer, with respect to each Eligible Fixed-Rate
Mortgage Note initially pledged to the Trustee for the related Series of Bonds,
as of the date of issuance of such Series and, with respect to each additional
Eligible Fixed-Rate Mortgage Note pledged to the Trustee for such Series, as of
the date of such pledge.
ELIGIBLE ADJUSTABLE-RATE MORTGAGE NOTES
Eligible Adjustable-Rate Mortgage Notes are Conventional Mortgage Notes
evidencing whole loans serviced or master serviced by an affiliate of the
Issuer, or by an approved GNMA, FNMA or FHLMC seller-servicer of Mortgage Notes
which meets servicing standards similar to those met by affiliates of the
Issuer, are fully amortizing, have an original term to maturity of not more than
30 years and, as of the time of pledge:
(i) bear a rate of interest, adjustable periodically, but no more
frequently than annually, equal to a margin of between 1% and 5% above one
of the following indices: (a) the average yields for U.S. Treasury
Securities, adjusted to a constant maturity of one year as published by the
Federal Reserve Board, (b) the "cost of funds" index published by the
Eleventh District Federal Home Loan Bank, (c) the London interbank offered
rates for Eurodollar deposits of various maturities, (d) the prime lending
rate of NationsBank, N.A. or (e) any other index acceptable to the Rating
Agencies;
(ii) have a remaining term to maturity of at least one year;
(iii) have an unpaid principal balance of at least $1,000 and not in
excess of $1,000,000;
(iv) have an original loan-to-value ratio not greater than 95%;
(v) are secured by Eligible Mortgages;
(vi) are accompanied by appropriate documentation, as more fully
described herein under "Servicing of Eligible Mortgage Notes -- Pledge of
Eligible Mortgage Notes;" and
(vii) are not Mortgage Notes as to which there is currently a Late
Payment.
Eligible Adjustable-Rate Mortgage Notes may be convertible into Fixed-Rate
Mortgage Notes, provided that if such Mortgage Notes are so converted, they may
not be included in the Eligible Collateral unless they are recharacterized as
Eligible Fixed-Rate Mortgage Notes.
The characteristics of Eligible Adjustable-Rate Mortgage Notes described
above are required to be met by the Issuer, with respect to each Eligible
Adjustable-Rate Mortgage Note initially pledged to the Trustee for the related
Series of Bonds, as of the date of issuance of such Series and, with respect to
each additional Eligible Adjustable-Rate Mortgage Note pledged to the Trustee
for such Series, as of the date of such pledge.
ADDITIONAL LIMITATIONS ON ELIGIBLE MORTGAGE NOTES
The following limitations apply to both Eligible Fixed-Rate Mortgage Notes
and Eligible Adjustable-Rate Mortgage Notes:
(i) in selecting Eligible Fixed-Rate Mortgage Notes and Eligible
Adjustable-Rate Mortgage Notes for inclusion in the Pledged Property, the
Issuer will use its best efforts to include Mortgage Notes of each type
secured by Eligible Mortgages with a geographical dispersion
representative, to the extent possible, of the entire portfolio of Mortgage
Notes of such type serviced by NationsBanc Mortgage Corporation, an
affiliate of the Issuer, for NationsBank, N.A. or any of its bank
affiliates;
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(ii) the Pledged Property will consist of at least 100 Eligible
Mortgage Notes;
(iii) no Eligible Mortgage Note may be secured by a mortgage on a
mobile home;
(iv) no more than 15% of the aggregate unpaid principal balance of all
Eligible Mortgage Notes included in the Eligible Collateral may be composed
of Mortgage Notes having unpaid principal balances in excess of $600,000
("High Balance Notes");
(v) Eligible Mortgage Notes with original loan-to-value ratios in
excess of 80% ("Over 80% Notes") must be insured by private mortgage
insurance issued by an insurer having a rating in one of the two highest
rating categories from at least one Rating Agency rating the applicable
Series (such insurance, "Private Mortgage Insurance") as to that portion of
the principal amount thereof exceeding the amounts specified under FNMA and
FHLMC guidelines (unless, by the terms of the applicable Private Mortgage
Insurance policy and Mortgage Note, such policy has been discharged due to
principal amortization), and no more than 25% of the aggregate unpaid
principal balance of all Eligible Mortgage Notes included in the Eligible
Collateral may be composed of Over 80% Notes of which no more than 10% of
the aggregate unpaid principal balance of all Eligible Mortgage Notes
included in the Eligible Collateral may be composed of Eligible Mortgage
Notes with original loan-to-value ratios in excess of 90%;
(vi) no more than 10% of the aggregate unpaid principal balance of all
Eligible Mortgage Notes included in the Eligible Collateral may be Mortgage
Notes secured by condominium units which condominium may have no more than
four stories ("Condominium Notes"); and
(vii) the sum of the aggregate unpaid principal balances of Eligible
Mortgage Notes that are (1) High Balance Notes, (2) Over 80% Notes or (3)
Condominium Notes may not exceed 35% of the aggregate unpaid principal
balance of all Eligible Mortgage Notes included in the Eligible Collateral,
and no Mortgage Note that has more than one of the attributes described in
clauses (1), (2) and (3) above may be an Eligible Mortgage Note.
The additional limitations on Eligible Mortgage Notes described above are
required to be met by the Issuer as of the date of issuance of the related
Series of Bonds and as of the date of each pledge of additional Eligible
Mortgage Notes to the Trustee for such Series and each withdrawal of Eligible
Mortgage Notes from the lien of the Indenture for such Series.
ELIGIBLE MORTGAGE PASS-THROUGH CERTIFICATES
Eligible Mortgage Pass-Through Certificates are certificates or other
instruments (a) evidencing a proportional undivided interest in specified pools
of fixed or adjustable-rate mortgage loans that are secured by a valid first
lien on residential real property and the improvements thereon consisting of
one- to four-family dwelling units (including attached, town or rowhouses and
condominiums), with respect to which the requisite mortgage documentation is
held by a trustee or independent custodian, which pools of mortgage loans are
serviced by servicers that have agreed to advance funds to meet deficiencies
("Advances") (to the extent such servicers reasonably believe such Advances are
recoverable) and have been approved by GNMA, FNMA or FHLMC, (b) which
certificates have either (i) been rated by each Rating Agency rating the Bonds
of the applicable Series in a rating category at least as high as the rating of
the Bonds of such Series or (ii) have been so rated by one of such Rating
Agencies, if the other such Rating Agency shall consent in writing to their
inclusion in the Eligible Collateral for a Series, or (iii) have been otherwise
approved for inclusion in the Eligible Collateral by such Rating Agencies, as
confirmed in writing by each of such Rating Agencies and (c) the inclusion of
which in the Eligible Collateral for a Series will not affect the ratings of the
Bonds of such Series, as confirmed in writing by each of the Rating Agencies
rating such Series.
GOVERNMENT SECURITIES
Government Securities are (a) direct obligations of the United States,
provided that such direct obligations are entitled to the full faith and credit
of the United States; (b) FHLMC Certificates; (c) FNMA Certificates; and (d)
GNMA Certificates; provided that no Government Security may, by its terms, be a
non-interest bearing security unless it matures in less than one year.
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FHLMC CERTIFICATES
Federal Home Loan Mortgage Corporation ("FHLMC") Certificates are issued by
FHLMC, which is a publicly held government-sponsored enterprise created pursuant
to Title III of the Emergency Home Finance Act of 1970, as amended. FHLMC's
statutory mission is to provide stability in the secondary market for home
mortgages, to respond appropriately to the private capital market and to provide
ongoing assistance to the home mortgage secondary market and promote nationwide
access to residential mortgage credit by increasing the liquidity of mortgage
investments and improving the distribution of investment capital available for
home mortgage financing. The principal activity of FHLMC consists of the
purchase of first lien, conventional, residential mortgages and participation
interests in such mortgages from mortgage lending institutions and the resale of
the whole loans and participations so purchased in the form of guaranteed
mortgage securities.
Each FHLMC Certificate represents an undivided interest in a specified pool
of mortgage loans that may consist of fixed or adjustable-rate Mortgage Notes or
participation interests therein, including Conventional Mortgage Notes, FHA
Insured Mortgage Notes or VA Guaranteed Mortgage Notes, substantially all of
which are secured by first liens on one- to four-family residential property.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest by each mortgagor to the extent of the applicable
rate provided for by such FHLMC Certificate on the registered holder's pro rata
share of the unpaid principal balance outstanding on the underlying mortgage
loans represented by such FHLMC Certificate, whether or not received. FHLMC also
guarantees to each registered holder of a FHLMC Certificate ultimate collection
by such holder of all principal on the underlying mortgage loans, to the extent
of such holder's pro rata share thereof, and, in the case of certain FHLMC
Certificates, the timely payment of scheduled principal. The obligations of
FHLMC under its guarantee are obligations solely of FHLMC and are not backed by,
nor entitled to, the full faith and credit of the United States. There is
currently an active secondary market for FHLMC Certificates, but there is no
assurance that this market will continue.
FNMA CERTIFICATES
Federal National Mortgage Association ("FNMA") Certificates are mortgage
pass-through certificates issued by FNMA, which is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act. FNMA was originally established in 1938 as a
United States government agency and was transformed into a stockholder-owned and
privately managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing the lenders' funds for additional
lending. FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. In addition, FNMA issues
mortgage-backed securities primarily in exchange for pools of mortgage loans
from lenders.
Each FNMA Certificate represents a fractional undivided interest in a pool
of mortgage loans which may consist of FHA Mortgage Notes, VA Mortgage Notes or
conventional mortgage loans. FNMA guarantees the full and timely payment of
scheduled principal and interest (at the applicable certificate rate), and full
collection of principal on the mortgage loans in the pool represented by each
FNMA Certificate. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled to, the full faith and credit
of the United States. There is currently an active secondary market for FNMA
Certificates, but there is no assurance that this market will continue.
GNMA CERTIFICATES
Government National Mortgage Association ("GNMA") Certificates are issued
by GNMA, which is a wholly-owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. Section 306(g) of Title
III of the National Housing Act of 1934, as amended (the "Housing Act"),
authorizes GNMA to guarantee the timely payments of the principal of, and
interest on, certificates that are based on and backed by a pool of mortgage
loans issued by the VA under the Housing Act or Title V of the Housing Act of
1949, or guaranteed by the VA under the Servicemen's Readjustment Act of 1944,
as amended, or Chapter 37 of Title 38, United States Code, or by pools of other
eligible mortgage loans.
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Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection." In order to meet
its obligations under such guaranty, GNMA may, under Section 306(d) of the
Housing Act, issue its general obligations to the United States Treasury
Department in an amount which is at any time sufficient to enable GNMA to
perform its obligations under its guaranty.
Each GNMA Certificate is a "fully-modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking company or other financial
concern approved by GNMA or FNMA as a seller-servicer of FHA Insured or VA
Guaranteed Mortgage Notes. Each GNMA Certificate evidences a proportional
undivided interest in a pool of FHA Insured or VA Guaranteed Mortgage Notes
secured by single family residences. GNMA guarantees the timely payment of
principal and interest (at the applicable certificate rate) on, and the full
collection of the principal of, the mortgage loans underlying each GNMA
Certificate, which guarantee is backed by the full faith and credit of the
United States. There is currently an active secondary market in GNMA
Certificates, but there is no assurance that this market will continue.
SHORT-TERM MONEY MARKET INSTRUMENTS
Short-Term Money Market Instruments include (a) cash and (b) any of the
following instruments, but only if on the date on which such instrument is
pledged to the Trustee, the instrument has a remaining term to maturity not in
excess of 90 days from such date: (i) demand deposits in, certificates of
deposit of, or bankers' acceptances issued by, any depository institution or
trust company organized under the laws of the United States or any State and
subject to the supervision of and examination by Federal and/or State banking or
depository institution authorities, so long as the commercial paper, if any, of
such depository institution or trust company (or, in the case of the principal
depository institution in a holding company system, the commercial paper, if
any, of such holding company) at the time of such investment or contractual
commitment providing for such investment has the highest commercial paper credit
rating from each Rating Agency (or which meets such other criteria as will not
result in a downgrading or removal of the rating of the Bonds by either Rating
Agency); (ii) repurchase obligations with respect to Government Securities
entered into either (a) pursuant to a written agreement with an entity which has
received the highest short-term credit rating from each Rating Agency, where the
Trustee has taken delivery of any such security or (b) with a depository
institution or trust company described in clause (i) above; and (iii) commercial
paper rated by each Rating Agency in its highest short-term rating category (or
which meets such other criteria as will not result in a downgrading or removal
of the rating of the Bonds by either Rating Agency).
BASIC MAINTENANCE AMOUNT
The Issuer will be required under the terms of the Indenture for a Series
to maintain Eligible Collateral with an aggregate Discounted Value at least
equal to the Basic Maintenance Amount, which means that such Eligible Collateral
would have a Market Value (as defined below) significantly higher than the Basic
Maintenance Amount to the extent that the Eligible Collateral consists of
collateral other than cash and would have a Market Value of 100% of the Basic
Maintenance Amount if the Eligible Collateral consisted solely of cash or
certain cash equivalents. The "Basic Maintenance Amount" as of each Valuation
Date (or any other date of valuation) means an amount equal to the sum of (i)
the aggregate principal amount of Bonds Outstanding plus (ii) an amount equal to
interest accrued on the Bonds Outstanding for the number of days specified in
the related Prospectus Supplement. Notwithstanding the foregoing, the Basic
Maintenance Amount for a particular Series of Bonds may be changed in accordance
with the requirements of the Rating Agencies rating such Series.
Each Rating Agency for a Series of Bonds will determine the Discount
Factors which it deems appropriate for each type of Eligible Collateral. Such
Discount Factors will be set forth in the related Prospectus Supplement. The
"Discounted Value" of the Eligible Collateral for a Series as of any date will
be the lesser of the sum of the Market Values of the Eligible Collateral
included in the Pledged Property multiplied by the applicable Discount Factors
determined by each Rating Agency.
"Market Value" as of any date means the amount determined with respect to
specific Eligible Collateral included in Pledged Property in the manner set
forth below as of a date not more than three business days (or
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such other number of days as is specified in the Prospectus Supplement relating
to a Series) prior to the relevant Valuation Date (a "Determination Date");
provided, however, that the Market Value of any security or instrument may not
in any event exceed the unpaid principal balance thereof:
(a) As to cash, demand deposits, and next business day's repurchase
agreements, the face value thereof;
(b) As to FHLMC Certificates, FNMA Certificates, GNMA Certificates and
other Government Securities (other than those Government Securities having a
remaining term to maturity of 90 days or less), the aggregate principal amount
of the mortgage loans evidenced by each FHLMC, FNMA or GNMA Certificate (as
shown by the most recent report related to each such certificate received by the
Trustee prior to an applicable Determination Date) or the aggregate principal
amount of such other Government Securities, multiplied by the lower bid price
for the same kind of certificate or security having as nearly as practicable the
same interest rate and maturity, as quoted to the Trustee by two nationally
recognized securities dealers selected by the Trustee and making a market in
such certificates or securities as of an applicable Determination Date, or, if
only one such bid price is available, such aggregate principal amount multiplied
by such bid price or, if no such bid prices are available, such aggregate
principal amount multiplied by the bid price that would result in the yield for
the same type of certificate or security having as nearly as practicable the
same interest rate and maturity, as published on an applicable Determination
Date in THE WALL STREET JOURNAL or THE NEW YORK TIMES (if such yield is so
published);
(c) As to Short-Term Money Market Instruments (other than those described
in (a) above) or any Government Security (other than FNMA, FHLMC or GNMA
Certificates) having a remaining term to maturity less than or equal to 90 days,
the face amount thereof multiplied by the lower of the bid prices therefor
obtained by the Trustee as of the close of business on an applicable
Determination Date from two nationally recognized securities dealers making a
market therein;
(d) As to Eligible Mortgage Pass-Through Certificates, the lesser of (i)
the outstanding aggregate principal balance of such Eligible Mortgage
Pass-Through Certificates and (ii) the outstanding aggregate principal balance
of the mortgage loans underlying such Eligible Mortgage Pass-Through
Certificates (each as shown by the most recent report related to each such
certificate received by the Trustee prior to an applicable Determination Date)
multiplied by the dollar value of the lower of the bid prices per dollar of
outstanding principal amount on such Determination Date for such Eligible
Mortgage Pass-Through Certificates, as quoted to the Trustee as of such
Determination Date by two nationally recognized securities dealers making a
market in such Mortgage Pass-Through Certificates, or, if only one such bid
price is available, multiplied by the dollar value of such bid price, or, if no
such bid price is available, multiplied by the dollar value of the lower of the
bid prices per dollar of outstanding principal amount for conventional mortgage
pass-through certificates with comparable pass-through rates and with underlying
mortgage loans of comparable terms, as quoted to the Trustee as of such
Determination Date by two nationally recognized securities dealers selected by
the Trustee and making a market in conventional mortgage pass-through
certificates, or, if only one such bid price is available, multiplied by the
dollar value of such bid price. In the event bid prices cannot be obtained as
described in the preceding sentence, the lesser of (i) the outstanding aggregate
principal balance of such Eligible Mortgage Pass-Through Certificates and (ii)
the outstanding aggregate principal balance of the mortgage loans underlying
such Eligible Mortgage Pass-Through Certificates (each as shown by the most
recent report related to each such certificate received by the Trustee prior to
an applicable Determination Date) shall be multiplied by a price per dollar of
outstanding principal amount that would result in a yield, computed on the basis
of the same prepayment assumptions then accepted in the market for use in
calculating yields on GNMA Certificates, 0.10% greater than the yield on such
Determination Date (as published on a regular basis by The Wall Street Journal
or The New York Times) for GNMA Certificates with the same (or, if there are
none with the same, then the next higher) pass-through rate as such Eligible
Mortgage Pass-Through Certificates; and
(e) As to Eligible Mortgage Notes (grouped according to weighted average
interest rate and weighted average maturity, based on group criteria provided
for in the Indenture), the lower of the market quotations for such Eligible
Mortgage Notes obtained from any two nationally recognized dealers in mortgage
instruments selected by the Trustee or, if only one such quotation is available,
then such quotation, determined as of an applicable Determination Date based
upon unpaid principal balances shown in the most recent report prepared by or
for the Trustee prior to such Determination Date (which report shall contain
information as of a date no
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more than 30 days prior to such Determination Date), provided, that, if such
market quotations are not available, the Market Value of Eligible Mortgage Notes
shall be determined by discounting, at the Market Value Rate (as defined below),
the remaining scheduled payments of principal of and interest on such Eligible
Mortgage Notes shown in the above-referenced report, and provided further, that
the Market Value of Eligible Mortgage Notes on which there is currently a Late
Payment shall be discounted by the applicable amount, if any, required by each
Rating Agency rating such Series and described in the related Prospectus
Supplement.
The methodology for determining the Market Value of any item of Eligible
Collateral may be changed by the Issuer and the Trustee without the consent of
the Holders of the Bonds of the related Series if such changes will not impair
the rating then assigned to the Bonds by each Rating Agency rating such Series,
as confirmed in writing by such Rating Agencies.
"Market Value Rate" means:
(a)(i) As to Conventional Mortgage Notes (other than such Mortgage Notes
whose principal balances at origination exceeded the applicable maximum amounts
established by FNMA and FHLMC for mortgage loan purchases ("Jumbo Mortgage
Notes")), a rate (rounded to the nearest one-hundredth of one percent)
equivalent to the yields at which either FNMA or FHLMC, at the election of the
Trustee, committed itself to purchase Conventional Mortgage Notes of such type
for the shortest available delivery period, determined as of the applicable
Determination Date; and
(ii) As to FHA Insured or VA Guaranteed Mortgage Notes, a rate (rounded to
the nearest one-hundredth of one percent) equivalent to the yields at which FNMA
committed itself to purchase FHA Insured and VA Guaranteed Mortgage Notes, as
the case may be (or either, if commitments for both were not made), for the
shortest available delivery period, determined as of the applicable
Determination Date; in the case of (i) or (ii) above, as such FHLMC or FNMA
yields are reported by THE WALL STREET JOURNAL or THE NEW YORK TIMES or directly
by FNMA or FHLMC, and in each case less any servicing fee then allowed sellers
and included in gross yield quotations; or
(b) In the event that such rates are not available as of the applicable
Determination Date, or, with respect to Conventional Mortgage Notes (including
Jumbo Mortgage Notes), in the event that, as of such date, FNMA or FHLMC have
ceased to conduct auctions or post rates with respect to such Mortgage Notes,
and with respect to FHA Insured or VA Guaranteed Mortgage Notes, in the event
that, as of such date FNMA has ceased to post FHA-VA commitment rates, then a
rate 0.50% greater than the yield as of the applicable Determination Date (as
quoted directly by FNMA) for a FNMA Certificate with the same (or, if there are
none with the same, then the next higher) coupon interest rate as the weighted
average coupon interest rate of the Eligible Mortgage Notes included in the
Pledged Property.
The Trustee is required to deliver a report containing the information
described below under " -- Reports on Pledged Property" to the Issuer within two
business days after each Valuation Date with respect to the status of the
Pledged Property as of the Valuation Date using Market Values determined as of
the applicable Determination Date. Scheduled reductions in the principal amounts
of the Eligible Collateral included in the Pledged Property or possible
prepayments or decreases in the Market Value thereof may cause the Discounted
Value of the Eligible Collateral to be less than the Basic Maintenance Amount.
In such event, the Indenture requires that the Issuer, no later than the Cure
Date, deliver additional Eligible Collateral to the Trustee or, if Eligible
Mortgage Notes are delivered and if applicable to the related Series, to the
Custodian and/or substitute Eligible Collateral and/or, if it elects to do so,
repurchase a number of Bonds Outstanding so that the Trustee can, no later than
the Cure Date, deliver a new report showing that, as of the date of such report,
the Discounted Value of the Eligible Collateral (determined as of the date that
the Basic Maintenance Amount was not met, or, at the option of the Issuer, as of
a later date of valuation, but no later than the Cure Date) is at least equal to
the Basic Maintenance Amount. If the Issuer elects to satisfy the foregoing
obligation to restore the Discounted Value of the Eligible Collateral to the
Basic Maintenance Amount by delivering Mortgage Notes to the Custodian, the
Mortgage Notes included in the Pledged Property after the delivery of such
Mortgage Notes must meet the requirements relating to the limits on the types
and characteristics of such Mortgage Notes in order to ensure that all Mortgage
Notes delivered to the Trustee or Custodian, as applicable, are Eligible
Mortgage Notes.
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WITHDRAWALS AND SUBSTITUTIONS OF COLLATERAL
The Issuer may, at its option, at any time and from time to time, withdraw
or substitute Pledged Property; provided, that either (i) the Discounted Value
of the Eligible Collateral (based upon the then most recent report of the
Trustee valuing the Eligible Collateral) remaining in the Pledged Property
following the proposed withdrawal or substitution (after giving effect to
withdrawals from and substitutions of Pledged Property during the period
following such report) would at least equal the Basic Maintenance Amount as of
the then most recent report of the Trustee valuing the Eligible Collateral or
(ii) the Issuer causes the Trustee to prepare a new report, containing
information as of the date thereof, showing that the Discounted Value of the
Eligible Collateral (calculated as of a date no more than three business days
(or such other number of days as is specified in the Prospectus Supplement
relating to a Series) prior to the date of such report) included in the Pledged
Property following the proposed withdrawal or substitution, in any case, will at
least equal the Basic Maintenance Amount, as calculated in such new report.
Pledged Property which was not included in the Discounted Value of the
Eligible Collateral as of the most recent Valuation Date may be withdrawn at any
time so long as the Discounted Value of the Eligible Collateral was at least
equal to the Basic Maintenance Amount as of such Valuation Date, and no
withdrawals of Eligible Collateral were made after such Valuation Date. During
the continuance of any Event of Default, the Issuer may not withdraw or
substitute Pledged Property.
The Issuer may pledge additional Eligible Collateral at any time.
The Indenture relating to a Series will permit the Issuer to grant certain
modifications or waivers with respect to the Eligible Collateral, including, for
example, assumptions of Mortgage Notes and related Mortgages.
LIQUIDITY
As specified in the Prospectus Supplement relating to a Series, the Issuer
will be obligated, a certain number of days before the Stated Maturity for a
Series of Bonds provided in the related Prospectus Supplement, to pledge Deposit
Securities to the Trustee or to make other arrangements acceptable to each
Rating Agency rating such Series, in either case that are sufficient (in the
case of Deposit Securities, through principal and interest payments in respect
thereof), together with the amount of cash that will otherwise be available in
the Distribution Account and the Reserve Fund on the Stated Maturity, to pay all
of the interest and principal payable on the Bonds on such maturity date. If the
Issuer fails to effect any of the options described above within the prescribed
period, then the Trustee will be obligated immediately to liquidate Pledged
Property in an amount sufficient to pay all of the interest and principal
payable on the Bonds on the Stated Maturity. Upon delivery of such Deposit
Securities or the completion of such other arrangements, the Bonds of such
Series will no longer be deemed Outstanding and the Trustee will be obligated to
release all other Pledged Property held by the Trustee from the lien of the
Indenture.
In addition, if the Issuer elects to deliver Deposit Securities to the
Trustee to provide for payment of the redemption price pursuant to a mandatory
partial redemption of the Bonds of a Series in lieu of having the Trustee
liquidate Pledged Property, then, on the Cure Date on which it is required to
notify the Trustee of such redemption, the Issuer must deliver Deposit
Securities in the full amount of the redemption price of the Bonds of such
Series to be redeemed.
Deposit Securities delivered in accordance with the preceding paragraphs
must mature prior to the date in respect of which such Deposit Securities were
delivered. "Deposit Securities" include (i) cash, (ii) Government Securities
(other than FHLMC Certificates, FNMA Certificates and GNMA Certificates), (iii)
Short-Term Money Market Instruments and (iv) such other instruments as may be
specified in the Prospectus Supplement relating to a Series.
PURCHASE AND RESALE OF BONDS
The Issuer may at any time and from time to time purchase Bonds of a Series
that are Outstanding either on the open market or by private sale. Bonds held by
the Issuer or its affiliates (other than NCMI) shall not be deemed to be
Outstanding for purposes of determining the Basic Maintenance Amount or for
other purposes under the Indenture relating to such Series. The Indenture will
provide that the Issuer shall not, and shall not
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permit any affiliate (other than NCMI) to, sell any Bonds acquired by the Issuer
or any such affiliate unless the Trustee is able to prepare a report dated no
more than five days prior to the date of sale, showing that, after giving effect
to such sale, the Discounted Value of the Eligible Collateral (determined at the
option of the Issuer, as of the then most recent Valuation Date or as of any
date subsequent thereto but no later than the date of such report) would not be
less than the Basic Maintenance Amount.
REPORTS ON PLEDGED PROPERTY
Upon issuance of a Series of Bonds, the Issuer will be required to deliver
to the Trustee, and, within a specified number of business days after each
Valuation Date, the Trustee will be required to deliver to the Issuer, reports
with respect to the status of the Pledged Property securing such Series (with
Market Values having been determined as of the applicable Determination Dates),
which set forth the Discounted Value of the Eligible Collateral for such Series.
Such reports will contain information concerning the occurrence of Late Payments
with respect to Eligible Mortgage Notes and with respect to Mortgage Notes
underlying Eligible Mortgage Pass-Through Certificates if included in the
Pledged Property for such Series. Such reports may also contain information on
specified characteristics of the Mortgage Notes (as described under
" -- Eligible Mortgage Notes") and the percentages of the Mortgage Notes having
such characteristics.
The Issuer's initial report upon the issuance of a Series of Bonds and
certain of the Trustee's periodic Valuation Date reports with respect to such
Series will be accompanied by letters from a firm of independent accountants
selected by the Issuer regarding the calculations made by the Issuer and the
Trustee, as applicable, in the applicable reports.
PAYMENTS ON PLEDGED PROPERTY
The Indenture for each Series will provide that the Trustee will be
entitled to receive payments (including prepayments and payments as a result of
default) on the Pledged Property securing such Series except for payments on
Eligible Mortgage Notes, as to which payments will be made directly to the
Servicer for deposit in the Collection Account, unless an Event of Default shall
have occurred and be continuing. In such event, all such payments will be made
directly to the Trustee. Payments with respect to all other types of Pledged
Property will be made directly to the Trustee for deposit into the Distribution
Account. Certain funds received by the Trustee, as described in the applicable
Prospectus Supplement, will be deposited into the Reserve Fund for such Series.
If specified in the Prospectus Supplement applicable to a Series of Bonds, the
Trustee will remit to the Issuer, upon the Issuer's request, any excess funds in
the Distribution Account and the Reserve Fund after required payments of
interest and principal, if any, on the Bonds of such Series have been made or
provided for, so long as the Discounted Value of the Eligible Collateral, after
giving effect to such request, would be equal to the Basic Maintenance Amount
and no Event of Default shall have occurred and be continuing. The Prospectus
Supplement for a Series of Bonds may provide for certain funds to be retained in
the Reserve Fund for such Series to be used to pay certain expenses of the
Issuer, if they are not otherwise paid by the Issuer.
MODIFICATIONS AND WAIVER
The Indenture for each Series (including the terms and conditions of the
related Bonds) may be modified or amended by the Issuer and the Trustee without
the consent of the Holder of any Bond of such Series for the following purposes:
(a) evidencing the succession of another entity to the Issuer; (b) adding to the
covenants of the Issuer for the benefit of the Holders of the Bonds of such
Series or surrendering any right or power conferred upon the Issuer; (c)
securing the Bonds of such Series in any manner which is in addition to the
manner in which the Bonds are secured by the Indenture and the Pledged Property;
(d) correcting any ambiguity or defective or inconsistent provisions contained
in the Indenture or making any other provisions with respect to matters or
questions arising under the Indenture which will not adversely affect the
interests of the Holders of the Bonds of such Series in any material respect; or
(e) modifying, eliminating or adding to the provisions of the Indenture as
necessary to continue compliance of the Indenture under the Trust Indenture Act
of 1939, if necessary. In addition, the Indenture may be modified or amended by
the Issuer and the Trustee, without the consent of the Holder of any Bond, for
the purpose of providing for the addition of new types of Eligible Collateral to
the types of Eligible Collateral currently allowed under the terms of the
Indenture, changing the characteristics of, or percentage limitations applicable
to, certain types of Eligible Collateral, providing for reductions in the
Discount Factors used in valuing the Eligible Collateral, providing for an
increase in the frequency of
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Valuation Dates or providing for a change in the definition of "Basic
Maintenance Amount" or the methodology used in calculating Market Value if such
additions, changes, reductions or increases are approved of by each Rating
Agency rating such Series and will not impair the rating then assigned to the
Bonds of such Series by each of such Rating Agencies, as confirmed in writing by
such Rating Agencies.
Modifications and amendments to the Indenture relating to a Series may also
be made, and future compliance therewith or past default thereunder by the
Issuer may be waived, either with the written consent of the Holders of at least
66 2/3% in aggregate principal amount of the Bonds of such Series at the time
Outstanding or by the adoption of a resolution, at a meeting of the Holders of
the Bonds of such Series at which a quorum (as defined below) is present, by at
least 66 2/3% in aggregate principal amount of the Bonds Outstanding represented
at such meeting. However, no such modification or amendment to the Indenture
may, without the written consent or the affirmative vote of the Holder of each
Bond of such Series so affected, change the time of payment of the principal of
such Bond from the time when such principal is due, whether at Stated Maturity,
upon call for redemption, acceleration or otherwise; change the time of payment
of any installment of interest on any such Bond from the time when such payment
is due, whether on any Interest Payment Date, at the Stated Maturity, on any
redemption date, upon acceleration of the principal of the Bonds, or otherwise;
reduce the principal of or interest on any such Bond; make the principal of or
interest on such Bond payable in any coin or currency other than that provided
in the Bonds; impair the right to institute suit for the enforcement of any
payment on or with respect to such Bond; permit the creation of any lien other
than the lien of the Indenture with respect to the Pledged Property or terminate
the lien of the Indenture with respect to any Pledged Property (except in such
cases as permitted by, and pursuant to, the Indenture) or deprive the Bonds of
the security afforded by the lien of the Indenture and the Pledged Property;
reduce the percentage of the principal amount of the Bonds Outstanding necessary
to modify or amend the Indenture or to waive any future compliance therewith or
past default thereunder; reduce the percentage of votes required for the
adoption of a resolution or the quorum required at any meeting of the Holders of
the Bonds at which a resolution is adopted or remove the obligation of the
Issuer to maintain an office or agency in the place described in the Indenture
to make payments on the Bonds. The quorum at any meeting called to adopt a
resolution will be persons holding or representing a majority in aggregate
principal amount of the Bonds at the time Outstanding and, at any reconvened
meeting adjourned for lack of a quorum, 25% of such aggregate principal amount.
EVENTS OF DEFAULT UNDER THE INDENTURE
An "Event of Default" with respect to a Series of Bonds will be defined in
the Indenture relating to such Series as (i) failure by the Issuer to deliver to
the Trustee Deposit Securities or to make other arrangements satisfactory to
each Rating Agency to provide for the payment of the principal of, and accrued
interest on, the Bonds, when such principal becomes due and payable at the
Stated Maturity; (ii) default in the payment of any interest on the Bonds when
such interest becomes due and payable, whether on any Interest Payment Date, at
Stated Maturity, on any redemption date, upon acceleration of the principal of
the Bonds, or otherwise and continuation of such default for a period of five
days; (iii) default in the payment of the principal of the Bonds when such
principal becomes due and payable, whether at Stated Maturity, upon call for
redemption, or by acceleration or otherwise; (iv) material breach or inaccuracy
of any representation or warranty of the Issuer made in or pursuant to the
Indenture as of the date as of which failure to remedy such breach or inaccuracy
within 30 days after notice thereof, which shall state that it is a notice of
default under the Indenture, has been given to the Issuer by the Trustee or to
the Issuer and the Trustee by the Holders of at least 10% in aggregate principal
amount of the Bonds then Outstanding; (v) material default in the performance or
observance by the Issuer of any other covenant or condition to be performed or
observed by it in the Indenture and continuance of such default for a period of
30 days after notice thereof, which shall state that it is a notice of default
under the Indenture, to the Issuer by the Trustee or to the Issuer and the
Trustee by the Holders of at least 10% in aggregate principal amount of the
Bonds then Outstanding; (vi) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Issuer a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Issuer under any bankruptcy,
insolvency or any other applicable law, or appointing a receiver, liquidator,
assignee, trustee, conservator, sequestrator (or other similar official) of the
Issuer or of any substantial part of the Issuer's property, or ordering the
winding up or liquidation of the Issuer's affairs, and the continuance of any
such decree or
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order unstayed and in effect for a period of 60 consecutive days; or (vii) the
institution by the Issuer of proceedings to be adjudicated a bankrupt or
insolvent, or the Issuer's consent to the institution of bankruptcy or
insolvency proceedings against it, or the filing by the Issuer of a petition or
answer or consent seeking reorganization or relief under any bankruptcy,
insolvency or any other applicable law or the consent by the Issuer to the
filing of any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, conservator, sequestrator (or other similar official) of the
Issuer, or of any substantial part of the Issuer's property, or the making by
the Issuer of an assignment for the benefit of creditors, or the admission by
the Issuer in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Issuer in furtherance of any such
action.
In the case of an Event of Default of the type described in clauses (i),
(ii) or (iii) of the preceding paragraph, the entire principal amount of the
Bonds shall automatically become due and payable immediately. If an Event of
Default of the type described in clauses (iv), (v), (vi) or (vii) of the
preceding paragraph shall have occurred and be continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Bonds then
Outstanding may declare the entire principal amount of the Bonds to be due and
payable immediately.
In realizing upon the Pledged Property upon the occurrence of an Event of
Default with respect to a Series of Bonds, unless such Event of Default has been
annulled or waived by the Holders of at least 66 2/3% in aggregate principal
amount of the Bonds then Outstanding (or such lesser amount as shall have acted
at a meeting pursuant to the provisions of the Indenture), the Trustee will be
permitted to register and/or record in its name any of the Pledged Property not
theretofore registered and/or recorded and to sell the Pledged Property in one
lot or several lots as it may be deemed appropriate and otherwise to exercise
the remedies of a secured party under the Uniform Commercial Code. The Trustee
also will be authorized to institute suits against the Issuer for the collection
of all unpaid principal of and interest on the Bonds, to collect the deficiency,
if any, after the sale of the Pledged Property, and to file proofs of claim in
any bankruptcy, insolvency or similar proceedings involving the Issuer. The
Trustee may also take other appropriate action to enforce payment of the Bonds
or to enforce any of the above-described rights or powers under the Indenture,
but shall not be required to take any action that would involve the Trustee in
personal liability or expense.
In addition, following an acceleration of the Bonds of a Series arising out
of an Event of Default, the Trustee will be required to use its best efforts to
arrange for the sale of the Pledged Property and the repayment of the Bonds on a
date not later than 15 days (or 30 days if Eligible Mortgage Notes or Eligible
Mortgage Pass-Through Certificates are included in the Eligible Collateral)
following the date on which payment of principal of the Bonds has been
accelerated.
The Indenture with respect to a Series of Bonds will provide the Trustee
with a lien on the Pledged Property superior to that of the Holders of the Bonds
to secure the payment of all expenses, liabilities and advances incurred or made
by the Trustee in connection with the collection or other realization upon the
Pledged Property upon the occurrence of an Event of Default (including
reasonable compensation for any required servicing of Eligible Mortgages and for
extraordinary time spent by the officers, employees, agents or attorneys of the
Trustee directly in connection with the collection or other realization upon the
Pledged Property upon the occurrence of an Event of Default).
PRIORITY
If, following an Event of Default with respect to a Series of Bonds, the
proceeds of liquidation of the related Pledged Property are not sufficient to
pay the entire amount remaining payable on the Bonds of such Series, the Holders
thereof would as to the deficiency, be general creditors of the Issuer, and upon
any liquidation of the Issuer, the Holders of such Bonds would rank on a parity
with the general creditors of the Issuer.
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SERVICING OF ELIGIBLE MORTGAGE NOTES
GENERAL
With respect to each Series of Bonds for which the Pledged Property
includes Eligible Mortgage Notes, the Issuer will enter into a servicing
agreement (the "Servicing Agreement") with a servicer (the "Servicer"), which
may be an affiliate of the Issuer. The Servicer will be responsible for
servicing and administering the Eligible Mortgage Notes pursuant to the
Servicing Agreement. The Issuer's rights under the Servicing Agreement for a
Series will be pledged to the Trustee as additional security for the Bonds of
such Series. The Servicer may enter into a subservicing agreement with a
subservicer to perform, as an independent contractor, certain servicing
functions for the Servicer subject to its supervision. A subservicing agreement
will not contain any terms or conditions that are inconsistent with the related
Servicing Agreement and shall have been approved by the Issuer. The subservicer
will receive a fee for such services which will be paid by the Servicer out of
the fee paid to the Servicer (the "Servicing Fee"). The Servicer will have the
right to remove the subservicer of any Eligible Mortgage Note at any time for
cause and at any other time upon the giving of the required notice and the
payment of any required fee. In such event, the Servicer would continue to be
responsible for servicing such Eligible Mortgage Note and would designate a
replacement subservicer (which may include an affiliate of the Issuer or the
Servicer).
PLEDGE OF ELIGIBLE MORTGAGE NOTES
At the time of issuance of each Series of Bonds secured in whole or in part
by Eligible Mortgage Notes, the Issuer will cause the Eligible Mortgage Notes,
together with all principal and interest received on or with respect to the
Eligible Mortgage Notes after the cut-off date for the related Series (the
"Cut-Off Date"), except for principal and interest due on or before the Cut-Off
Date for such Series, to be pledged to the Trustee and the Eligible Mortgage
Notes to be delivered to the Trustee or, if applicable, a Custodian. Each
Eligible Mortgage Note included in the initial Pledged Property will be
identified in a schedule appearing as an exhibit to the Servicing Agreement
which will be amended from time to time to reflect the addition or deletion of
Eligible Mortgage Notes. Such schedule will include information as to the
principal balance of each Eligible Mortgage Note, the address of the property,
the interest rate and the maturity of each Mortgage Note.
In addition, the Issuer will, as to each Eligible Mortgage Note, deliver to
the Trustee (or the Custodian) (i) the Mortgage Note endorsed in blank and (ii)
an assignment of the related Mortgage in blank in a form for recording or filing
as may be appropriate in the state where the Mortgaged Property is located. In
lieu of delivering an individual mortgage assignment, the Issuer may instead
deliver a blanket assignment by county, which will also be in recordable form.
In addition, with respect to each Eligible Mortgage Note secured by Mortgaged
Property located in the State of California or Oregon, the Issuer will also
deliver to the Trustee (or the Custodian) the original recorded Mortgage with
evidence of recording or filing indicated thereon, or a copy of such Mortgage
certified by the recording office in those jurisdictions where the original is
retained by the recording office. Notwithstanding the foregoing, in the event
that recorded documents cannot be delivered due to delays in connection with
recording, the Indenture permits the Issuer to deliver to the Trustee copies
thereof, certified by the Issuer to be true and complete copies of such
documents sent for recording. In such event, the Indenture requires the Issuer
to deliver the original recorded documents to the Trustee promptly upon receipt
by the Issuer.
The Custodian will review the mortgage documents within a specified number
of days of receipt thereof to ascertain that all required documents have been
executed and received and are in proper form on their face. The Custodian will
hold mortgage documents for each Series in trust for the benefit of Holders of
the Bonds of such Series. If any document is found by the Custodian not to have
been properly executed or received or to be unrelated to the Eligible Mortgage
Notes identified in the Servicing Agreement, and such defect cannot be cured
within the permitted time period, the Issuer will pledge and deliver additional
Eligible Mortgage Notes or other Eligible Collateral and/or substitute Eligible
Mortgage Notes or other Eligible Collateral in an amount such that, after the
pledge, the Discounted Value of the Eligible Collateral is at least equal to the
Basic Maintenance Amount.
The Indenture for a Series of Bonds secured in whole or in part by Eligible
Mortgage Notes will provide that the Trustee will, upon receipt from any Holder
or from the Issuer of proper notification that the rating by any of Standard &
Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. ("S&P"),
Fitch
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Investors Service, L.P. ("Fitch") or Moody's Investor's Service, Inc.
("Moody's") of NationsBank, N.A.'s, long-term deposits has fallen below "BBB" in
the case of S&P or Fitch or "Baa2" or in the case of Moody's or of its
short-term deposits has fallen below "A-2," "F-2"or "P-2," respectively, demand
that the Issuer cause the recordation of the assignments of the Mortgages
securing the Eligible Mortgage Notes pledged to the Trustee. The Issuer will use
its best efforts to record such assignments at its own expense promptly
following such demand by the Trustee. If such assignments are not recorded after
demand therefor by the Trustee, the Trustee will itself record the assignments
of the Mortgages, at the expense of the Issuer. The Issuer will not be required
to record any assignment prior to its receipt of such demand from the Trustee.
Such recordation is not necessary to make the assignment of the Eligible
Mortgage Notes to the Trustee effective as between the Issuer and the Trustee.
However, if the Issuer were to make a sale, assignment, satisfaction or
discharge of any Eligible Mortgage Notes prior to recording the assignments to
the Trustee, the other parties to such sales, assignments, satisfactions or
discharges might have rights superior to those of the Trustee. If the Issuer
were to do so without authority given to it pursuant to the Indenture, it would
be liable to the Trustee and the Holders of the related Series of Bonds.
Moreover, if insolvency proceedings relating to the Issuer were commenced prior
to such recording, creditors of the Issuer may be able to assert rights in the
affected Eligible Mortgage Notes superior to those of the Trustee.
SERVICING
The Servicer will agree to perform diligently all services and duties
customary to the servicing by prudent mortgage lending institutions of mortgages
of the same type as the Eligible Mortgage Notes in those jurisdictions where the
related Mortgaged Properties are located. The Servicer may perform these duties
directly or, pursuant to subservicing contracts, through subservicers. The
Servicer will monitor each subservicer's performance and will have the right to
remove a subservicer at any time if it considers such removal to be in the best
interest of Holders. The duties of the Servicer include collection and
remittance of principal and interest payments received, administration of
mortgage escrow accounts, collection of insurance claims and, if necessary,
foreclosure. Unless otherwise specified in the Prospectus Supplement relating to
a Series, the Servicer will not be obligated to make any Advances with respect
to delinquent payments on Eligible Mortgage Notes.
PAYMENTS ON ELIGIBLE MORTGAGE NOTES
Pursuant to the Servicing Agreement relating to a Series, the Servicer will
establish and maintain a collection account (the "Collection Account") in the
name of the Trustee for the benefit of the Holders. The Servicer will remit
directly to the Collection Account for the related Series payments on the
related Eligible Mortgage Notes as they are received. The Collection Account may
be maintained as an interest-bearing account, or the funds held therein may be
invested from time to time in Eligible Investments (as defined in the related
Prospectus Supplement). The Servicer or its designee will be entitled to receive
any such interest or other income earned on funds in the Collection Account as
additional compensation and will be obligated to deposit in or credit to the
Collection Account the amount of any loss immediately as realized. The
Collection Account for a Series must be maintained as a trust account or with a
depository institution, which may be an affiliate of the Servicer or the Issuer,
whose short-term debt is rated in at least one of the two highest rating
categories by each Rating Agency. In particular, if NationsBanc Mortgage
Corporation is the Servicer for a Series, such account may be a money market
savings account maintained with NationsBank, N.A., or an affiliated bank.
The Servicer will deposit in or credit to the Collection Account on a daily
basis, to the extent applicable, the following payments and collections received
by or on behalf of it subsequent to the date of pledge to the Trustee for the
related Series (other than payments due on or before the date of pledge):
(i) all payments on account of principal and interest received by the
Servicer on the Eligible Mortgage Notes (which, at its option, may be net
of the Servicing Fee), including principal prepayments (in whole or in
part);
(ii) all amounts received by foreclosure or otherwise in connection
with the liquidation of defaulted Eligible Mortgage Notes, net of expenses
incurred in connection with such liquidation;
(iii) all proceeds received under any Private Mortgage Insurance
policy or title, hazard or other insurance policy covering any Eligible
Mortgage Note, other than proceeds to be applied to the restoration or
repair of the related Mortgaged Property;
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(iv) any amounts required to be deposited or credited by the Servicer
in connection with losses realized on investments for the benefit of the
Servicer of funds held in the Collection Account; and
(v) all other amounts required to be deposited in or credited to the
Collection Account under the Servicing Agreement.
Under the Servicing Agreement for each Series, the Servicer will be
authorized to make the following withdrawals from the Collection Account:
(i) to reimburse the Servicer from related insurance or liquidation
proceeds for amounts expended by the Servicer in connection with the
restoration of property damaged by an uninsured cause or the liquidation of
an Eligible Mortgage Note;
(ii) to pay to the Servicer its Servicing Fee from interest payments
received, if not previously retained, and any earnings from the investment
of funds in the Collection Account in Eligible Investments (as defined in
the related Prospectus Supplement);
(iii) to pay any expenses which were incurred and are reimbursable
pursuant to the Servicing Agreement;
(iv) to pay to the Servicer any amounts deposited in or credited to
the Collection Account in error or any amounts in respect of which a
mortgagor's check has been returned and not honored by the mortgagor's bank
for any reason;
(v) to remit funds to the Trustee for deposit into the applicable
Distribution Account or Reserve Fund;
(vi) to clear and terminate the Collection Account upon the Stated
Maturity of the related Series of Bonds; and
(vii) for certain other purposes as provided in the Servicing
Agreement.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will agree to proceed diligently to collect all payments
called for under the Eligible Mortgage Notes securing such Series. Consistent
with the above, the Servicer may, in its discretion, (i) waive any prepayment
charge, assumption fee, late payment charge or any other charge in connection
with the prepayment of an Eligible Mortgage Note and (ii) arrange with a
mortgagor a plan of relief, including a modification or extension of the
Mortgage Note, when appropriate, rather than recommending liquidation. In
addition, the Servicer may permit the modification of an Eligible Mortgage Note
which the related mortgagor has indicated a desire to refinance provided that
any such Mortgage Note would continue to be an Eligible Mortgage Note following
such modification. Any such arrangement will be made only upon determining that
the coverage of such Eligible Mortgage Note by any Private Mortgage Insurance
policy will not be affected.
Under the Servicing Agreement relating to a Series of Bonds, the Servicer
will be required to enforce "due-on-sale" clauses with respect to the Eligible
Mortgage Notes to the extent contemplated by the terms of the Eligible Mortgage
Notes and permitted by applicable law. Where an assumption of, or substitution
of liability with respect to, an Eligible Mortgage Note is required by law, upon
receipt of assurance that the Private Mortgage Insurance policy covering such
Eligible Mortgage Note will not be affected, the Servicer may permit the
assumption of an Eligible Mortgage Note, pursuant to which the mortgagor would
remain liable on the Mortgage Note, or a substitution of liability with respect
to such Eligible Mortgage Note, pursuant to which the new mortgagor would be
substituted for the original mortgagor as being liable on the Mortgage Note.
The Servicing Agreement may require the Servicer to establish and maintain
one or more escrow accounts into which mortgagors deposit amounts sufficient to
pay taxes, assessments, hazard insurance premiums or comparable items.
Withdrawals from the escrow accounts maintained for mortgagors may, among other
things, be made to effect timely payment of taxes, assessments and hazard
insurance premiums or comparable items, to reimburse the Servicer out of related
assessments for maintaining hazard insurance, to refund to mortgagors amounts
determined to be overages, to remit to mortgagors, if required, interest earned,
if any, on balances in any of the escrow accounts, to repair or otherwise
protect the Mortgaged Property and to clear and terminate any of the escrow
accounts. The Servicer will be solely responsible for administration of the
escrow accounts and will be expected to make advances to such accounts when a
deficiency exists therein.
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HAZARD INSURANCE
Under the Servicing Agreement relating to a Series of Bonds, the Servicer
will be required to maintain for each Eligible Mortgage Note a hazard insurance
policy providing coverage against loss by fire and other hazards which are
covered under the standard extended coverage endorsement customary in the state
in which the Mortgaged Property is located. Such coverage will be in an amount
at least equal to the lesser of the outstanding principal balance of such
Eligible Mortgage Note and the replacement cost of the related Mortgaged
Property. As set forth above, all amounts collected by the Servicer under any
hazard policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the mortgagor in accordance with the
Servicer's normal servicing procedures) will be deposited in the Collection
Account. In the event that the Servicer maintains a blanket policy insuring
against hazard losses on certain of the Eligible Mortgage Notes, it shall
conclusively be deemed to have satisfied its obligation relating to the
maintenance of hazard insurance. The Servicer is required to maintain a fidelity
bond and errors and omissions policy or their equivalent with respect to
officers and employees which provides coverage against losses which may be
sustained as a result of an officer's or employee's misappropriation of funds or
errors and omissions in failing to maintain insurance, subject to certain
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions in the form and amount specified in the Servicing Agreement.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Eligible Mortgage Notes will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms and therefore will not contain identical terms
and conditions, the basic terms thereof are dictated by respective state laws,
and most such policies typically do not cover (among other things) any physical
damage resulting from the following: war, revolution, governmental actions,
floods and other water-related causes, earth movement (including earthquakes,
landslides and mud flows), nuclear reactions, wet or dry rot, vermin, rodents,
insects or domestic animals, theft and, in certain cases, vandalism. If,
however, any Mortgaged Property is located in an area identified by the Federal
Emergency Management Agency as having special flood hazards and flood insurance
has been made available, the Servicer will cause to be maintained with a
generally acceptable insurance carrier a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration.
Such flood insurance policy will provide coverage in an amount not less than the
least of (i) the unpaid principal balance of the Eligible Mortgage Note, (ii)
the insurable value of the Mortgaged Property or (iii) the maximum amount of
insurance available under the Flood Disaster Protection Act of 1973, as amended.
The hazard insurance policies covering the Mortgaged Properties typically
contain a clause which, in effect, requires the insured at all times to carry
insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the improvements on the property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clause provides that the insurer's liability in the
event of partial loss does not exceed the larger of (i) the replacement cost of
the improvements less physical depreciation, and (ii) such proportion of the
loss as the amount of insurance carried bears to the specified percentage of the
full replacement cost of such improvements. To the extent residential properties
appreciate in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to restore fully the damaged property.
PRIVATE MORTGAGE INSURANCE
An Eligible Mortgage Note secured by a Mortgaged Property having an
original loan-to-value ratio in excess of 80% must have a Private Mortgage
Insurance policy insuring against default of all or a specified portion of the
principal amount thereof in excess of a percentage of the appraised value of the
Mortgaged Property specified under FNMA and FHLMC guidelines. Evidence of each
Private Mortgage Insurance policy will be provided to the Trustee simultaneously
with the pledge to the Trustee of the related Eligible Mortgage Note.
MAINTENANCE OF INSURANCE POLICIES; CLAIMS THEREUNDER AND OTHER REALIZATION UPON
DEFAULTED ELIGIBLE MORTGAGE NOTES
The Servicer will exercise its best reasonable efforts to keep each Private
Mortgage Insurance policy (if any) in full force and effect at least until the
outstanding principal balance of the related Mortgage Note is
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equal to the percentage of the appraised value of the Mortgaged Property
specified in the related Supplement. The Servicer has agreed (or will agree) to
pay the premium for each Private Mortgage Insurance policy on a timely basis in
the event that the mortgagor does not make such payments.
The Servicer, on behalf of the Trustee and Holders, will present claims to
the insurer under any applicable Private Mortgage Insurance policy and will take
such reasonable steps as are necessary to permit recovery under such insurance
policies respecting defaulted Eligible Mortgage Notes. All collections by the
Servicer under such policies that are not applied to the restoration of the
related Mortgaged Property are to be deposited in the Collection Account subject
to withdrawals as described in the Servicing Agreement for each Series.
If any property securing a defaulted Eligible Mortgage Note is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
any applicable Private Mortgage Insurance policy, the Servicer will not be
required to expend its own funds to restore the damaged property unless the
Servicer determines (i) that such restoration will increase the proceeds to
Holders upon liquidation of the Eligible Mortgage Note after reimbursement of
the Servicer for its expenses and (ii) that such expenses will be recoverable to
it through liquidation proceeds.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's primary compensation for its activities as Servicer will
come from the payment to it, with respect to each interest payment on an
Eligible Mortgage Note, of an amount equal to the Servicing Fee. As principal
payments are made on the Eligible Mortgage Notes, the portion of each monthly
payment which represents interest will decline, and thus servicing compensation
to the Servicer will decrease as the Eligible Mortgage Notes amortize.
Prepayments and liquidations of Eligible Mortgage Notes prior to maturity will
also cause servicing compensation to the Servicer to decrease.
In addition, the Servicer will be entitled to retain late payment charges
and other fees and expenses related to loan assumptions, delinquencies,
modifications, partial releases of security and releases for payment in full, if
any, to the extent collected from mortgagors and investment income earned on
funds in the Collection Account.
Servicer will pay all expenses incurred in connection with its activities
as Servicer (subject to limited reimbursement as described above), including
payment of expenses incurred in connection with distributions and reports to the
Trustee for each Series.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement relating to a Series of Bonds secured in whole or
in part by Eligible Mortgage Notes will provide that the Servicer at its expense
shall cause a firm of independent public accountants to furnish a report
annually to the Trustee to the effect that such firm has examined certain
documents relating to the servicing of the Eligible Mortgage Notes and that such
review has disclosed no items of material noncompliance with the provisions of
such Servicing Agreement, except for such items of material noncompliance as
shall be set forth in such report.
The Servicing Agreement will provide for delivery to the Trustee of an
annual statement signed by an officer of the Servicer to the effect that the
Servicer has fulfilled its obligations under the Servicing Agreement throughout
the preceding year.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicing Agreement for each Series of Bonds secured in whole or in
part by Eligible Mortgage Notes will provide that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon (a) the
appointment of a successor servicer and receipt by the Trustee of a letter from
each Rating Agency that such resignation and appointment will not result in the
withdrawal, qualification or downgrading of the ratings then assigned to the
Bonds of such Series or (b) the determination that its duties thereunder are no
longer permissible under applicable law and such incapacity cannot be cured by
the Servicer. No such resignation under (b) above will become effective until
the Trustee or a successor has assumed the Servicer's obligations and duties
under such Servicing Agreement. The Servicing Agreement for each such Series
will provide that, subject to the conditions set forth in such Servicing
Agreement, any entity (a) into which the Servicer may
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be merged or consolidated, (b) which may result from any merger or consolidation
to which the Servicer shall be a party, or (c) which may succeed to the
properties and assets of the Servicer substantially as a whole, which entity in
any of the foregoing cases executes an agreement of assumption to perform every
obligation of the Servicer hereunder, will be the successor to the Servicer
under the Servicing Agreement without the execution or filing of any paper or
any further act on the part of any of the parties to the Servicing Agreement.
EVENTS OF DEFAULT UNDER THE SERVICING AGREEMENT
Events of default by the Servicer under the Servicing Agreement for each
Series of Bonds secured in whole or in part by Eligible Mortgage Notes will
consist of (i) any failure by the Servicer to distribute to the Trustee on
behalf of Holders any required payment which continues unremedied for five days;
(ii) any failure by the Servicer duly to observe or perform in any material
respects any other of its covenants or agreements in such Servicing Agreement
which continues unremedied for 60 days after the giving of written notice of
such failure to the Servicer by the Trustee, or to the Servicer by the Holders
of not less than 25% in aggregate principal amount of the Bonds then
Outstanding; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by the Servicer indicating insolvency, reorganization or inability to pay its
obligations.
RIGHTS UPON EVENT OF DEFAULT
As long as an event of default under the Servicing Agreement for a Series
of Bonds secured in whole or in part by Eligible Mortgage Notes remains
unremedied, the Trustee or Holders of not less than 50% in aggregate principal
amount of the Bonds then Outstanding may terminate all of the rights and
obligations of the Servicer under such Servicing Agreement, whereupon the
Trustee will succeed to all the responsibilities, duties and liabilities of the
Servicer under such Servicing Agreement and will be entitled to similar
compensation arrangements and limitations on liability. In the event that the
Trustee is unwilling or unable so to act, it may appoint or petition a court of
competent jurisdiction for the appointment of a housing and home finance
institution with a net worth of at least $10,000,000 and which is an approved
seller-servicer of conventional residential mortgage loans for FNMA or FHLMC, an
FHA approved mortgagee and a VA approved lender to act as successor Servicer
under such Servicing Agreement. Pending any such appointment, the Trustee is
obligated to act in such capacity. The Trustee and such successor may agree upon
the servicing compensation to be paid, which in no event may be greater than the
compensation to the Servicer under such Servicing Agreement.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Stroock & Stroock & Lavan LLP, the following discussion
addresses all the material United States federal income tax consequences of the
acquisition, ownership and disposition of the Bonds of each such Series, except
as otherwise set forth in an applicable Prospectus Supplement. The opinion is
based on laws, Treasury regulations (including proposed and temporary
regulations) promulgated thereunder, rulings, and judicial decisions, all as in
effect as of the date of this offering, all of which are subject to change
(possibly with retroactive effect) or different interpretations. The opinion
does not, however, purport to address all federal income tax consequences
applicable to particular categories of investors, some of which may be subject
to special rules. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Bonds.
INTEREST, PREMIUM AND DISCOUNT
In the opinion of Stroock & Stroock & Lavan LLP, the Bonds will be treated
as indebtedness of the Issuer for federal income tax purposes. Consequently,
interest thereon will be treated as ordinary income to Bond Owners as it is paid
or accrues, depending on the Bond Owner's method of accounting. It is
anticipated that initial Bond Owners of each Series will acquire the Bonds at
par or at a statutory DE MINIMIS discount and therefore will have neither
original issue discount, market discount, nor premium amortization with respect
to the Bonds.
A Bond Owner acquiring a Bond subsequent to issuance will be treated as
purchasing an interest in such Bond at a price determined by allocating the
purchase price paid for such Bond, first, to accrued interest from
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the preceding Interest Payment Date to the day prior to the date of purchase,
and second, to the principal amount of the Bond. To the extent that the portion
of purchase price of a Bond (other than to a right to receive any accrued
interest thereon) is less than or greater than the principal balance of the
Bond, the Bond will be deemed to have been acquired at a discount or premium,
respectively.
PREMIUM. A Bond Owner that holds a Bond as a capital asset under Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"), may elect
under Code Section 171 to amortize premium on the Bond (generally, the excess of
the purchaser's tax basis over the unpaid principal balance of the Bond) under a
constant interest method, based on the applicable compounding period. Such
election applies to all debt instruments acquired by the Bond Owner at a premium
in that taxable year or thereafter, and may be revoked only with the consent of
the Internal Revenue Service. Premium amortization under Section 171 will be
treated as an offset to interest income on the Bond, rather than as a separate
deduction item.
MARKET DISCOUNT. A Bond Owner also will be subject to the market discount
rules of Code Sections 1276-1278 to the extent that the conditions for
application of those sections are met. A Bond Owner that acquires a Bond with
"market discount" (generally, the excess of the principal balance of the Bond
over the purchaser's tax basis therein), other than statutory de minimis
discount, will be required under Code Section 1276 to include as ordinary income
the previously unrecognized accrued market discount at the maturity of the Bond
(or in an amount not exceeding any partial principal payment prior to maturity)
or in an amount not exceeding the gain realized upon a sale or other disposition
of the Bond, unless the Bond Owner elects to accrue such market discount on a
constant yield method as described below. Unless an election to accrue the
market discount under a constant yield method is made, such market discount
would accrue ratably over the life of the Bond. Code Section 1277 provides that
the excess of interest paid or accrued to purchase or carry a Bond acquired with
market discount over interest received on such Bond is allowed as a current
deduction only to the extent such excess is greater than the market discount
that accrued during the taxable year in which such interest expense was
incurred. The deferred interest expense is, in general, allowed as a deduction
not later than the date a corresponding amount of the market discount income is
recognized or the date on which the Bond is disposed of. Alternatively, a Bond
Owner may also elect to include market discount in income currently as it
accrues on the Bond and other obligations acquired by such holder at a market
discount during the taxable year such election is made and thereafter, in which
event the interest deferral rule described above will not apply. Market discount
that is less than the statutory DE MINIMIS amount is not subject to the
foregoing rules, and generally must be reported as capital gain at maturity.
Bond Owners should consult their own tax advisors as to the application of these
rules to Bond Owners.
ELECTION TO TREAT ALL INCOME UNDER THE CONSTANT YIELD METHOD
A Bond Owner may elect to treat all income that accrues on the Bond using
the constant yield method, including stated interest, DE MINIMIS original issue
discount, market discount, DE MINIMIS market discount, or premium. The Bond is
then treated as if the Bond were issued on the holder's acquisition date in the
amount of the holder's adjusted basis immediately after acquisition. A Bond
Owner generally may make such an election as to any debt instrument of a class
or group of debt instruments. However, if the Bond Owner makes such an election
with respect to a debt instrument with market discount or premium, the Bond
Owner is deemed to have made an election to report market discount income
currently as it accrues under the constant yield method, or to amortize premium,
respectively, for all debt instruments acquired by the holder in the same
taxable year or thereafter. The election is made on the Bond Owner's federal
income tax return for the year in which the debt instrument is acquired and is
irrevocable except with the approval of the Internal Revenue Service. Investors
should consult their own tax advisors regarding the advisability of making such
an election.
SALE OR EXCHANGE OF BONDS
Upon sale or exchange of a Bond, a Bond Owner will recognize gain or loss
equal to the difference between the amount realized on the sale and its
aggregate adjusted basis in the Bond. In general, the aggregate adjusted basis
will equal the Bond Owner's cost for the Bond, increased by the amount of any
income previously reported with respect to the Bond and decreased by the amount
of any distributions received thereon. Except as provided above with respect to
market discount on the Bond, and except for certain financial institutions
subject to the provisions of Code Section 582(c), any such gain or loss
generally would be capital gain or loss if the Bond was held as a capital asset.
However, gain on the sale of a Bond will be treated as ordinary income
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(i) if a Bond is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
Bond Owner's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate (under Code Section 1274(d)) in effect at
the time the taxpayer entered into the transaction minus any amount previously
treated as ordinary income with respect to any prior disposition of property
that was held as a part of such transaction (and minus such other amounts to be
set forth in regulations) or (ii) in the case of a non-corporate taxpayer, to
the extent such taxpayer has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary income rates.
Pursuant to the Revenue Reconciliation Act of 1993, capital gains of certain
non-corporate taxpayers are subject to a lower maximum tax rate than ordinary
income of such taxpayers. The maximum tax rate for corporations is the same with
respect to both ordinary income and capital gains.
BACKUP WITHHOLDING
Distributions made on the Bonds, and proceeds from the sale of the Bonds to
or through certain brokers, may be subject to a "backup" withholding tax under
Code Section 3406 of 31% on "reportable payments" (including interest
distributions, original issue discount, if any, and, under certain
circumstances, principal distributions) unless the Bond Owner complies with
certain reporting and/or certification procedures, including the provision of
its taxpayer identification number to the Trustee, its agent or the broker who
effected the sale of the Bond, or such Bond Owner is otherwise an exempt
recipient under applicable provisions of the Code. Any amounts to be withheld
from distribution on the Bonds would be refunded by the Internal Revenue Service
or allowed as a credit against the Bond Owner's federal income tax liability.
TAX TREATMENT OF FOREIGN INVESTORS
Bond Owners who are not U.S. Persons (as defined herein) must comply with
applicable certification requirements in order to receive payments of interest
and original issue discount free of applicable withholding taxes. In no event
will any payments by the Issuer be increased as a result of any such withholding
or other taxes. A Bond Owner that is not a U.S. Person 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 Bond Owner and the U.S. entity required to
withhold tax complies with applicable certification requirements and (ii) such
Bond Owner takes one of the following steps to obtain an exemption or reduced
tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Bond Owners for which the
interest income is not effectively connected with a United States trade or
business, that do not own more than 10% of the stock of the Issuer or the
Servicer and that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are Bond Owners and reside 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 Owner or its agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. A Bond Owner or, in the case
of a Form 1001 or a Form 4224 filer, its agent, files by submitting the
appropriate form to the person through whom it holds (the clearing agency, in
the case of persons holding directly on the books of the clearing agency) prior
to the first Interest
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Payment Date occurring after its acquisition of a Bond. 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 the income
of which is includible in gross income for United States tax purposes,
regardless of its source or (iv) a trust other than a "Foreign Trust", as
defined in the Code. This summary does not deal with all aspects of U.S. Federal
income tax withholding that may be relevant to foreign Bond Owners. Investors
are advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Bonds.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans subject to
ERISA and on certain other retirement plans and arrangements, including
individual retirement accounts and Keogh plans (all of which are hereinafter
referred to as "Plans"), collective investment funds in which such Plans are
invested, and insurance companies using the assets of separate accounts or
general accounts which include assets of Plans (or which are deemed pursuant to
ERISA to include assets of Plans).
In accordance with ERISA's general fiduciary standards, before investing in
a Bond of any Series, a Plan fiduciary should determine whether to do so is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. A Plan fiduciary should especially consider the ERISA
requirement of investment prudence.
Certain provisions of ERISA (and corresponding provisions of the Code)
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (so-called "parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). The Issuer or certain of its affiliates might be
considered or might become "parties in interest" or "disqualified persons" with
respect to a Plan. Also, other persons who are "parties in interest" or
"disqualified persons" might acquire ownership rights in the collateral securing
a Series of Bonds. In either case, the acquisition or holding of Bonds by or on
behalf of such a Plan could be considered to give rise to an indirect
"prohibited transaction" within the meaning of ERISA and the Code, in the nature
of an indirect extension of credit. Conversely, the acquisition or holding of
Bonds by or on behalf of a "party in interest" or a "disqualified person" with
respect to a Plan which owns or later acquires ownership rights in the
collateral securing, a Bond, also could be considered to give rise to such an
indirect "prohibited transaction".
However, one or more prohibited transaction class exemptions issued by the
Department of Labor (the "DOL") might be applicable, depending on the type and
circumstances of the Plan fiduciary making the decision to acquire a Bond: DOL
Prohibited Transaction Exemption ("PTE") 84-14 (involving transactions
determined by "qualified professional asset managers"); PTE 91-38 (involving
bank collective investment funds); PTE 90-1 (involving insurance company pooled
separate accounts); PTE 95-60 (involving insurance company general accounts) and
PTE 96-23 (involving transactions determined by "in-house asset managers").
The purchase of a Bond will be deemed a representation by the purchaser
that either : (i) it is not a Plan, and it is not purchasing such Bond for, or
on behalf of, a Plan, or (ii) the acquisition and holding of such Bond by the
purchaser qualify for prohibited transaction exemptive relief under PTE 84-14,
PTE 91-38, PTE 90-1, PTE 95-60, PTE 96-23 or some other applicable exemption.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, fiduciaries of a Plan considering the
purchase of Bonds of any Series should consult their own counsel regarding the
application of ERISA and the Code to the purchase. Employee benefit plans which
are governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA) are not subject to the foregoing
ERISA requirements.
29
<PAGE>
PLAN OF DISTRIBUTION
The Issuer may sell each Series of Bonds to or through NationsBanc Capital
Markets, Inc., an affiliate of the Issuer ("NCMI"), or underwriting syndicates
represented by NCMI (collectively, the "Underwriters"). NCMI's participation in
any such offering will comply with the requirements of National Association of
Securities Dealers, Inc. The Prospectus Supplement with respect to each Series
of Bonds will set forth the terms of the offering of such Series of Bonds,
including the name or names of the Underwriters, the proceeds to and their use
by the Issuer, and either the initial public offering price, the discounts and
commissions to the Underwriters and any discounts or concessions allowed or
reallowed to certain dealers, or the method by which the price at which the
Underwriters will sell the Bonds will be determined. The Underwriters will be
obligated to purchase all of the Bonds described in the Prospectus Supplement
with respect to a Series if any such Bonds are purchased. The Bonds of each
Series may be acquired by the Underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale.
The place and time of delivery for each Series of Bonds in respect of which
this Prospectus is delivered will be set forth in the Prospectus Supplement with
respect to each such Series.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by NCMI in connection with offers and sales related to
market-making transactions in the Bonds previously offered hereunder in
transactions in which NCMI acts as principal. NCMI may also act as agent in such
transactions. Sales may be made at negotiated prices determined at the time of
sale.
LEGAL MATTERS
The legality of the Bonds will be passed upon for the Issuer and
Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. Certain other
legal matters with respect to the issuance of the Bonds will be passed upon by
Jennifer E. Bennett, Counsel of NationsBank Corporation, Charlotte, North
Carolina. Miles & Stockbridge will opine as to certain matters of Maryland law.
EXPERTS
The financial statements of Main Place Funding Corporation incorporated in
this Prospectus by reference to the Main Place Funding Corporation Annual Report
on Form 10-K for the year ended December 31, 1995, have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Issuer's ratio of earnings to fixed charges, to the extent relevant,
will be set forth in the Prospectus Supplement with respect to each Series.
30
<PAGE>
INDEX OF PRINCIPAL TERMS IN THE PROSPECTUS
<TABLE>
<S> <C>
1934 Act............................................... 2
Advances............................................... 12
Advisor................................................ 4
Advisory Agreement..................................... 4
Basic Maintenance Amount............................... 14
Bond Owner............................................. 6
Bonds.................................................. 1
Cede................................................... 6
CEDEL.................................................. 7
CEDEL Participants..................................... 7
Class A Common Shares.................................. 4
Class B Common Shares.................................. 4
Code................................................... 27
Collection Account..................................... 10
Commission............................................. 2
Common Shares.......................................... 4
Condominium Notes...................................... 12
Conventional Mortgage Notes............................ 10
conversion transaction................................. 28
Cooperative............................................ 8
Corporation............................................ 3
Cure Date.............................................. 9
Custodian.............................................. 10
Cut-Off Date........................................... 21
Definitive Bonds....................................... 8
Deposit Securities..................................... 17
Depositories........................................... 6
Determination Date..................................... 15
Discounted Value....................................... 14
disqualified persons................................... 29
Distribution Account................................... 10
DOL.................................................... 29
DTC.................................................... 5
Eligible Adjustable-Rate Mortgage Notes................ 10
Eligible Collateral.................................... 5
Eligible Fixed-Rate Mortgage Notes..................... 10
Eligible Mortgage Notes................................ 10
Eligible Mortgage Pass-Through Certificates............ 12
Eligible Mortgages..................................... 11
ERISA.................................................. 29
Euroclear.............................................. 8
Euroclear Operator..................................... 8
Euroclear Participants................................. 7
Euroclear System....................................... 7
Event of Default....................................... 19
FDIC................................................... 3
First Trust............................................ 4
Fitch.................................................. 22
FHA Insured Mortgage Notes............................. 10
FHLMC.................................................. 13
FNMA................................................... 13
Foreign Trust.......................................... 29
GNMA................................................... 13
High Balance Notes..................................... 12
Holder................................................. 5
Housing Act............................................ 13
Indenture.............................................. 5
Indirect Participants.................................. 6
Initial Term........................................... 4
Interest Payment Dates................................. 5
Issuer................................................. 1
Jumbo Mortgage Notes................................... 16
Late Payment........................................... 11
Main Place............................................. 4
Market discount........................................ 27
Market Value........................................... 14
Market Value Rate...................................... 16
Moody's................................................ 22
Mortgage Notes......................................... 10
Mortgaged Properties................................... 10
Mortgages.............................................. 10
MP Holdings............................................ 3
NationsBank, N.A....................................... 3
NationsBank South...................................... 4
NationsBank Texas...................................... 4
NCMI................................................... 5
Outstanding............................................ 5
Over 80% Notes......................................... 12
Participants........................................... 6
Plans.................................................. 29
Pledged Property....................................... 5
Premium................................................ 27
Private Mortgage Insurance............................. 12
Prospectus Supplement.................................. 1
PTE.................................................... 29
Rating Agency.......................................... 10
REIT................................................... 5
Reserve Fund........................................... 10
S&P.................................................... 21
Series................................................. 1
Servicer............................................... 21
Servicing Agreement.................................... 21
Servicing Fee.......................................... 21
Short-Term Money Market Instruments.................... 14
Stated Maturity........................................ 5
Terms and Conditions................................... 8
Trustee................................................ 5
U.S. Person............................................ 29
Underwriters........................................... 30
VA Guaranteed Mortgage Notes........................... 10
Valuation Date......................................... 5
</TABLE>
31
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUER OR THE UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT
NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE
IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER SINCE THE
DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms...................................... S-3
The Issuer............................................ S-8
Description of the Bonds.............................. S-9
Ratio of Earnings to Fixed Charges.................... S-28
ERISA Considerations.................................. S-28
Underwriting.......................................... S-28
Legal Matters......................................... S-29
Bond Ratings.......................................... S-30
Index of Principal Terms in the Prospectus
Supplement.......................................... S-31
Appendix: Additional Information for
Non-U.S. Persons.................................... A-1
PROSPECTUS
Prospectus Supplement................................. 2
Available Information................................. 2
Incorporation of Certain Documents by
Reference........................................... 2
Special Considerations................................ 3
The Issuer............................................ 4
Use of Proceeds....................................... 5
Description of the Bonds.............................. 5
Servicing of Eligible Mortgage Notes.................. 21
United States Federal Income Tax Consequences......... 26
ERISA Considerations.................................. 29
Plan of Distribution.................................. 30
Legal Matters......................................... 30
Experts............................................... 30
Additional Information................................ 30
Index of Principal Terms in the Prospectus............ 31
</TABLE>
$1,000,000,000
MAIN PLACE
REAL ESTATE
INVESTMENT TRUST
MORTGAGE-BACKED BONDS,
SERIES 1997-1
DUE
PROSPECTUS SUPPLEMENT
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
UBS SECURITIES INC.
, 1997
