The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities
and is not a request for any offers to by theses securities in any state where
the laws in that state do not permit the seller to offer or sell these
securities.
Subject to Completion, dated June 21, 2001
Prospectus Supplement to Prospectus dated June 21, 2001
$311,153,000
ACE RV and Marine Trust 2001-RV1
Issuer
ACE Securities Corp.
Seller
Wells Fargo Bank, N.A.
Servicer
The trust will issue the following offered notes:
Principal Interest Rate Final Scheduled
Amount Payment Date
Class A-1 notes.............. $122,000,000 % April 20, 2006
Class A-2 notes.............. $40,000,000 % April 21, 2008
Class A-3 notes.............. $52,000,000 % January 20, 2011
Class A-4 notes.............. $20,000,000 % May 21, 2012
Class A-5 notes.............. $44,805,000 % September 20, 2021
Class B notes................ $20,025,000 % September 20, 2021
Class C notes................ $ 7,702,000 % September 20, 2021
Class D notes................ $ 4,621,000 % September 20, 2021
------------------------
o The notes are secured by the assets of the trust, which consist
primarily of installment sales contracts secured by new and used
recreational vehicles and boats.
o The trust will pay interest and principal on the notes on the 20th day
of each month, or if the 20th is not a business day, the next business
day.
The seller is offering the following notes by this prospectus supplement:
Initial Public Underwriting Proceeds to the
Offering Price (1) Discount Seller (1) (2)
Per Class A-1 notes.......... % % %
Per Class A-2 notes.......... % % %
Per Class A-3 notes.......... % % %
Per Class A-4 notes.......... % % %
Per Class A-5 notes.......... % % %
Per Class B notes............ % % %
Per Class C notes............ % % %
Per Class D notes............ % % %
Total........................ $ $ $
-----------------------
(1) Plus accrued interest, if any, from July __, 2001.
(2) Before deducting expenses estimated at $______________.
BEFORE YOU PURCHASE ANY OF THESE SECURITIES, BE SURE YOU UNDERSTAND THE
STRUCTURE AND THE RISKS. SEE ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE S-13
OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 3 OF THE ATTACHED PROSPECTUS.
These notes are asset backed securities issued by a trust. The notes are not
obligations of the seller or any of its affiliates.
Neither the notes nor the receivables are insured or guaranteed by the Federal
Deposit Insurance Corporation or any other Governmental agency or
instrumentality.
No one may use this prospectus supplement to offer and sell these securities
unless it is accompanied my the prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the attached prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Deutsche Banc Alex. Brown
The date of this prospectus supplement is June __, 2001.
TABLE OF CONTENTS
Where to Find Information in These Documents..........1
Summary of Terms of the Notes.........................2
Structural Summary....................................6
Risk Factors..........................................13
Capitalized Terms.....................................21
The Trust.............................................21
Limited Purpose and Assets.......................21
Capitalization of the Trust......................21
The Owner Trustee................................22
The Trust Property....................................22
The Receivables Pool..................................23
Pool Composition.................................23
Weighted Average Life of the Notes...............28
The Originators.......................................34
First Security Originators.......................34
FreedomNation Financial LLC......................36
The Servicer..........................................39
Servicing and collections........................39
Delinquencies and repossessions..................40
Charge-offs and extensions.......................40
Physical damage insurance........................41
Servicing system.................................41
Delinquencies, Loss and Repossession
Experience......................................41
How You Can Compute Your Portion of the Amount
Outstanding on the Notes.........................43
The Factors Described Above will Decline as the
Trust Makes Payments on the Notes................44
Maturity and Prepayment Considerations................44
Use of Proceeds.......................................45
Description of the Notes..............................45
Payments of Interest.............................46
Event of Default Regarding the Payment
of Interest......................................47
Payments of Principal............................47
Optional Redemption..............................49
The Indenture....................................49
The Indenture Trustee............................52
Description of the Sale and Servicing Agreement.......52
Sale and Assignment of the Receivables...........53
Accounts.........................................53
Servicing Compensation and Expenses..............53
Rights Upon an Event of Servicing Termination....53
Waiver of Past Events of Servicing Termination...53
Distributions....................................54
Sources of Funds Available for Distribution
on Any Payment Date..............................54
Reserve Account..................................59
Description of the Administration Agreement...........59
Material Legal Aspects of the Receivables.............60
Material United States Federal Income
Tax Consequences......................................60
State Tax Matters.....................................60
ERISA Considerations..................................60
Underwriting..........................................61
Legal Matters.........................................62
Glossary Of Terms.....................................63
Where to Find Information in These Documents
This prospectus supplement and the attached prospectus provide
information about the trust, ACE RV and Marine Trust 2001-RV1, including terms
and conditions that apply to the notes to be issued by the trust. You should
rely only on the information provided in this prospectus supplement and the
attached prospectus, including the information incorporated by reference. We
have not authorized anyone to provide you with different information.
We describe the notes in two separate documents that progressively
provide more detail:
o the attached prospectus, which provides general information, some
of which may not apply to your notes; and
o this prospectus supplement, which describes the specific terms of
your notes.
We have started with several introductory sections in this prospectus
supplement describing the notes and the trust in abbreviated form, followed by a
more complete description of the terms. The introductory sections are:
o Summary of Terms of the Notes: provides important information
concerning the amounts and the payment terms of each class of
notes.
o Structural Summary: gives a brief introduction to the key
structural features of the trust.
o Risk Factors: describes briefly some of the risks to investors in
the notes.
We include cross-references in this prospectus supplement and in the
attached prospectus to captions in these materials where you can find further
related discussions. The table of contents in this prospectus supplement and the
table of contents included in the attached prospectus provide the page numbers
on which those captions are located.
We are not offering the notes in any state where the offer of the
notes is not permitted.
Summary of Terms of the Notes
The following summary is a short description of the main terms of the
offering of the notes. For that reason, this summary does not contain all of the
information that may be important to you. To fully understand the terms of the
offering of the notes, you will need to read both this prospectus supplement and
the attached prospectus, each in its entirety.
Issuer
ACE RV and Marine Trust 2001-RV1, a business trust formed under
Delaware law, will use the proceeds from the issuance and sale of the securities
to purchase a pool of retail installment sale contracts secured primarily by new
and used recreational vehicles and boats, which constitute the receivables. The
receivables were originated by one of the originators either directly or through
dealers. The originators sold the receivables directly or indirectly to the
transferor and on the closing date, the transferor will sell the receivables to
the seller. The trust will rely upon collections on the receivables and the
funds on deposit in certain accounts to make payments on the notes. The trust
will be solely liable for payments on the notes.
Offered Notes
The following notes, referred to herein as the offered notes, are
being offered by this prospectus supplement:
o $122,000,000 Class A-1
% asset backed notes
o $40,000,000 Class A-2
% asset backed notes
o $52,000,000 Class A-3
% asset backed notes
o $20,000,000 Class A-4
% asset backed notes
o $44,805,000 Class A-5
% asset backed notes
o $20,025,000 Class B
% asset backed notes
o $7,702,000 Class C
% asset backed notes
o $4,621,000 Class D
% asset backed notes
The trust is also issuing $3,081,000 Class E __% asset backed notes
and certificates representing the right to receive amounts that remain after the
trust makes full payment of interest on and principal of the notes payable on a
given payment date. The seller is not offering the Class E notes or the
certificates by this prospectus supplement. Any information in this prospectus
supplement relating to the Class E notes or the certificates is presented solely
to provide you with a better understanding of the offered notes.
Seller
ACE Securities Corp.
Transferor
German American Capital Corporation.
Servicer
Wells Fargo Bank, N.A.
Administrator
Wells Fargo Bank Minnesota, National Association.
Originator
o Wells Fargo Bank Northwest, N.A., successor to First
Security Bank, N.A. and Wells Fargo Bank New Mexico, N.A.,
successor to First Security Bank of New Mexico, N.A., each
an originator of the First Security receivables.
o FreedomNation Financial LLC, originator of the FreedomNation
receivables.
Minimum Denominations
The offered notes will be issued in minimum denominations of $1,000.
Trustees
Notes The Chase Manhattan Bank, a New
York banking corporation, as
indenture trustee.
Certificates Wilmington Trust Company, a Delaware banking corporation, as
owner trustee.
Closing Date
The trust expects to issue the notes on or about July __, 2001.
Payment Dates
On the 20th day of each month or, if the 20th day is not a business
day, the next business day.
First Payment Date
The first payment date for the notes will be July 20, 2001.
Record Dates
On each payment date, the trust will pay interest and principal to the
holders of the notes as of the related record date. The record date for the
notes will be the business day immediately preceding the payment date. If
definitive notes have been issued, the record date for the notes will be the
last business day of the month preceding the payment date.
Final Scheduled Payment Dates
The trust is required to pay the outstanding principal amount of each
class of notes, to the extent not previously paid, in full on the respective
final scheduled payment date for that class of notes specified on the cover page
of this prospectus supplement or, if such date is not a business day, the next
succeeding business day.
Interest Rates
The trust will pay interest on each class of notes at the rates
specified on the cover of this prospectus supplement.
Interest Accrual
"30/360", accrued from and including the 20th day of the previous
month to but excluding the 20th day of the current month.
This means that, if there are no outstanding shortfalls in the payment
of interest, the interest due on each payment date for each class of notes will
be the product of:
o the applicable outstanding principal balance;
o the applicable interest rate; and
o for all classes of notes, one-twelfth (or, in the case of
the first payment date, _____ divided by 360).
For a more detailed description of the payment of interest, you should
refer to the sections of this prospectus supplement entitled "Description of the
Notes -- Payments of Interest."
Optional Redemption
The servicer has the option to purchase the receivables on any payment
date on which the aggregate principal balance of the receivables is 10% or less
of the aggregate principal balance of the receivables at the cut-off date at a
price equal to the sum of the outstanding principal balance of the receivables
plus accrued and unpaid interest thereon; provided that this amount is
sufficient to repay all outstanding principal and accrued and unpaid interest on
the notes and the holders of a majority of the certificates consent to the
purchase. The trust will apply such payment to the redemption of the notes in
full.
It is expected that at the time this redemption option becomes
available, only the Class A-5 notes, the Class B notes, the Class C notes and
the Class D notes will be outstanding.
Subordination
The Class B notes are subordinated to the Class A notes, the Class C
notes are subordinated to the Class A notes and Class B notes and the Class D
notes are subordinated to the Class A notes, Class B notes and Class C notes.
See "Description of the Sale and Servicing Agreement -- Distributions --
Priority of Payments" in this prospectus supplement.
Material United States Federal Income Tax Consequences
Stroock & Stroock & Lavan LLP, special tax counsel, is of the opinion
that, for United States federal income tax purposes, the offered notes will be
treated as debt. Special tax counsel is also of the opinion that the trust will
not be subject to United States federal income tax.
We suggest that you and your tax advisors review the information under
the caption "Material United States Federal Income Tax Consequences" in this
prospectus supplement and "Material Federal Income Tax Consequences" in the
attached prospectus.
If you purchase the offered notes, you agree by your purchase that you
will treat the offered notes as indebtedness.
ERISA Considerations
Subject to the restrictions discussed in "ERISA Considerations," the
offered notes may be purchased by employee benefit plans and accounts if one or
more administrative exemptions apply.
See "ERISA Considerations" in this prospectus supplement and the
attached prospectus.
No Listing of the Notes
The notes will not be listed on any national securities exchange. See
"Risk Factors -- Limited Liquidity May Result in Delays in your ability to Sell
Securities or Lower Returns" in the prospectus.
Registration, Clearance and Settlement
The Depository Trust Company in the United States and Clearstream or
Euroclear in Europe.
Risk Factors
You should consider the principal risks of an investment in the notes
set forth under the caption "Risk Factors" in this prospectus supplement and the
attached prospectus.
Ratings
It is a condition to the issuance of the notes that the:
o Class A-1 notes, Class A-2 notes, Class A-3 notes, Class A-4
notes and Class A-5 notes be rated in the highest long-term
rating category by at least two nationally recognized rating
agencies;
o Class B notes be rated in the "AA" rating category by at least
one nationally recognized rating agency;
o Class C notes be rated in the "A" rating category or its
equivalent by at least one nationally recognized rating agency;
and
o Class D notes be rated in the "BBB" rating category by at least
one nationally recognized rating agency.
A rating is not a recommendation to purchase, hold or sell the offered
notes, inasmuch as such rating does not comment as to the market price or
suitability for a particular investor. The ratings of the offered notes address
the likelihood of the payment of principal and interest on the notes according
to their terms. A rating agency rating the notes may lower or withdraw its
rating in the future at its discretion.
Cusip Numbers
o Class A-1 notes:
o Class A-2 notes:
o Class A-3 notes:
o Class A-4 notes:
o Class A-5 notes:
o Class B notes:
o Class C notes:
o Class D notes:
Investor Information
The mailing address of ACE Securities Corp. is 6525 Morrison
Boulevard, Suite 318, Charlotte, North Carolina 28211. You may request copies of
the transaction documents relating to the trust by calling (704) 365-0569.
Structural Summary
This summary briefly describes certain major structural components of
the trust. To fully understand the terms of the trust, you will need to read
both this prospectus supplement and the attached prospectus, each in its
entirety.
Transfer of Receivables and Application of Proceeds
ACE Securities Corp., the seller, will purchase from German American
Capital Corporation certain retail installment sale contracts secured by new or
used recreational vehicles, trailers, motorcycles, boats and other sport
recreational vehicles, which constitute the receivables, and thereafter will
sell the receivables with an aggregate principal balance of $308,072,046.00 as
of the cut-off date to ACE RV and Marine Trust 2001-RV1 on the closing date.
The following chart represents the application of proceeds from
investors and the transfer of the receivables:
German American
Capital Corporation
-------------------
Receivables Proceeds
Receivables
ACE Securities ACE RV and
Corp. Marine Trust
-------------- 2001-RV1
-------------
Notes and
Certificates
Notes Proceeds
Underwriter
-----------
Notes Proceeds
Investors
---------
Cut-Off Date
The cut-off date for the pool of receivables is June 1, 2001.
Property of the Trust
The property of the trust will include the following:
o the receivables and the collections on the receivables on or
after the cut-off date;
o security interests in the vehicles financed by the receivables;
o the collection account, the reserve account and note distribution
account-including any investment income from eligible investments
on deposit in those accounts;
o rights to proceeds under insurance policies that cover the
obligors under the receivables or the vehicles financed by the
receivables;
o remedies for breaches of representations and warranties made by
the dealers that originated the receivables; and
o other rights under documents relating to the receivables.
The Receivables
The receivables are amounts owed by individuals under retail
installment sale contracts to purchase primarily new or used recreational
vehicles and boats. The receivables were originated directly by an originator or
by dealers, underwritten by an originator using its own underwriting criteria
and, if originated by a dealer, purchased from the dealers by an originator
pursuant to dealer agreements.
The receivables will have the following characteristics as of the
cut-off date:
o Aggregate Principal Balance.. $308,072,046.00
o Number of Receivables........ 16,760
o Average Principal
Balance................. $18,381.39
o Average Original Amount Financed $21,990.19
o Weighted Average Contract Rate 9.661%
o Weighted Average Original Term 155 months
o Weighted Average Remaining Term 128 months
o Percent of Recreational
Vehicles/Trailer
Receivables............. 89.16%
o Percent of Marine Receivables 6.61%
o Percent of First Security
Receivables............. 93.32%
o Percent of FreedomNation
Receivables............. 6.68%
Each of the above weighted averages is calculated based on the unpaid
principal balance of each receivable as of the cut-off date.
Servicer of the Receivables
Wells Fargo Bank, N.A. will be the servicer of the receivables. The
trust will pay the servicer a servicing fee on each payment date equal to the
sum of (1) one-twelfth of 1% of the principal balance of the receivables at the
beginning of the previous month and (2) a supplemental servicing fee equal to
late fees and extension fees in an amount up to $20 per receivable (per
occurrence) and payment holiday extension fees in an amount up to $15 per
receivable (per occurrence).
Priority of Distributions
From collections on the receivables during the prior calendar month
and in the event of a shortfall in meeting the payments described in the
following clauses (1) through clause (10), from amounts withdrawn from the
reserve account, the trust will pay the following amounts on each payment date
in the following order of priority:
(1) to the servicer, the servicing fee and all unpaid servicing fees
from prior collection periods;
(2) to Class A noteholders, the accrued Class A note interest;
(3) to the principal distribution account, the first priority
principal distribution amount, which will be the amount, if any,
equal to the excess of (a) the principal balances of the Class A
notes over (b) the principal balance of the receivables;
(4) to the Class B noteholders, the accrued Class B note interest;
(5) to the principal distribution account, the second priority
principal distribution amount, which will be the amount, if any,
equal to the excess of (a) the sum of the principal balances of
the Class A notes and Class B notes over (b) the principal
balance of the receivables, less the amounts previously deposited
to the principal distribution account in accordance with clause
(3) above;
(6) to the Class C noteholders, the accrued Class C note interest;
(7) to the principal distribution account, the third priority
principal distribution amount, which will be the amount, if any,
equal to the excess of (a) the sum of the principal balances of
the Class A notes, Class B notes and Class C notes over (b) the
principal balance of the receivables, less the amounts previously
deposited to the principal distribution account in accordance
with clause (3) and (5) above;
(8) to the Class D noteholders, the accrued Class D note interest;
(9) to the Class E noteholders, the accrued Class E note interest;
(10) to the principal distribution account, the regular principal
distribution amount, which will be the amount, if any, equal to
the sum of (a) the decrease in the pool balance during the
related collection period plus (b) amounts payable pursuant to
this clause (10) on the prior payment date that were not paid on
the prior payment date, provided that this amount will be reduced
by any amounts previously deposited to the principal distribution
account in accordance with clauses (3), (5) and (7) above;
(11) to the principal distribution account, an amount sufficient to
cause the outstanding principal balance of the notes (after
giving effect to all payments on the payment date) to equal the
pool balance as of the end of the related collection period;
(12) to the reserve account, an amount sufficient to cause the amount
on deposit in the reserve account to equal the amount required to
be on deposit in the reserve account;
(13) to the Class E noteholders, an amount sufficient to pay the Class
E notes in full; and
(14) to the certificateholder, any amounts remaining in the collection
account.
Distributions from the Principal Distribution Account
From deposits made to the principal distribution account, the trust
will generally pay principal on the notes in the manner and priority set forth
below:
o Sequentially to the notes commencing with the Class A-1 notes
until each class of notes is paid in full if either (1) the
payment date is prior to the July 2005 payment date, the
crossover date, or (2) a trigger event is in effect.
o On and after the crossover date so long as a trigger event is not
in effect:
o to the Class A notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class A notes immediately preceding the
crossover date (or if a trigger event is in effect on the
crossover date, on the first payment date after the crossover
date that a trigger event is not in effect) divided by (b) the
principal balance of the receivables as of the last day of the
second collection period preceding the crossover date (or if a
trigger event is in effect on the crossover date, the first
payment date after the crossover date that a trigger event is not
in effect) and (2) the principal balance of the receivables as of
the last day of the preceding collection period, in the following
order of priority:
o first to the Class A-1 notes until paid in full;
o second to the Class A-2 notes until paid in full;
o third to the Class A-3 notes until paid in full;
o fourth to the Class A-4 notes until paid in full; and
o fifth to the Class A-5 notes until paid in full;
o to the Class B notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class B notes immediately preceding the
crossover date (or if a trigger event is in effect on the
crossover date, on the first payment date after the crossover
date that a trigger event is not in effect) divided by (b) the
principal balance of the receivables as of the last day of the
second collection period preceding the crossover date (or if a
trigger event is in effect on the crossover date, the first
payment date after the crossover date that a trigger event is not
in effect) and (2) the principal balance of the receivables as of
the last day of the preceding collection period;
o to the Class C notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class C notes immediately preceding the
crossover date (or if a trigger event is in effect on the
crossover date, on the first payment date after the crossover
date that a trigger event is not in effect) divided by (b) the
principal balance of the receivables as of the last day of the
second collection period preceding the crossover date (or if a
trigger event is in effect on the crossover date, the first
payment date after the crossover date that a trigger event is not
in effect) and (2) the principal balance of the receivables as of
the last day of the preceding collection period;
o to the Class D notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class D notes immediately preceding the
crossover date (or if a trigger event is in effect on the
crossover date, on the first payment date after the crossover
date that a trigger event is not in effect) divided by (b) the
principal balance of the receivables as of the last day of the
second collection period preceding the crossover date (or if a
trigger event is in effect on the crossover date, the first
payment date after the crossover date that a trigger event is not
in effect) and (2) the principal balance of the receivables as of
the last day of the preceding collection period;
o to the Class E notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class E notes immediately preceding the
crossover date (or if a trigger event is in effect on the
crossover date, on the first payment date after the crossover
date that a trigger event is not in effect) divided by (b) the
principal balance of the receivables as of the last day of the
second collection period preceding the crossover date (or if a
trigger event is in effect on the crossover date, the first
payment date after the crossover date that a trigger event is not
in effect) and (2) the principal balance of the receivables as of
the last day of the preceding collection period; and
o to the certificateholder, any funds remaining.
A trigger event will be in effect for a payment date commencing with
the crossover date if one of the following conditions occur:
o the average sixty day delinquency ratio as of the last day of the
related collection period exceeds 5.00%; or
o the cumulative realized losses as of the last day of the related
collection period exceeds the following percentages of the
original pool balance for the specified payment date:
July 2005 through June 2006........3.50%....
July 2006 through June 2007........4.25%....
July 2007 and after................5.00%;...
o the amount on deposit in the reserve account immediately
following two consecutive payment dates is less than the amount
required to be on deposit in the reserve account provided that
the trigger event will no longer be in effect if the amount on
deposit in the reserve account for three consecutive payment
dates thereafter equals the amount required to be on deposit
therein; or
o the aggregate outstanding principal amount of the notes
(including the Class E notes) immediately preceding the payment
date is greater than the pool balance as of the last day of the
second collection period preceding the payment date.
The average sixty-day delinquency ratio is, in general, the ratio of
the average of the aggregate principal balances of assets delinquent 60 days or
more for the preceding three collection periods to the average pool balance for
this period. Cumulative realized losses are, in general, the aggregate realized
losses incurred in respect of defaulted loans since the cut-off date.
For a more detailed description of the priority of distributions and
the allocation of funds on each payment date, you should refer to "Description
of the Sale and Servicing Agreement -- Distributions -- Priority of Payments" in
this prospectus supplement.
Change in Priority of Distribution upon Certain Events of Default
The order of priority for distributions may change following the
occurrence of:
o a default for five days or more in the payment of interest on the
controlling class of notes which has resulted in an acceleration
of the notes,
o a default in the payment of principal on any note when due which
has resulted in an acceleration of the notes,
o an insolvency or a bankruptcy with respect to the trust which has
resulted in an acceleration of the notes, or
o any other event of default which results in the liquidation of
the trust.
If the notes are accelerated following the occurrence of any of the
preceding events of default, the trust will make no distributions of principal
or interest on the Class B notes until payment in full of principal and interest
on the Class A notes, no distributions of principal or interest on the Class C
notes until payment in full of principal and interest on the Class A notes and
the Class B notes, and no distributions of principal or interest on the Class D
notes until payment in full of principal and interest on the Class A notes, the
Class B notes and the Class C notes. In addition, payments of principal on the
Class A notes will be made first to the Class A-1 notes until the Class A-1
notes are repaid in full, and then pro rata to the Class A-2, Class A-3, Class
A-4 and Class A-5 notes.
Following the occurrence of any other event of default which has
resulted in an acceleration of the notes but has not yet resulted in a
liquidation of the trust, no change will be made in the priority of payments on
the notes on each payment date until a liquidation, if any, of the property of
the trust.
For a more detailed description of the events of default and the
rights of investors in such circumstances, you should refer to "Description of
the Notes -- The Indenture -- Events of Default" and "Description of the Notes
- -- The Indenture -- Rights Upon Event of Default" in this prospectus supplement.
For a more detailed description of the priority of distributions and allocation
of funds following an event of default, you should refer to "Description of the
Notes -- The Indenture -- Priority of Payments May Change Upon Certain Events of
Default" in this prospectus supplement.
Credit Enhancement
The credit enhancement provides protection for the Class A notes, the
Class B notes, the Class C notes and the Class D notes against losses and delays
in payment. Losses on the receivables or other shortfalls of cash flow will be
covered by payments on other receivables to the extent of any
overcollateralization, by withdrawals from the reserve account, and by
allocation of available cash flow to the more senior classes of notes prior to
more subordinate classes.
The credit enhancement for the offered notes will be as follows:
Class A notes Subordination of the Class B
notes, the Class C notes, the
Class D notes and the Class E
notes, the reserve account and,
after the Class E notes begin
amortizing,
overcollateralization;
Class B notes Subordination of the Class C
notes, the Class D notes and
the Class E notes, the reserve
account and, after the Class E
notes begin amortizing,
overcollateralization;
Class C notes Subordination of the Class D
notes and the Class E notes,
the reserve account and, after
the Class E notes begin
amortizing,
overcollateralization; and
Class D notes Subordination of the Class E notes, the reserve
account and, after the Class E notes begin amortizing,
overcollateralization.
Initially, the principal balance of the notes will exceed the
receivables balance by approximately 2.0% of the receivables balance. The Class
E notes will not begin amortizing until the principal balance of the notes
equals the receivables balance and the amount required to be on deposit in the
reserve account is on deposit therein.
Subordination of Principal and Interest
As long as the Class A notes remain outstanding:
o payments of interest on the Class B notes, the Class C notes and
the Class D notes will be subordinated to payments of interest on
the Class A notes and, in certain circumstances, payments of
principal on the Class A notes; and
o payments of principal on the Class B notes, the Class C notes and
the Class D notes will be subordinated to payments of interest
and principal on the Class A notes.
As long as the Class A notes or Class B notes remain outstanding:
o payments of interest on the Class C notes and Class D notes will
be subordinated to payments of interest on the Class A notes and
the Class B notes and, in certain circumstances, payments of
principal on the Class A notes and the Class B notes; and
o payments of principal on the Class C notes and Class D notes will
be subordinated to payments of interest and principal on the
Class A notes and the Class B notes.
As long as the Class A notes, Class B notes or Class C notes remain
outstanding:
o payments of interest on the Class D notes will be subordinated to
payments of interest on the Class A notes, the Class B notes and
the Class C notes and, in certain circumstances, payments of
principal on the Class A notes, the Class B notes and the Class C
notes; and
o payments of principal on the Class D notes will be subordinated
to payments of interest and principal on the Class A notes, the
Class B notes and the Class C notes.
For a more detailed discussion of the subordination of the notes and
the priority of distributions, including changes after certain events of
default, you should refer to "Description of the Notes -- The Indenture" and
"Description of the Sale and Servicing Agreement -- Distributions -- Priority of
Payments" in this prospectus supplement.
Reserve Account
On the closing date, the seller will deposit $1,540,360.23 to the
reserve account.
On or before each payment date, if collections on the receivables are
insufficient to satisfy the first ten clauses listed in "Priority of
Distributions" above, the servicer will instruct the indenture trustee to
withdraw from the reserve account, and deposit in the collection account, to the
extent of the funds in the reserve account, the amounts necessary to make
distributions of interest, the first priority principal distribution amount, the
second priority distribution amount, the third priority distribution amount, the
regular principal distribution amount and, on the final scheduled payment date
for any class of notes, its outstanding principal balance.
The balance required to be on deposit in the reserve account will be
the lesser of $3,080,720.46 and the outstanding principal balance of the notes.
On each payment date, the trust will distribute funds on deposit in
the reserve account in excess of the required balance in accordance with the
priority of payments.
On each payment date, the trust will deposit in the reserve account,
to the extent necessary to cause the amount on deposit in the reserve account to
equal the required balance, any collections on the receivables remaining after
the first eleven clauses listed in "Priority of Distributions" above are
satisfied.
For a more detailed description of the reserve account, you should
refer to "Description of the Sale and Servicing Agreement -- Reserve Account" in
this prospectus supplement.
Overcollateralization
Initially, the principal balance of the notes will exceed the
receivables balance by approximately 2.0% of the receivables balance. Such
undercollateralization amount will be reduced to the extent of distributions
pursuant to clause (11) under "Priority of Distributions" above.
Overcollaterization will be provided for the offered notes to the extent of
distributions of excess interest to pay principal on the Class E notes pursuant
to clause (13) under "Priority of Distributions" above. The
overcollateralization created by such payments pursuant to clause (13) will
decrease to the extent losses are greater than excess interest with respect to
any collection period. The overcollateralization will not be replenished if it
ever decreases.
For a more detailed description of the application of funds, you
should refer to "Description of the Sale and Servicing Agreement --
Distributions -- Priority of Payments" in this prospectus supplement.
Risk Factors
An investment in the offered notes involves significant risks. Before
you decide to invest in the offered notes, we recommend that you carefully
consider the following risk factors and the risk factors specified under the
heading "Risk Factors" beginning on page 3 of the prospectus.
Your yield to maturity may be reduced by The pre-tax yield to maturity is
prepayments uncertain and will depend on a
number of factors, including the
following:
o THE RATE OF RETURN OF PRINCIPAL
IS UNCERTAIN. The amount of
distributions of principal on
the notes and the time when you
receive those distributions
depends on the amount and the
times at which borrowers make
principal payments on the
receivables. The rate of
prepayments of the receivables
may be influenced by a variety
of economic, social and other
factors. In addition, the
seller or the servicer may be
obligated to repurchase
receivables (or to cause
receivables to be repurchased)
from the trust if a
representation, warranty or
covenant is breached. A higher
than anticipated rate of
prepayments of the receivables
will reduce the aggregate
principal balance of the notes
more quickly than expected and
thereby reduce anticipated
aggregate interest payments on
the notes.
o YOU MAY BE UNABLE TO REINVEST
DISTRIBUTIONS IN COMPARABLE
INVESTMENTS. You alone will
bear any reinvestment risks
resulting from a faster or
slower incidence of repayment
of the notes. Such reinvestment
risks include the risk that
interest rates may be lower at
the time you received payments
from the trust than interest
rates would otherwise have been
had such prepayments not been
made or had such prepayments
been made at a different time.
o AN EARLY TERMINATION WILL
SHORTEN THE LIFE OF YOUR
INVESTMENT, WHICH MAY REDUCE
YOUR YIELD TO MATURITY. If the
receivables are sold upon
exercise of the optional
termination of the servicer,
you will receive the principal
amount of your notes plus
accrued interest through the
related interest period.
Because your notes will no
longer be outstanding, you will
not receive the additional
interest payments that you
would have received had the
notes remained outstanding. If
you bought your notes at a
premium, your yield to
maturity will be lower than it
would have been if the optional
termination had not been
exercised.
You should consider that in the
case of notes purchased at a
discount, a slower than
anticipated rate of principal
payments on the receivables could
occur and could result in an
actual yield that is less than the
anticipated yield.
You should also consider that in
the case of notes purchased at a
premium, a faster than anticipated
rate of principal payments on the
receivables could occur and could
result in an actual yield that is
less than the anticipated yield.
If you own Class B notes, Class C The Class B notes bear greater
notes or ClassD notes, you are subject risk than the Class A notes
to greater credit riskbecause the Class B because payments of interest and
notes are subordinate to the Class A notes, principal on the Class B notes are
the Class C notes are subordinateto the subordinated, to the extent
Class A notes and the Class B notes and described below, to payments of
the Class D notes are subordinate to interest and principal on the
the Class A notes, the Class B notes Class A notes. The Class C notes
and the Class C notes bear greater credit risk than the
Class A notes and the Class B
notes because payments of interest
and principal on the Class C notes
are subordinated, to the extent
described below, to payments of
interest and principal on the
Class A notes and the Class B
notes. The Class D notes bear
greater credit risk than the Class
A notes, the Class B notes and the
Class C notes because payments of
interest and principal on the
Class D notes are subordinated, to
the extent described below, to
payments of interest and principal
on the Class A notes, the Class B
notes and the Class C notes.
Interest payments on the Class B
notes on each payment date will be
subordinated to servicing fees due
to the servicer, interest payments
on the Class A notes and an
allocation of principal payments
to the Class A notes to the extent
the sum of the principal balances
of the Class A notes exceeds the
receivables balance. Interest
payments on the Class C notes on
each payment date will be
subordinated to the servicing fees
due to the servicer, interest
payments on the Class A notes,
allocation of principal payments
to the Class A notes to the extent
the sum of the principal balances
of the Class A notes exceeds the
receivables balance, interest
payments on the Class B notes and
an allocation of principal
payments to the Class A notes and
the Class B notes to the extent
the sum of the principal balances
of the Class A notes and the Class
B notes exceeds the receivables
balance, after giving effect to
the allocation described
previously in this sentence.
Interest payments on the Class D
notes on each payment date will be
subordinated to the servicing fees
due to the servicer, interest
payments on the Class A notes,
allocation of principal payments
to the Class A notes to the extent
the sum of the principal balances
of the Class A notes exceeds the
receivables balance, interest
payments on the Class B notes, an
allocation of principal payments
to the Class A notes and the Class
B notes to the extent the sum of
the principal balances of the
Class A notes and the Class B
notes exceeds the receivables
balance, after giving effect to
the allocation described
previously in this sentence,
interest payments on the Class C
notes, and an allocation of
principal payments to the Class A
notes, the Class B notes and the
Class C notes to the extent the
sum of the principal balances of
the Class A notes, the Class B
notes and the Class C notes
exceeds the receivables balance,
after giving effect to the
allocation described previously in
this sentence.
Principal payments on the Class B
notes, the Class C notes and the
Class D notes will be fully
subordinated to principal payments
on the Class A notes prior to the
crossover date (and after the
crossover date, to the extent a
trigger event is in effect). After
the crossover date and so long as
a trigger event is not in effect,
principal payments on the Class B
notes, the Class C notes and the
Class D notes will be subordinated
because of the priority of
distribution of principal
payments. Principal payments on
the Class C notes and the Class D
notes will be fully subordinated
to principal payments on the Class
A and Class B notes prior to the
crossover date (and after the
crossover date, to the extent a
trigger event is in effect). After
the crossover date and so long as
a trigger event is not in effect,
principal payments on the Class C
notes and the Class D notes will
be subordinated because of the
priority of distribution of
principal payments. Principal
payments on the Class D notes will
be fully subordinated to principal
payments on the Class A notes, the
Class B notes and the Class C
notes prior to the crossover date
(and after the crossover date, to
the extent a trigger event is in
effect). After the crossover date
and so long as a trigger event is
not in effect, principal payments
on the Class D notes will be
subordinated because of the
priority of distribution of
principal payments. The Seller
expects that the crossover date
will occur after the Class A-3
notes are paid full.
For a more detailed description of
such principal payment
circumstances, see "DESCRIPTION OF
THE SALE AND SERVICING AGREEMENT
-- DISTRIBUTIONS -- PRIORITY OF
PAYMENTS" in this prospectus
supplement. The payment sequence
changes, however, following an
acceleration of the notes upon
some events of default under the
indenture. See "DESCRIPTION OF THE
NOTES -- THE INDENTURE -- PRIORITY
OF PAYMENTS MAY CHANGE UPON
CERTAIN EVENTS OF DEFAULT" in this
prospectus supplement.
Payment priorities and subordination Based on the priorities described
features increase risk of loss or in this prospectus supplement
delay in payment to some classes of notes under "DESCRIPTION OF THE NOTES --
PAYMENT OF PRINCIPAL," classes of
notes that receive payments,
particularly principal payments,
prior to other classes will be
repaid more rapidly than the other
classes, and payments to these
other classes may be delayed if
collections and amounts on deposit
in the reserve account are
inadequate to pay all amounts
payable on all classes of notes on
any payment date. In addition,
classes of notes that receive
payments, particularly principal
payments, at lower priorities than
other classes may be outstanding
longer and therefore will be
exposed to the risk of losses on
the receivables during periods
after the other classes that have
been receiving most or all amounts
payable on their notes have been
repaid, and after which a
disproportionate amount of credit
enhancement may have been applied
and not replenished. As discussed
below under "-- THE OCCURRENCE OF
AN EVENT OF DEFAULT UNDER THE
INDENTURE MAY DELAY PAYMENTS ON
THE CLASS B NOTES, THE CLASS C
NOTES AND THE CLASS D NOTES," the
subordination of certain classes
of notes will increase, resulting
in an even more pronounced effect
on payments.
As a result, the yields of the
later maturing classes of Class A
notes will be sensitive, and the
yields of the Class B notes, the
Class C notes and the Class D
notes will be very sensitive, to
losses on the receivables and the
timing of such losses. If the
actual rate and amount of losses
exceed your expectations, and if
amounts in the reserve account are
insufficient to cover the
resulting shortfalls, the yield to
maturity on your notes may be
lower than anticipated, and you
could suffer a loss.
Your notes may not be repaid on their It is expected that final payment
final scheduled payment date of each class of notes will occur
respective final scheduled on or prior to the payment dates.
Failure to make final payment of
any class of notes on or prior to
the respective final scheduled
payment dates would constitute an
event of default under the
indenture. However, no assurance
can be given that sufficient funds
will be available to pay each
class of notes in full on or prior
to the final scheduled payment
date. If sufficient funds are not
available, final payment of any
class of notes could occur later
than the final scheduled payment
date for that class. See
"DESCRIPTION OF THE NOTES -- THE
INDENTURE -- RIGHTS UPON EVENT OF
DEFAULT" in this prospectus
supplement.
You may suffer losses because you may Because the trust has pledged the
have limited control over actions of the property of the trust to the
trust and conflicts between classes indenture trustee to secure
of notes may occur payment on the notes, the
indenture trustee may, and at the
direction of the required
percentage of the controlling
class will, take one or more of
the other actions specified in the
indenture relating to the property
of the trust, including a sale of
the receivables. The controlling
class will be the Class A notes
for so long as any Class A notes
are outstanding, the Class B notes
after the Class A notes have been
paid in full, the Class C notes
after the Class B notes have been
paid in full and the Class D notes
after the Class C notes have been
paid in full. In addition, the
holders of a majority of the Class
A notes, under some circumstances,
have the right to waive events of
servicing termination or terminate
the servicer without consideration
of the effect such waiver or
termination would have on the
holders of the Class B notes, the
Class C notes or the Class D
notes. The holders of the Class B
notes will not have the ability to
waive events of servicing
termination or to remove the
servicer until the Class A notes
have been paid in full. The
holders of the Class C notes will
not have the ability to waive any
such events or to remove the
servicer until the Class B notes
have been paid in full. The
holders of the Class D notes will
not have the ability to waive any
such events or to remove the
servicer until the Class C notes
have been paid in full.
See "CERTAIN MATTERS REGARDING THE
SERVICER--SERVICER DEFAULTS" in
the prospectus and "DESCRIPTION OF
THE TRANSFER AND SERVICING
AGREEMENTS -- RIGHTS UPON AN EVENT
OF SERVICING TERMINATION" and "--
WAIVER OF PAST EVENTS OF SERVICING
TERMINATION" in this prospectus
supplement.
The failure to pay interest on the The indenture provides that
subordinated classes of notes failure to pay interest when due
is not an event of default on any outstanding subordinated
class or classes of notes - for
example, for so long as any of the
Class A notes are outstanding, the
Class B notes, the Class C notes,
the Class D notes or the Class E
notes - will not be an event of
default under the indenture. Under
these circumstances, the holders
of any outstanding subordinated
notes will not have any right to
declare an event of default, to
cause the maturity of the notes to
be accelerated or to direct or
consent to any action under the
indenture.
Prepayments, potential losses and change An event of default under the
in order of priority of principal payments indenture may result in payments
may result from an event of default on the notes being accelerated.
under the indenture As a result:
o you may suffer losses on
your notes if the assets of
the trust are insufficient
to pay the amounts owed on
the notes;
o payments on your notes may
be delayed until more senior
classes of notes are repaid;
and
o your notes may be repaid
earlier than scheduled,
which may require you to
reinvest your principal at a
lower rate of return.
The occurrence of an event of default The trust will not make any
under the indenture may delay payments distributions of principal or
on the Class B notes, interest on a subordinate class
the Class C notes and Class D notes of notes until payment in full of
principal and interest on the
senior classes of notes following:
o an event of default under
the indenture relating to
the payment of principal on
any note or the payment of
interest on the controlling
class of notes which has
resulted in acceleration of
the notes;
o an event of default under
the indenture relating to an
insolvency event or a
bankruptcy with respect to
the trust which has resulted
in an acceleration of the
notes; or
o a liquidation of the trust
assets following any event
of default under the
indenture.
This may result in a delay or
default in making payments on the
Class B notes, the Class C notes
or the Class D notes.
Subordinated noteholders may not be able to If an event of default occurs
direct the indenture trustee upon an under the indenture, only the
event of under the indenture holders of
the controlling class of notes may
waive default such event of
default, accelerate the maturity
dates of the notes or direct or
consent to any action under the
indenture. The holders of any
outstanding subordinated class or
classes of notes will not have any
rights to direct or to consent to
any action until each of the more
senior class or classes of notes
has been repaid in full.
The indenture trustee may sell the If the final scheduled payment
receivables in an event of default dates of the notes are
accelerated following an event of
default under the indenture, the
indenture trustee may, under some
circumstances, sell the
receivables and prepay the notes.
Upon a sale of the receivables
following an event of default:
o no amounts will be
distributed to the Class B
noteholders until interest
and principal due on the
Class A notes have been paid
in full;
o no amounts will be
distributed to the Class C
noteholders until all
interest and principal due
on the Class A notes and
Class B notes have been paid
in full; and
o no amounts will be
distributed to the Class D
noteholders until all
interest and principal due
on the Class A notes, Class
B notes and Class C notes
have been paid in full.
So long as the Class A notes are
the controlling class, the holders
of the Class B notes, Class C
notes and Class D notes will not
have any right to vote on waivers
of an event of default or to
direct the indenture trustee to
accelerate the notes following an
event of default and will have the
right to vote on the sale of the
receivables following an event of
default and acceleration in only
limited circumstances.
So long as the Class B notes are
the controlling class, the holders
of the Class C notes and Class D
notes will not have any right to
vote on waivers of an event of
default or to direct the indenture
trustee to accelerate the notes
following an event of default and
will have the right to vote on the
sale of the receivables following
an event of default and
acceleration in only limited
circumstances.
So long as the Class C notes are
the controlling class, the holders
of the Class D notes will not have
any right to vote on waivers of an
event of default or to direct the
indenture trustee to accelerate
the notes following an event of
default and will have the right to
vote on the sale of the
receivables following an event of
default and acceleration in only
limited circumstances.
See "DESCRIPTION OF THE NOTES --
THE INDENTURE -- RIGHTS UPON EVENT
OF DEFAULT" in this prospectus
supplement.
The concentration of the receivables Economic conditions in the
in specific geographic areas may states where obligors reside may
increase your risk of loss affect the delinquency, loan loss
and repossession experience of the
issuer with respect to the
receivables.
As of the cut-off date, the
billing address of the obligors
were recorded as being in the
following states:
Percentage of
Initial Pool
Balance
Utah.......... 27.27%
Idaho......... 19.63%
Washington.... 18.56%
Oregon........ 8.53%
No other state, based on the
billing address of the obligors,
constituted more than 4.49% of the
balance of the receivables as of
the cut-off date.
Economic conditions in any state
or region may decline over time
and from time to time. Because of
the concentration of the obligors
in certain states, any adverse
economic conditions in those
states may have a greater effect
on the performance of the notes
than if this concentration did not
exist.
Transfer of servicing While Wells Fargo Bank, N.A. will
be the servicer of the
receivables, the FreedomNation
receivables will initially be
subserviced by Loan Servicing
Enterprise. The seller expects
that in the near future, Wells
Fargo Bank, N.A. will directly
service these receivables. Since
interruptions in servicing often
occur in connection with servicing
transfers, there may be a
temporary increase in
delinquencies and defaults
immediately following the
servicing transfer of the
FreedomNation receivables.
The notes are not suitable investments The notes may not be a suitable
for all investors investment if you require a
regular or predictable schedule of
payments or payment on any
specific date. The notes are
complex investments that should be
considered only by investors who,
either alone or with their
financial, tax and legal advisors,
have the expertise to analyze the
prepayment, reinvestment, default
and market risk, the tax
consequences of an investment, and
the interaction of these factors.
CAPITALIZED TERMS
The capitalized terms used in this prospectus supplement, unless
defined elsewhere in this prospectus supplement, have the meanings set forth in
the Glossary of Terms starting on page S-64 of this prospectus supplement.
THE TRUST
LIMITED PURPOSE AND ASSETS
ACE RV and Marine Trust 2001-RV1, is a business trust formed under the
laws of the State of Delaware by a trust agreement between ACE Securities Corp.,
as depositor, and Wilmington Trust Company, as owner trustee. The trust will not
engage in any activity other than:
o acquiring, holding and managing the assets of the trust,
including the receivables, and the proceeds of those assets;
o issuing the notes and certificates;
o making payments on the notes and certificates; and
o engaging in other activities that are necessary, suitable or
convenient to accomplish any of the other purposes listed above
or are in any way connected with those activities.
If the protection provided (a) to the holders of record of the Class A
notes by the subordination of the Class B notes, Class C notes, Class D notes
and Class E notes, (b) to the holders of record of the Class B notes by the
subordination of the Class C notes, Class D notes and Class E notes, (c) to the
holders of record of the Class C notes by the subordination of the Class D notes
and Class E notes, (d) to the holders of record of the Class D notes by the
subordination of the Class E notes and (e) to the noteholders by amounts on
deposit in the reserve account, the trust would have to look principally to the
obligors on the receivables and the proceeds from the repossession and sale of
the financed vehicles which secure defaulted receivables. In that event, various
factors, such as the trust not having perfected security interests in the
financed vehicles securing the receivables in all states, may affect the
servicer's ability to repossess and sell the collateral securing the
receivables, and thus may reduce the proceeds which the trust can distribute to
the noteholders.
See "DESCRIPTION OF THE SALE AND SERVICING AGREEMENT -- DISTRIBUTIONS"
and "-- RESERVE ACCOUNT" in this prospectus supplement and "Certain Legal
Aspects of the Receivables" in the prospectus.
The trust's principal offices are in Delaware, in care of the owner
trustee, at the address specified below under "--THE OWNER TRUSTEE."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the issuer as of
the cut-off date, as if the issuance and sale of the notes and certificates had
taken place on such date:
Class A-1 notes..................... $122,000,000
Class A-2 notes..................... 40,000,000
Class A-3 notes..................... 52,000,000
Class A-4 notes..................... 20,000,000
Class A-5 notes..................... 44,805,000
Class B notes....................... 20,025,000
Class C notes....................... 7,702,000
Class D notes....................... 4,621,000
Class E notes....................... 3,081,000
Certificates........................ 0
----------------
Total......................... $314,234,000
================
THE OWNER TRUSTEE
Wilmington Trust Company is the owner trustee under the trust
agreement. Wilmington Trust Company is a Delaware banking corporation and its
principal offices are located at 1100 North Market Street, Wilmington, Delaware
19890. The owner trustee's liability in connection with the issuance and sale of
the notes is limited solely to the express obligations of the owner trustee set
forth in the trust agreement. The seller and its affiliates may maintain normal
commercial banking relations with the owner trustee and its affiliates.
THE TRUST PROPERTY
The notes will be collateralized by the trust property. The "trust
property" will include the receivables, which were originated directly or
through dealers, if originated by a dealer, purchased by an originator pursuant
to dealer agreements with those dealers and then sold by the applicable
originator directly or indirectly to the transferor. On the closing date, the
seller will buy the receivables from the transferor and the seller will sell the
receivables to the trust. The servicer will service the receivables. The trust
property also includes:
o all monies received under the receivables on or after the cut-off
date;
o security interests in the financed vehicles and any other
property securing the receivables;
o the rights to receive proceeds from claims under insurance
policies relating to the related obligors and financed vehicles
or from claims under any lender's single interest insurance
policy naming any originator as the insured;
o such amounts as from time to time may be held in the Collection
Account, the Reserve Account and the note distribution account --
including investment earnings -- established and maintained by
the servicer pursuant to the sale and servicing agreement;
o the rights of the trust under the sale and servicing agreement
and the other transaction documents;
o all right, title and interest of the originators, with respect to
the receivables under the related dealer agreements; and
o all proceeds of any and all of the foregoing.
THE RECEIVABLES POOL
POOL COMPOSITION
The receivables were selected from the transferor's portfolio by
several criteria, including, as of the cut-off date, the following:
o each receivable was originated in the United States of America;
o each receivable is a simple interest receivable, as described in
the prospectus;
o each receivable provides for level monthly payments which fully
amortize the amount financed, except for the last payment, which
may be slightly different from the level payment;
o each receivable has an outstanding principal balance of not less
than $63.17 and no more than $454,103.83;
o each receivable has a contract rate of no less than 6.500% and no
more than 20.000%;
o each receivable has an original term to maturity of not more than
243 months and not less than 17 months and each receivable has a
remaining term to maturity of not more than 231 months and not
less than 1 month and the remaining term is not greater than the
original term;
o no obligor on any receivable was noted in the records as being
the subject of any pending bankruptcy or insolvency proceeding;
o no receivable, as of the cut-off date, is secured by a vehicle
that has been repossessed without reinstatement; and
o no receivable is more than 59 days contractually past due as of
the cut-off date.
An account is past due if less than 90% of the payment due on a due
date is not received by that due date.
No selection procedures believed by the seller to be materially
adverse to the noteholders were used in selecting the receivables.
The composition, distribution by vehicle type, distribution by
remaining term, distribution by contract rate, geographic distribution,
distribution by principal balance, distribution by new or used vehicles and
distribution by FICO score, in each case, of the receivables as of the cut-off
date, are set forth in the tables below. The percentages in the following tables
may not add to 100.00% due to rounding.
COMPOSITION OF THE RECEIVABLES AS OF THE CUT-OFF DATE
Aggregate Principal Balance................................. $308,072,046.00
Number of Receivables....................................... 16,760
Average Principal Balance................................... $18,381.39
Average Original Principal Balance.......................... $21,990.19
Weighted Average FICO Score................................. 703
FICO Score (Range).......................................... 433 to 822
Weighted Average Contract Rate.............................. 9.661%
Contract Rate (Range)....................................... 6.500% to 20.000%
Weighted Average Original Term.............................. 155 months
Original Term (Range)....................................... 17 to 243 months
Weighted Average Remaining Term............................. 128 months
Remaining Term (Range)...................................... 1 to 231 months
Percent of Recreational Vehicle/Trailer Receivables......... 89.16%
Percent of Marine Receivables............................... 6.61%
Percent of First Security Receivables....................... 93.32%
Percent of FreedomNation Receivables........................ 6.68%
o All weighted averages calculated based on unpaid principal
balance of each receivable as of the cut-off date and with
respect to FICO Score, those receivables that have FICO Scores.
DISTRIBUTION BY VEHICLE TYPE OF THE RECEIVABLES AS OF THE CUT-OFF DATE
Percentage of Aggregate Percentage of
Number of Number of Principal Balance Initial Pool
Vehicle Type Receivables Receivables Balance
Recreational Vehicles/Trailers............. 14,001 83.54% $274,689,177.56 89.16%
Motorcycles................................ 1,223 7.30 10,451,888.81 3.39
Boats...................................... 1,084 6.47 20,352,350.76 6.61
Sport Recreational Vehicles................ 452 2.70 2,578,628.87 0.84
--------- ----------- --------------- ----------
Total............................. 16,760 100.00% $308,072,046.00 100.00%
========= =========== =============== ==========
Distribution by Remaining Term of the Receivables as of the Cut-Off Date
Percentage of Aggregate Percentage of
Number of Number of Principal Initial Pool
Remaining Term Range Receivables Receivables Balance Balance
1 to 12 months...................................470 2.80% $ 781,318.34 0.25%
13 to 24 months..................................871 5.20 2,943,964.83 0.96
25 to 36 months................................1,400 8.35 7,363,974.10 2.39
37 to 48 months................................1,373 8.19 9,912,533.30 3.22
49 to 60 months..................................899 5.36 8,875,779.82 2.88
61 to 72 months................................1,035 6.18 11,105,581.41 3.60
73 to 84 months................................1,022 6.10 12,131,288.13 3.94
85 to 96 months................................1,689 10.08 23,222,225.20 7.54
97 to 108 months...............................1,745 10.41 25,648,394.17 8.33
109 to 120 months..............................1,191 7.11 20,915,517.86 6.79
121 to 132 months..............................1,336 7.97 27,215,108.45 8.83
133 to 144 months................................628 3.75 19,766,207.06 6.42
145 to 156 months..............................1,184 7.06 47,302,326.99 15.35
157 to 168 months..............................1,530 9.13 66,253,532.21 21.51
169 to 180 months................................251 1.50 11,564,196.60 3.75
181 to 192 months................................ 3 0.02 272,201.58 0.09
193 to 204 months................................ 1 0.01 59,661.53 0.02
205 to 216 months................................ 10 0.06 814,986.60 0.26
217 to 228 months................................ 66 0.39 5,940,757.88 1.93
229 to 240 months........................ 56 0.33 5,982,489.94 1.94
---------------- ------------- ----------------- -----------
Total........................... 16,760 100.00% $308,072,046.00 100.00%
================ ============= ================= ===========
Distribution by Contract Rate of the Receivables as of the Cut-Off Date
Percentage of Aggregate Percentage of
Number of Number of Principal Initial Pool
Contract Rate Range Receivables Receivables Balance Balance
6.001% to 7.000%............................... 30 0.18% $ 474,825.43 0.15%
7.001% to 8.000%............................... 428 2.55 10,377,520.90 3.37
8.001% to 9.000%...............................3,365 20.08 81,713,880.68 26.52
9.001% to 10.000%..............................9,134 54.50 173,479,795.11 56.31
10.001% to 11.000%.............................1,395 8.32 20,793,390.36 6.75
11.001% to 12.000%............................. 791 4.72 9,944,509.55 3.23
12.001% to 13.000%............................. 630 3.76 5,213,536.10 1.69
13.001% to 14.000%............................. 320 1.91 2,347,101.80 0.76
14.001% to 15.000%............................. 224 1.34 1,376,322.36 0.45
15.001% to 16.000%............................. 204 1.22 1,187,112.85 0.39
16.001% to 17.000%............................. 110 0.66 544,690.14 0.18
17.001% to 18.000%............................. 82 0.49 402,292.82 0.13
18.001% to 19.000%............................. 41 0.24 189,139.18 0.06
19.001% to 20.000%............................. 6 0.04 27,928.72 0.01
-------- ------------ --------------- -----------
Total........................... 16,760 100.00% $308,072,046.00 100.00%
======== ============== =============== ============
Geographic Distribution of the Receivables as of the Cut-Off Date
Percentage of Percentage of
Number of Number of Aggregate Initial Pool
State Receivables Receivables Principal Balance Balance
Utah.......................................5,061 30.20% $ 84,007,118.48 27.27%
Idaho......................................3,937 23.49 60,475,981.67 19.63
Washington.................................2,393 14.28 57,193,418.34 18.56
Oregon.....................................1,210 7.22 26,276,755.64 8.53
Nevada.......................................641 3.82 13,826,388.07 4.49
California...................................502 3.00 12,842,074.51 4.17
New Mexico...................................506 3.02 9,151,356.63 2.97
Wyoming......................................459 2.74 7,524,041.18 2.44
Arizona......................................323 1.93 7,061,438.53 2.29
Montana......................................327 1.95 6,344,475.76 2.06
Texas........................................260 1.55 5,003,886.27 1.62
Colorado.....................................153 0.91 2,718,139.66 0.88
Minnesota....................................160 0.95 2,340,912.81 0.76
Florida.......................................97 0.58 1,891,219.83 0.61
Alaska........................................51 0.30 1,373,919.64 0.45
Oklahoma......................................40 0.24 1,217,160.78 0.40
Georgia.......................................79 0.47 1,012,382.97 0.33
Illinois......................................70 0.42 829,990.40 0.27
Missouri......................................65 0.39 786,355.78 0.26
Michigan......................................43 0.26 657,595.98 0.21
Virginia......................................48 0.29 525,789.62 0.17
New Jersey....................................31 0.18 476,582.70 0.15
South Dakota..................................15 0.09 398,406.31 0.13
Ohio..........................................15 0.09 368,003.23 0.12
Wisconsin.....................................29 0.17 355,830.94 0.12
New York......................................30 0.18 354,766.65 0.12
Tennessee.....................................27 0.16 324,141.98 0.11
Kansas........................................17 0.10 259,105.32 0.08
North Carolina................................24 0.14 254,182.48 0.08
Iowa...........................................9 0.05 226,166.67 0.07
South Carolina................................16 0.10 223,936.17 0.07
Nebraska......................................11 0.07 217,880.57 0.07
Connecticut...................................17 0.10 214,423.14 0.07
Mississippi....................................6 0.04 206,544.57 0.07
Massachusetts.................................18 0.11 194,524.63 0.06
North Dakota..................................12 0.07 166,684.00 0.05
Alabama........................................9 0.05 163,975.73 0.05
Arkansas.......................................8 0.05 128,483.90 0.04
West Virginia.................................10 0.06 124,732.09 0.04
Louisiana......................................9 0.05 111,080.91 0.04
Kentucky.......................................6 0.04 91,793.23 0.03
Hawaii.........................................4 0.02 34,404.01 0.01
Other..........................................3 0.02 31,803.91 0.01
Indiana........................................3 0.02 22,900.01 0.01
Rhode Island...................................2 0.01 19,610.75 0.01
Vermont........................................1 0.01 15,612.11 0.01
District of Columbia...........................2 0.01 14,692.09 0.00
Maine................................ 1 0.01 11,375.35 0.00
----------- -------------- ------------------- -----------
Total......................... 16,760 100.00% $308,072,046.00 100.00%
============ =========== =================== ===========
o Numbers by state are based on the billing address of the obligors as of the cut-off date.
Distribution by Principal Balance of the Receivables as of the Cut-Off Date
Percentage of Percentage of
Remaining Principal Number of Number of Aggregate Initial Pool
Balance Range Receivables Receivables Principal Balance Balance
$0.01 to $10,000.00............................... 6,081 36.28% $ 34,597,093.90 11.23%
$10,000.01 to $20,000.00.......................... 6,011 35.87 84,557,561.07 27.45
$20,000.01 to $30,000.00.......................... 1,871 11.16 45,450,932.70 14.75
$30,000.01 to $40,000.00.......................... 1,083 6.46 37,532,361.76 12.18
$40,000.01 to $50,000.00.......................... 710 4.24 31,701,282.61 10.29
$50,000.01 to $60,000.00.......................... 384 2.29 20,909,571.63 6.79
$60,000.01 to $70,000.00.......................... 225 1.34 14,593,338.76 4.74
$70,000.01 to $80,000.00.......................... 141 0.84 10,471,126.23 3.40
$80,000.01 to $90,000.00.......................... 72 0.43 6,074,661.00 1.97
$90,000.01 to $100,000.00......................... 41 0.24 3,872,990.99 1.26
$100,000.01 to $150,000.00........................ 120 0.72 14,046,323.28 4.56
$150,000.01 to $200,000.00........................ 15 0.09 2,547,645.23 0.83
$200,000.01 to $250,000.00........................ 3 0.02 626,781.86 0.20
$250,000.01 to $300,000.00........................ 1 0.01 256,400.72 0.08
$350,000.01 to $400,000.00........................ 1 0.01 379,870.43 0.12
$450,000.01 to $500,000.00........................ 1 0.01 454,103.83 0.15
------------- ------------ ------------------ -----------
Total.................................... 16,760 100.00% $308,072,046.00 100.00%
============= ============ ================== ===========
Distribution by New or Used Vehicles as of the Cut-Off Date
Percentage of Aggregate Percentage of
Number of Number of Principal Initial Pool
New or Used Receivables Receivables Balance Balance
New............................................... 12,085 72.11% $ 223,286,540.24 72.48%
Used.............................................. 4,675 27.89 84,785,505.76 27.52
----------- -------------- ------------------ -------------
Total................................... 16,760 100.00% $ 308,072,046.00 100.00%
=========== ============== ================ ==============
Distribution by FICO Scores as of the Cut-Off Date
Percentage of Percentage of
Number of Number of Aggregate Initial Pool
FICO Score Receivables Receivables Principal Balance Balance
Not available.................................. 64 0.38% $ 2,546,096.41 0.83%
426 to 450..................................... 5 0.03 28,877.75 0.01
451 to 475..................................... 18 0.11 198,639.35 0.06
476 to 500..................................... 82 0.49 1,162,480.47 0.38
501 to 525..................................... 187 1.12 2,736,816.70 0.89
526 to 550..................................... 326 1.95 4,017,345.24 1.30
551 to 575..................................... 521 3.11 6,545,807.48 2.12
576 to 600..................................... 724 4.32 10,431,722.80 3.39
601 to 625..................................... 1,066 6.36 17,576,115.59 5.71
626 to 650..................................... 1,598 9.53 24,056,130.18 7.81
651 to 675..................................... 1,820 10.86 31,761,438.39 10.31
676 to 700..................................... 1,894 11.30 34,226,425.77 11.11
701 to 725..................................... 1,951 11.64 40,087,956.96 13.01
726 to 750..................................... 2,170 12.95 41,640,017.55 13.52
751 to 775..................................... 2,312 13.79 46,056,618.48 14.95
776 to 800..................................... 1,773 10.58 37,926,797.23 12.31
801 to 825..................................... 249 1.49 7,072,759.65 2.30
------------ -------------- ----------------- -------------
Total................................ 16,760 100.00% $ 308,072,046.00 100.00%
============ ============== ================ =============
o The Fair Issac & Company (known as FICO) scores for the
FreedomNation Receivables are as of the date of origination of
the related receivable and in most cases, the FICO scores for the
First Security Receivables are as of February 2001.
WEIGHTED AVERAGE LIFE OF THE NOTES
Prepayments on recreational vehicle and marine receivables can be
measured relative to a prepayment standard or model. The model used in this
prospectus supplement assumes that the outstanding principal balance of a pool
of loans prepays at a specified constant annual rate ("CPR"). In generating
monthly cash flows, this rate is converted to an equivalent constant monthly
rate. To assume the series of CPR percentages assumed herein or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. CPR does not purport
to be an historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of receivables, including the
receivables to be transferred to the trust.
As the rate of payment of principal of the notes will depend on the
rate of payment, including prepayments, of the principal balance of the
receivables, final payment of a class of notes could occur significantly earlier
than the Final Scheduled Payment Date for such class of notes. Reinvestment risk
associated with early payment of the notes will be borne exclusively by you.
The table captioned "Percentage of Initial Note Principal Balance at
Various CPR Percentages" has been prepared on the basis of the characteristics
of the receivables. The CPR Table assumes that:
o the receivables prepay in full at the specified constant CPR
percentage monthly, with no defaults, losses or repurchases,
o each scheduled monthly payment on the receivables is made on the
last day of each month and each month has 30 days,
o payments on the notes are made on each Payment Date, and each
such date is assumed to be the 20th day of each applicable month,
o the servicer exercises its option to purchase the receivables,
o the cut-off date is June 1, 2001,
o the closing date is July 3, 2001, and
o the servicing fee is 1.00%.
The CPR Table sets forth the percent of the initial principal amount
of each class of notes and the corresponding weighted average lives thereof at
various constant CPR percentages.
The CPR Table also assumes that the receivables have been aggregated
into ten hypothetical pools with all of the receivables within each such pool
having the following characteristics and that the level scheduled monthly
payment for each of the ten pools, which is based on its aggregate principal
balance and original term to maturity and remaining term to maturity as of the
cut-off date, will be such that each pool will fully amortize by the end of its
remaining term to maturity.
Hypothetical Receivables Pools
Remaining
Term to
Aggregate Contract Seasoning Maturity
Pool Principal Balance Rate (in months) (in months)
- ---- ----------------- ---- ----------- -----------
1................................................ $ 9,810,912.84 10.202% 41 27
2................................................ $25,365,255.28 9.949% 40 56
3................................................ $59,774,121.59 9.597% 32 94
4................................................ $64,561,231.42 9.564% 31 127
5................................................ $127,984,940.20 9.322% 22 163
6................................................ $ 1,278,344.43 14.738% 30 30
7................................................ $ 4,528,639.25 13.641% 20 56
8................................................ $ 1,227,785.91 12.566% 13 87
9................................................ $ 3,335,601.95 11.628% 11 126
10............................................... $10,205,213.13 10.283% 11 195
The actual characteristics and performance of the receivables that are
to be transferred to the trust will differ from the assumptions used in
constructing the CPR Table. The assumptions used are hypothetical and have been
provided only to give a general sense of how the principal cash flows might
behave under varying prepayment scenarios. For example, it is very unlikely that
the receivables will prepay at a constant level of CPR until maturity or that
all of the receivables will prepay at the same level of CPR. Moreover, the
diverse terms of receivables within each of the ten hypothetical pools could
produce slower or faster principal distributions than indicated in the CPR Table
at the various constant percentages of CPR specified, even if the original and
remaining terms to maturity of the receivables are as assumed. Any difference
between such assumptions and the actual characteristics and performance of the
receivables to be transferred to the trust, or actual prepayment experience,
will affect the percentages of initial balances outstanding over time and the
weighted average lives of each class of notes.
Percent of Initial Note Principal Balance at Various CPR Percentages
Class A-1 Notes Class A-2 Notes
Payment Date 5% 10% 15% 18% 20% 25% 30% 5% 10% 15% 18% 20% 25% 30%
- ------------ -- --- --- --- --- --- --- -- --- --- --- --- --- ---
Closing Date..................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2001................. 79 73 67 63 60 53 46 100 100 100 100 100 100 100
June 2002..................... 63 52 40 33 28 17 5 100 100 100 100 100 100 100
December 2002................. 48 32 16 7 1 0 0 100 100 100 100 100 59 16
June 2003..................... 32 13 0 0 0 0 0 100 100 83 51 30 0 0
December 2003................. 18 0 0 0 0 0 0 100 87 25 0 0 0 0
June 2004..................... 5 0 0 0 0 0 0 100 41 0 0 0 0 0
December 2004................. 0 0 0 0 0 0 0 76 0 0 0 0 0 0
June 2005..................... 0 0 0 0 0 0 0 36 0 0 0 0 0 0
December 2005................. 0 0 0 0 0 0 0 6 0 0 0 0 0 0
June 2006..................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(years)......................1.48 1.09 0.86 0.75 0.69 0.58 0.49 3.86 2.91 2.29 2.02 1.87 1.56 1.33
The "Weighted Average Life" of a note is determined by (1) multiplying
the amount of each principal payment of such note by the number of years from
the date of the issuance of such note to the Payment Date on which such
principal payment is made, (2) adding the results and (3) dividing the sum by
the initial principal balance of such note.
The CPR Table has been prepared based on the assumptions described in
this section, including the assumptions regarding the characteristics and
performance of the receivables, and should be read in conjunction with those
assumptions. The actual characteristics and performance of the receivables to be
transferred to the trust may differ from the assumptions.
Percent of Initial Note Principal Balance at Various CPR Percentages
Class A-3 Notes Class A-4 Notes
Payment Date 5% 10% 15% 18% 20% 25% 30% 5% 10% 15% 18% 20% 25% 30%
- ------------ -- --- --- --- --- --- --- -- --- --- --- --- --- ---
Closing Date..................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2001.................100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2002.....................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2002.................100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2003.....................100 100 100 100 100 85 49 100 100 100 100 100 100 100
December 2003.................100 100 100 93 75 35 0 100 100 100 100 100 100 98
June 2004.....................100 100 80 53 35 0 0 100 100 100 100 100 87 0
December 2004.................100 98 45 17 0 0 0 100 100 100 100 99 0 0
June 2005.....................100 66 13 0 0 0 0 100 100 100 62 18 0 0
December 2005.................100 43 0 0 0 0 0 100 100 82 17 0 0 0
June 2006..................... 84 24 0 0 0 0 0 100 100 40 0 0 0 0
December 2006................. 66 8 0 0 0 0 0 100 100 4 0 0 0 0
June 2007..................... 48 0 0 0 0 0 0 100 79 0 0 0 0 0
December 2007................. 30 0 0 0 0 0 0 100 40 0 0 0 0 0
June 2008..................... 12 0 0 0 0 0 0 100 3 0 0 0 0 0
December 2008................. 0 0 0 0 0 0 0 85 0 0 0 0 0 0
June 2009..................... 0 0 0 0 0 0 0 45 0 0 0 0 0 0
December 2009................. 0 0 0 0 0 0 0 14 0 0 0 0 0 0
June 2010..................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(years).................. 5.95 4.44 3.46 3.06 2.83 2.37 2.01 7.97 6.38 4.90 4.17 3.81 3.21 2.73
The "Weighted Average Life" of a note is determined by (1) multiplying
the amount of each principal payment of such note by the number of years from
the date of the issuance of such note to the Payment Date on which such
principal payment is made, (2) adding the results and (3) dividing the sum by
the initial principal balance of such note.
The CPR Table has been prepared based on the assumptions described in
this section, including the assumptions regarding the characteristics and
performance of the receivables, and should be read in conjunction with those
assumptions. The actual characteristics and performance of the receivables to be
transferred to the trust may differ from the assumptions.
Percent of Initial Note Principal Balance at Various CPR Percentages
Class A-5 Notes Class B Notes
Payment Date 5% 10% 15% 18% 20% 25% 30% 5% 10% 15% 18% 20% 25% 30%
- ------------ -- --- --- --- --- --- --- -- --- --- --- --- --- ---
Closing Date.................. 100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2001................. 100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2002..................... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2002................. 100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2003..................... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2003................. 100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2004..................... 100 100 100 100 100 100 98 100 100 100 100 100 100 100
December 2004................. 100 100 100 100 100 99 61 100 100 100 100 100 100 100
June 2005..................... 100 100 100 100 100 66 31 100 100 100 100 100 100 100
December 2005................. 100 100 100 100 90 53 24 91 88 86 84 83 81 78
June 2006..................... 100 100 100 91 75 43 0 83 78 74 71 70 65 0
December 2006................. 100 100 100 77 63 35 0 75 70 64 60 58 53 0
June 2007..................... 100 100 87 65 52 0 0 68 61 55 51 48 0 0
December 2007................. 100 100 74 54 43 0 0 61 53 46 42 40 0 0
June 2008..................... 100 100 62 44 0 0 0 54 46 39 35 0 0 0
December 2008................. 100 86 51 0 0 0 0 47 39 32 0 0 0 0
June 2009..................... 100 73 0 0 0 0 0 41 33 0 0 0 0 0
December 2009................. 100 63 0 0 0 0 0 36 28 0 0 0 0 0
June 2010..................... 92 53 0 0 0 0 0 32 24 0 0 0 0 0
December 2010................. 79 0 0 0 0 0 0 27 0 0 0 0 0 0
June 2011..................... 66 0 0 0 0 0 0 22 0 0 0 0 0 0
December 2011................. 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(years)................... 10.06 8.56 7.10 6.36 5.86 4.71 3.86 7.48 6.83 6.21 5.93 5.73 5.22 4.77
The "Weighted Average Life" of a note is determined by (1) multiplying
the amount of each principal payment of such note by the number of years from
the date of the issuance of such note to the Payment Date on which such
principal payment is made, (2) adding the results and (3) dividing the sum by
the initial principal balance of such note.
The CPR Table has been prepared based on the assumptions described in
this section, including the assumptions regarding the characteristics and
performance of the receivables, and should be read in conjunction with those
assumptions. The actual characteristics and performance of the receivables to be
transferred to the trust may differ from the assumptions.
Percent of Initial Note Principal Balance at Various CPR Percentages
Class C Notes Class D Notes
Payment Date 5% 10% 15% 18% 20% 25% 30% 5% 10% 15% 18% 20% 25% 30%
- ------------ -- --- --- --- --- --- --- -- --- --- --- --- --- ---
Closing Date..................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2001.................100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2002.....................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2002.................100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2003.....................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2003.................100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2004.....................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2004.................100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 2005.....................100 100 100 100 100 100 100 100 100 100 100 100 100 100
December 2005................. 91 88 86 84 83 81 78 91 88 86 84 83 81 78
June 2006..................... 83 78 74 71 70 65 0 83 78 74 71 70 65 0
December 2006................. 75 70 64 60 58 53 0 75 70 64 60 58 53 0
June 2007..................... 68 61 55 51 48 0 0 68 61 55 51 48 0 0
December 2007................. 61 53 46 42 40 0 0 61 53 46 42 40 0 0
June 2008..................... 54 46 39 35 0 0 0 54 46 39 35 0 0 0
December 2008................. 47 39 32 0 0 0 0 47 39 32 0 0 0 0
June 2009..................... 41 33 0 0 0 0 0 41 33 0 0 0 0 0
December 2009................. 36 28 0 0 0 0 0 36 28 0 0 0 0 0
June 2010..................... 32 24 0 0 0 0 0 32 24 0 0 0 0 0
December 2010................. 27 0 0 0 0 0 0 27 0 0 0 0 0 0
June 2011..................... 22 0 0 0 0 0 0 22 0 0 0 0 0 0
December 2011................. 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(years).................... 7.48 6.83 6.21 5.93 5.73 5.22 4.77 7.48 6.83 6.21 5.93 5.73 5.22 4.77
The "Weighted Average Life" of a note is determined by (1) multiplying
the amount of each principal payment of such note by the number of years from
the date of the issuance of such note to the Payment Date on which such
principal payment is made, (2) adding the results and (3) dividing the sum by
the initial principal balance of such note.
The CPR Table has been prepared based on the assumptions described in
this section, including the assumptions regarding the characteristics and
performance of the receivables, and should be read in conjunction with those
assumptions. The actual characteristics and performance of the receivables to be
transferred to the trust may differ from the assumptions.
THE ORIGINATORS
The receivables consist of loans which were originated primarily
through the respective networks of dealers of the originators, and, to a lesser
extent, through direct originations.
FIRST SECURITY ORIGINATORS
GENERAL. A substantial majority of the receivables were originated by
Wells Fargo Bank Northwest, N.A., successor to First Security Bank, N.A. or
Wells Fargo Bank New Mexico, N.A., successor to First Security Bank of New
Mexico, N.A.
Each of First Security Bank, N.A. and First Security Bank of New
Mexico, N.A. (together the "First Security Originators") were subsidiaries of
the bank holding company, First Security Corporation ("FSCO") headquartered in
Salt Lake City, Utah that operated, including through banking subsidiaries, in
Utah, New Mexico, Wyoming, Idaho, California, Nevada and Oregon. FSCO operated
the largest bank in Utah and Idaho and had approximately 9,000 employees
nationwide.
The First Security Originators originated indirect recreational
vehicle, marine, motorcycle and other sport recreational vehicle ("SRV") loans
for at least 20 years. The First Security Originators underwrote loans at the
Boise and Lewiston, Idaho and Salt Lake City, Utah locations, and performed
servicing and collection functions at the Boise and Salt Lake City locations.
The First Security Originators' origination unit booked approximately
$343 million in recreational vehicle, marine, motorcycle and other SRV loans for
the year ended December 31, 2000.
As of October 25, 2000, FSCO became a wholly-owned bank holding
company subsidiary of Wells Fargo & Company ("Wells Fargo"), a bank holding
company based in San Francisco, California. As of December 31, 2000, Wells Fargo
had assets of $272 billion and was the fourth largest bank holding company in
the nation.
Incorporated in 1928, FSCO was the oldest multistate bank holding
company in the United States. At the time of the acquisition, FSCO's bank
subsidiaries operated approximately 330 retail, 60 business and 150 mortgage,
construction and equipment financing banking offices in the seven western states
of Utah, New Mexico, Wyoming, Idaho, California, Nevada and Oregon and provided
a wide range of financial services to individuals, businesses, governmental
entities, and other financial institutions. Non-bank subsidiaries were engaged
in residential mortgage loan origination and servicing, full-service leasing,
bankcard transaction processing, insurance services, investment management,
full-service securities brokerage, information technology, small business
investment, and asset management.
ORIGINATION OF RECEIVABLES. The First Security Originators originated
indirect loan applications through dealers in the Northwest. These indirect
applications were sent via facsimile to the Application Processing Center in
Boise, Idaho to be data entered and scored. Those that were not automatically
declined were transmitted to regional Dealer Credit Services Centers located in
Salt Lake City, Utah, and Boise and Lewiston, Idaho. These centers were
responsible for credit analysis and credit decisions on indirect loan requests.
Applications for direct recreational vehicle, marine, motorcycle, and
other SRV loans were originated in the First Security Originators' branch
network, through the First Security Originators' Loan by Phone (LendLine)
system, or through direct mail solicitation.
The direct paper applications were sent via facsimile to the
Application Processing Center in Boise, Idaho, where applications were data
entered and scored. These applications and the LendLine electronic applications
were then forwarded to the Direct Consumer Loan Center located in Boise for
credit approval and document preparation. Approved direct loans were funded
through the branch system in each state or by mail to the customer.
UNDERWRITING. The First Security Originators used the applicant's
creditworthiness as the basic criterion in purchasing a retail installment sale
contract from a dealer and in making a direct installment loan. The First
Security Originators evaluated each applicant individually based on the First
Security Originators' underwriting and credit scoring guidelines. These
guidelines were intended to assess the applicant's ability to repay the loan and
the adequacy of the financed vehicle as collateral.
The credit underwriting process began when a credit application was
received via fax from a dealer or a branch. Data was entered into the
Application Processing System and a credit bureau report was pulled. Once a
credit bureau report and all other applicant information had been gathered, an
automated custom credit score and a generic (FICO) credit score were generated.
The generic scorecard was developed by Fair Isaac and Company based on
pooled data received from different creditors. It was validated at least
biennially. It predicted whether a borrower would repay based strictly on credit
bureau characteristics. The custom scorecard, developed with assistance from
Experian/Management Decision Systems ("MDS"), had been in place since January
1994. It was reviewed and validated periodically based on statistical samplings
of actual First Security Originators' credit results. The most recent update to
the custom scorecard was implemented in January 1999.
The custom scorecard measured the creditworthiness of an applicant
based on the following characteristics:
o STABILITY: residential status, time at present address, time at
current job
o ABILITY TO REPAY: sum of net monthly income, revolving debt ratio
o CREDIT EXPERIENCE SHOWN ON CREDIT REPORT: credit card reference,
personal finance company reference, delinquencies, number of
inquiries
o COLLATERAL EQUITY: percent down payment
The MDS custom credit score and the generic FICO credit score were an
integral part of the overall decision process. These two scores were used in a
two-dimensional credit quality matrix that assigned a credit quality factor to
each application. These quality factors were based upon observed bad rates for
each cell in the matrix. This credit quality matrix was used for an automated
decision making process. Applications were automatically declined based on
predetermined score ranges and automated review guidelines.
At this point, the system assigned applications that had not been
automatically declined to the regional dealer centers or the Direct Consumer
Loan Center for credit review. Credit analysts reviewed the credit scores,
credit quality factor, statistical information, debt to income analysis, and the
credit bureau report in making a credit decision. In certain cases, the credit
analyst requested verification of the applicant's employment record by the
verification team of the Application Processing Center.
The applicant's creditworthiness was then evaluated based on the
following:
o CREDIT HISTORY: The applicant's credit background and current pay
habits were reviewed through the credit bureau report. If the
credit report was insufficient, direct phone calls to other
creditors might have been necessary to develop additional
information, clarify facts, or explore recent inquiries.
o INCOME/EMPLOYMENT: It was the responsibility of the credit
analyst to determine when income or employment verification was
necessary. Employment was verified through the credit report, and
direct employment verification calls historically were conducted
in approximately 10% of all cases. When the ability to pay was
questionable or the income stated was unreasonable for the
industry, the net income was verified. In some instances, the
customer was asked for either personal financial statements or a
copy of previous tax returns (i.e., self-employed individuals).
o ABILITY TO PAY: The general guideline for acceptable net debt
service-to-income ratio was 50%. On any application with a higher
than usual monthly net debt service-to-income ratio, the analyst
evaluated the applicant's overall circumstances and was required
to be satisfied that the applicant had the ability to pay.
o COLLATERAL: The maximum allowable advance amount for recreational
vehicles was 110% of dealer invoice or wholesale value from an
approved guide book (NADA or Kelly) plus tax, license fees,
documentation fees, warranties, and certain other rebatable
insurance products. The allowable advance varied with credit
quality and was often less than 110%. Advances in excess of the
maximum allowable amount required additional review and
appropriate authorization, and were reported as policy
exceptions.
o CHARACTER: Evaluated through consideration of all previous steps
in the credit process.
After analysis of the above factors and consideration of the credit
score, the credit analyst entered the credit decision into the system and,
subsequently, notified the dealer, branch or LendLine by automated fax or phone.
The dealer, branch or LendLine personnel notified the applicant of the First
Security Originators' decision. The First Security Originators provided a Notice
of Credit Decision on declined requests to the applicant.
In cases where a co-signer/guarantor was offered, the same
underwriting standards and procedures were followed with respect to that party.
Although such cases were rare, a co-signer/guarantor could be used to provide
additional support to the applicant in the areas of employment, income, or
insufficient credit history.
All policy exceptions were approved and documented by an authorized
credit analyst. Monthly monitoring by Risk Management identified all exceptions
approved and purchased by type of exception.
FREEDOMNATION FINANCIAL LLC
GENERAL. FreedomNation Financial LLC ("FNF" or the "FreedomNation
Originator") was a consumer financial services company headquartered in
Minneapolis, Minnesota, specializing in financing and servicing retail
installment contracts for new and used recreational vehicle, marine and other
SRV loans. Its portfolio originally consisted of contracts originated through
indirect purchases from dealers. In early 1999, FNF began direct originations to
consumers through the Internet. In early to mid 2000, FNF no longer had
sufficient equity financing to conduct its business, and ceased operations in
August 2000.
ORIGINATION AND MARKETING. FNF started to originate loans in April
1998. FNF entered the market both through dealers of these products and directly
to the purchaser, using the Internet along with traditional marketing channels.
However, all of the receivables originated by FNF and to be purchased by the
trust were indirect originations.
FNF marketed its loan products in several different ways, including at
recreational product industry tradeshows and conventions, through print and
electronic media such as banner advertising and indexing on the Internet, on
billboards, and at sports promotional events linked closely with the
recreational products and powersports dealer and customer base.
DEALERS. FNF had established relationships with 1,545 retail dealers.
The dealers were located primarily in California, Minnesota, Texas, and Florida.
Five sales managers together with 18 sales representatives were responsible for
the development and maintenance of the dealer relationships. FNF's five-region
geographic rollout strategy was built upon those states that historically
comprised the highest concentrations of annual deliveries of recreational
products. The sales representatives were compensated via commission for funded
loans booked from their territories. Each sales representative was responsible
for maintaining relationships with 80-120 dealers.
In order to enter into a financing arrangement, dealers were required
to submit a dealer application for approval by FNF. As part of the process, FNF
required that the dealer be licensed by the appropriate state agencies and have
a five year industry track record. FNF reviewed a dealer package, which
consisted of an application, lender references, resumes of key personnel, and
financial statements.
On a regular basis, the working relationship with the dealer was
evaluated. In particular, FNF verified whether a sufficient quota of
applications was approved and whether delinquencies and/or losses of the
dealer's customers were above average. All material dealer issues and problems
that related to credit were handled directly by the Chief Credit Officer.
INTERNET. On January 15, 1999, FNF launched its first e-commerce site
that was designed to create a consumer-direct lending channel for FNF's
products, and offer enhanced customer service opportunities for its indirect
channel dealer base. Between February and April of 1999, the first three months
of its web presence, FNF experienced a 12-fold increase in monthly Internet
application volume. In October 1999, FNF launched a second e-commerce site,
which was designed to attract recreation enthusiasts by offering product
information and news in addition to lending products. None of the receivables
sold by FNF to the transferor and proposed to be sold to the trust were
originated through the Internet site.
UNDERWRITING. Loan application packages completed by prospective
borrowers were received via facsimile from FNF's dealers or directly through the
Internet. FNF's goal was to provide a preliminary credit decision within 60
minutes of receipt. The application processing involved data entry, credit
underwriter, and buyer functions.
FNF employed the Oracle-based software system "Daybreak", which
provided loan origination, loan servicing, collections and securitization
functions on one platform. The faxed application was manually captured as an
image by FNF's computer system. The application contained data from the borrower
such as employment and residential history, income, credit references, credit
obligations, personal information, and a description of the asset for the loan.
A data entry clerk retrieved the imaged application and typed in all specified
information. Any missing information was recognized by the system and the data
entry clerk was required to place a call back to the dealer at that time.
Once the application was entered by the data entry clerk, the
application was automatically transferred to a credit underwriter. The
underwriter verified that Daybreak had acquired a credit report. FNF used the
zip-code based preferred-repository method to determine from which credit bureau
the report was generated. The underwriter also reviewed the application and
performed the "budget review process", where the borrower's debts and income
sources were checked and certain key ratios were calculated. The underwriter
would also perform certain verifications and follow-ups on matters of residence,
employment, and credit history on behalf of the buyer, for loans that were not
immediately approved or rejected.
The buyer team consisted of 2 senior buyers (10+ years of experience)
and 6 buyers (7-8 years of experience). A buyer (essentially an underwriter)
evaluated all aspects of the applicant's profile to make a credit decision. The
credit process is described in detail below.
FNF hired only buyers with previous experience in the financing
sector. Newly hired buyers participated in a 2-week training program designed to
familiarize them with FNF's entire credit process. After the training, buyers
started to process applications, with 100% oversight by senior buyers for a
period of time.
FNF evaluated credit risk using a combination of credit scoring and
subjective review of borrower stability (of income, employment and housing),
revolving debt utilization, and past credit history.
The company had a three tiered credit program, Emerald Elite, Emerald
and Emerald Plus. Initially, applications would be classified as Emerald or
Emerald Plus based upon the system-generated credit score matrix. This
preliminary classification would not be adjusted during the subjective review
process by the buyer.
The Emerald Elite Program targeted the highest quality consumers and
therefore offered the company's lowest interest rates. The Emerald Program
targeted high quality, low risk consumers. The Emerald Plus Program targeted
consumers who had experienced some limited past credit difficulties but had good
overall stability and repayment capacity. Borrowers who qualified for this
program would be charged FNF's highest interest rates to offset their additional
credit risk.
FNF used three components to the credit scoring criteria used to
evaluate credit quality. The first and primary component was the FICO score.
The second component was the bankruptcy score, a customized score
provided by the credit bureaus which predicted the likelihood that a borrower
would declare bankruptcy within two years of the date of the credit report. The
third score used to evaluate credit risk was a proprietary scorecard developed
in-house, referred to as the Emerald Score. The Emerald Score generally
evaluated demographic characteristics not available on the credit report, such
as revolving debt utilization, housing status, time at current address,
debt-to-gross income ratio, previous high credit, term of current employment,
and years of credit history.
COLLATERAL EVALUATION. Each buyer was responsible for determining the
collateral value of the asset before making a credit decision. Sale price
information and used values were verified through the use of dealer invoices and
valuation guides (NADA Appraisal Guide, BUC Used Boat Price Guide).
To determine an accurate advance figure in the case of new products,
all information related to dealer-installed options, added warranties,
insurance, and taxes had to be obtained by the buyer. These dollar amounts were
required to be subtracted from the submitted sale price in order to determine
the actual price. The loan-to-value ratio was then calculated by dividing the
actual loan amount by the stated dealer invoice amount. To determine an accurate
advance figure in the case of used products, the buyer had to verify the exact
model of the unit along with any options (new or existing) the vehicle might
have included.
FUNDING DEPARTMENT. When an application was approved, the funding
department (4 employees) processed the loan. A funding specialist reviewed the
file for credit and legal compliance as well as required documentation. Funding
specialists ensured that any stipulations that were placed on approved loans
were met. Pre-close file requirements included a copy of the title application
(showing FNF as the lien holder), a copy of the bill of sale, a copy of an
insurance agreement, and proof of income. Additionally, a copy of the actual
dealer invoice was required prior to funding. Once a contract was approved for
funding, the loan was automatically entered into the loan servicing system.
INSURANCE. Each borrower was required to maintain comprehensive
insurance coverage with a $500 maximum deductible. The policy named FNF as the
loss payee.
THE SERVICER
Wells Fargo Bank, N.A. will service the receivables pursuant to the
sale and servicing agreement. As of the date of this prospectus supplement,
Wells Fargo Bank, N.A. has long-term debt ratings of "AA-" from Standard &
Poor's and "Aa1" from Moody's and short-term debt ratings of "A-1+" from
Standard & Poor's and "P-1" from Moody's.
SERVICING AND COLLECTIONS
The following describes the servicer's guidelines and practices for
the servicing of recreational vehicle, marine and other SRV loans. To date, the
servicer has applied these guidelines and practices to service the receivables
originated by the First Security Originators.
The servicer's primary collections are performed in both Tempe,
Arizona and Salt Lake City, Utah with satellite offices in Boise, Idaho for
bankruptcy and Walnut Creek, California for charge off collections.
The Consumer Loan Servicing Centers in Boise and Tempe provide
servicing for installment loans (other than the collection of delinquent
accounts). The Consumer Loan Servicing Centers review and track all loan
documentation, store and maintain all loan files on an imaging system, follow up
on lien perfection, process payments, reconcile accounting records, provide for
internal and external reporting for all of the servicer's indirect consumer
lending and auto leasing business, provide central processing of manufacturer's
drafts and flooring requests for the regional Dealer Credit Services Centers,
and provide processing of flooring billing and payments.
When the signed loan documents are received by the servicer, the
Validation and Discounting Center in Boise performs a quality control review to
ensure that the loan documents are in compliance with all state and federal laws
and bank policies, validates the terms and conditions of the contract, ensures
all credit conditions are met, calculates the dealer reserve, and books the loan
to the servicing system. The documents are forwarded to the Consumer Loan
Servicing Center for complete loan servicing and lien perfection follow-up.
Electronic image storage was initiated in 1994. All files will be
stored on the servicer's imaging system. All paid loan records are retained for
five years on the imaging system. The Consumer Loan Service Centers have
comprehensive disaster plans for the replacement of loan documents in the event
of a catastrophe.
DELINQUENCIES AND REPOSSESSIONS
A reminder notice is mailed to all of the servicer's accounts. The
timing of these notices is dependent on the behavior score of the account as
determined by TRIAD. Unpaid installment loans are tracked on the servicer's
computerized collection system (Shaw) beginning on the third day of delinquency.
The early stage delinquency is managed by the "front-end" collections
group working predominately on a power dialer (Davox in SLC and Mosiax in
Tempe). Both Mosiax and Davox are automatic telephone dialing systems used to
collect delinquent accounts. Delinquent accounts enter the dialer group
depending on their risk score. The dialer group utilizes predictive dialing
technology to contact accounts which are between 6 and 49 days delinquent.
Accounts in the 6 to 49 days delinquent category are primarily contacted by
telephone; however, letters and personal contacts are also employed on a
case-by-case basis. Accounts are behavior-scored to determine how early they are
contacted.
The behavior or risk score will determine when the account is sent to
"back-end" collectors. The dedicated collector will continue collecting the
account until it is resolved.
The servicer considers repossession when all collection efforts have
been exhausted. The decision to repossess may occur at any point in the
delinquency depending upon the customer's inability to maintain a satisfactory
repayment schedule. Generally, repossessions will occur on any account between
60 and 90 days delinquent where further collection activities are judged to be
fruitless. Approval of the Collection Manager is required for exceptions to this
policy. An outside agency close to the geographical location of the vehicle will
be used to repossess the unit. After repossession, the servicer is required to
give reasonable notice to the obligor of any proposed sale of the financed
vehicle. The servicer's practice is to give the obligor 10 days' notice unless
otherwise required by law.
Repossessed vehicles are sold at dealer wholesale auctions near the
place of repossession.
CHARGE-OFFS AND EXTENSIONS
Loans are charged off in the month in which they become 120 days
delinquent. If the collateral is repossessed and liquidated earlier, the loan
will be charged off at that time. If a customer files a Chapter 13 bankruptcy,
the loan is charged down to the appropriate collateral value within 60 days of
receipt of notification of the bankruptcy.
In the event the servicer determines that, after it has exhausted all
customary and usual collection practices and procedures, including efforts to
repossess and liquidate a financed vehicle or recover a deficiency balance
related to a liquidating receivable, further collection efforts by it as to that
receivable will not result in the realization of additional proceeds to the
owner of the loan, the servicer may, on behalf of such owner, sell the
receivable to any person not affiliated with the servicer free and clear of the
rights of the owner. All proceeds of the sale of such receivables shall be
deposited directly in or credited to a collection account maintain for the owner
of the loan.
The servicer may, on a case-by-case basis, permit extensions of the
due dates of receivables or payment deferrals in the discretion of a collector
other than the origination officer. In addition to these extensions, the
servicer may offer payment deferrals to qualifying applicants. These offers will
not be made more than twice in any given calendar year. Unless otherwise
specified, all obligors that meet the servicer's eligibility requirements will
be given the opportunity to take advantage of these payment deferrals. Any
deferrals or extensions may extend the maturity of the receivable and increase
the weighted average life of the receivable.
PHYSICAL DAMAGE INSURANCE
The servicer requires that an obligor provide an insurance policy
covering collision and comprehensive insurance. However, the servicer will not
force place coverage. As a result, in the event obligors do not maintain
insurance coverage and coverage is not force placed, insurance recoveries may be
limited in the event of losses or casualties to financed vehicles backing the
receivables.
SERVICING SYSTEM
The servicer utilizes the SHAW IL mainframe-based computer system to
service all of its installment loans. The originated First Security Originator
portfolio was converted to this system, utilized by Wells Fargo, on April 20,
2001. System support is presently provided through in-house systems staff. Since
interruptions in servicing often occur in connection with system conversions,
the servicer expects a temporary increase in delinquencies and defaults
immediately following the system conversion.
DELINQUENCIES, LOSS AND REPOSSESSION EXPERIENCE
Set forth below is information concerning the historical delinquency,
loss and repossession experience of the servicer pertaining to retail
installment sales contracts secured by new and used recreational vehicle, marine
and other SRV loans which are being serviced by the servicer.
The data presented in the following tables are for illustrative
purposes only. There is no assurance that delinquency, loss and repossession
experience of the trust with respect to the receivables to be transferred to it
will be similar to that set forth below. The percentages in the tables below
have not been adjusted to eliminate the effect of the growth of the servicer's
portfolio. The percentages do not in any way reflect the past performance of
FreedomNation Receivables. Accordingly, the delinquency, loss and repossession
percentages may be lower than those shown if a group of receivables were
isolated at a period in time and the delinquency, loss and repossession data
showed the activity only for that isolated group of receivables over the periods
indicated.
Delinquency Experience
At December 31,
2000 1999 1998 1997
-----------------------------------------------------------------------------------------------
Principal balance of
contracts serviced....... $708,708,334.34 $547,329,768.62 $393,058,404.51 $299,433,602.86
Principal balance of
delinquent contracts:
30-59 days............ $8,021,458.59 1.13% $5,931,121.14 1.08% $4,169,087.23 1.06% $3,120,805.24 1.04%
60-89 days............ $2,187,163.41 0.31% $1,943,875.17 0.36% $1,442,349.26 0.37% $649,645.15 0.22%
90+ days.............. $904,294.57 0.13% $1,786,126.60 0.33% $754,399.78 0.19% $318,546.79 0.11%
-------------- --------------- --------------- ---------------
Total principal balance $11,112,916.57 $9,661,122.91 $6,365,836.27 $4,088,997.18
of delinquent contracts..
Delinquencies as a
percent of principal
balance.................. 1.57% 1.77% 1.62% 1.37%
o The period of delinquency is based on the number of days
scheduled payments are contractually past due, and includes
receivables that have not been charged-off. A payment is deemed
to be past due if less than 90% of such payment is made on the
related due date.
Repossession and Loss Experience
For the Twelve Months Ended December 31,
-------------------------------------------------------------------------------------------
2000 1999 1998
Average principal balance
of contracts serviced.... $649,269,064.50 $483,072,619.16 $380,439,259.25
Gross Losses............. $9,357,447.86 $6,665,909.05 $2,915,401.97
Recoveries............... ($3,156,380.49) ($3,129,056.88) ($1,372,605.30)
---------------------------- ---------------------- ----------------------------
$6,201,067.37 $3,536,852.17 $1,542,796.67
Net Losses...............
Net Losses as a pct. of
average principal balance
of contracts serviced.... 0.96% 0.73% 0.70%
o Averages represent the average of the principal amount
outstanding as of the end of each calendar month during the
indicated periods.
o "Gross Losses" represents the outstanding balance of contracts
charged-off that are determined to be uncollectible; includes
bankrupt repossessions and other losses on account of
bankruptcies.
o "Recoveries" represent post-disposition monies received on
previously charged-off contracts including all proceeds from the
liquidation of the related vehicle after the related charge-off.
Also includes recoveries for dealer reserve charge-offs and
dealer reserve chargebacks.
o "Net Losses" are "Gross Losses" less "Recoveries".
o Data included from calendar year 1998 only includes information
from June through December. Accordingly, Net Losses as a percent
of average principal balance of contracts serviced for 1998 is
annualized.
Delinquencies and net losses are affected by a number of social and
economic factors, including changes in interest rates and unemployment levels in
the economy, and there can be no assurance as to the level of future total
delinquencies or the severity of future net charge-offs. As a result, the
delinquency and net charge-off experience of the receivables may differ from
those shown in the tables.
HOW YOU CAN COMPUTE YOUR PORTION OF THE
AMOUNT OUTSTANDING ON THE NOTES
The servicer will provide to you in each report that it delivers to
you a factor that you can use to compute your portion of the principal amount
outstanding on the notes.
HOW THE SERVICER COMPUTES THE FACTOR FOR YOUR CLASS OF NOTES. The
servicer will compute a separate factor for each class of notes. The factor for
each class of notes will be a seven-digit decimal which the servicer will
compute with respect to such class of notes indicating the remaining outstanding
principal amount of such class of notes, as of the applicable Payment Date. The
servicer will compute the factor after giving effect to payments to be made on
such Payment Date, as a fraction of the initial outstanding principal amount of
such class of notes.
YOUR PORTION OF THE OUTSTANDING AMOUNT OF THE NOTES. For each note you
own, your portion of that class of notes is the product of:
o the original denomination of your note; and
o the factor relating to your class of notes computed by the
servicer in the manner described above.
THE FACTORS DESCRIBED ABOVE WILL DECLINE
AS THE TRUST MAKES PAYMENTS ON THE NOTES
Each of the factors described above will initially be 1.0000000. They
will then decline to reflect reductions in the outstanding principal amount of
the applicable class of notes. These reductions over time will be as a result of
scheduled payments, prepayments, purchases of the receivables by Wells Fargo
Bank, the seller or the servicer and liquidations of the receivables.
MATURITY AND PREPAYMENT CONSIDERATIONS
GENERAL
Information regarding certain maturity and prepayment considerations
with respect to the notes is set forth under "WEIGHTED AVERAGE LIFE OF THE
SECURITIES" in the attached prospectus. In addition to the priority of payments
described above, if the notes are accelerated upon the occurrence and during the
continuation of certain Events of Default under the indenture:
o principal payments will be made on the Class A-1 notes, the Class
A-2 notes, the Class A-3 notes, the Class A-4 notes and the Class
A-5 notes ratably until the Class A notes have been paid in full;
o no principal payments will be made on the Class B notes until the
Class A notes have been paid in full;
o no principal payments will be made on the Class C notes until the
Class A notes and the Class B notes have been paid in full; and
o no principal payments will be made on the Class D notes until the
Class A notes, the Class B notes and the Class C notes have been
paid in full.
As the rate of payment on principal of each class of notes depends on
the rate of payment, including prepayments, of the principal balance of the
receivables, final payment of any class of notes could occur significantly
earlier than the respective Final Scheduled Payment Dates.
See "RISK FACTORS -- YOUR YIELD TO MATURITY MAY BE REDUCED BY
PREPAYMENTS," "RISK FACTORS -- YOUR NOTES MAY NOT BE REPAID ON THEIR FINAL
SCHEDULED PAYMENT DATE" AND "RISK FACTORS -- PAYMENT PRIORITIES AND
SUBORDINATION FEATURES INCREASE RISK OF LOSS OR DELAY IN PAYMENT TO SOME CLASSES
OF NOTES" for a discussion of maturity and prepayment considerations.
Also see "THE RECEIVABLES POOL" in this prospectus supplement and
"Description of the Transfer and Servicing Agreements -- Sale and Assignment of
Primary Assets" in the attached prospectus.
PAID-AHEAD RECEIVABLES
If an obligor, in addition to making his regularly scheduled payment,
makes one or more additional scheduled payments in any Collection Period (for
example, because the obligor intends to be on vacation the following month), the
additional scheduled payments made in such Collection Period will be treated as
a principal prepayment and applied to reduce the principal balance of the
related receivable in such Collection Period and, unless otherwise requested by
the obligor, the obligor will not be required to make any scheduled payment in
respect of such receivable (a "Paid-Ahead Receivable") for the number of due
dates corresponding to the number of such additional scheduled payments (the
"Paid-Ahead Period"). During the Paid-Ahead Period, interest will continue to
accrue on the principal balance of the receivable, as reduced by the application
of the additional scheduled payments made in the Collection Period in which such
receivable became a Paid-Ahead Receivable. The obligor's receivable would not be
considered delinquent during the Paid-Ahead Period.
When the obligor resumes his required payments following the
Paid-Ahead Period, the payment so paid may be insufficient to cover the interest
that has accrued since the last payment by the obligor. Notwithstanding such
insufficiency, the obligor's receivable would be considered current. This
situation will continue until the regularly scheduled payments are once again
sufficient to cover all accrued interest and to reduce the principal balance of
the receivable. Depending on the principal balance and interest rate of the
related receivable, and on the number of payments that were paid-ahead, there
may be extended periods of time during which receivables that are current are
not amortizing. During such periods, no distributions in respect of principal
will be made to the noteholders with respect to such receivables.
Paid-Ahead Receivables will affect the weighted average life of the
notes. The distribution of the paid-ahead amount on the payment date following
the Collection Period in which such amount was received will generally shorten
the weighted average life of the notes. However, depending on the length of time
during which a Paid-Ahead Receivable is not amortizing as described above, the
weighted average life of the notes may be extended.
As of the cut-off date a portion of the receivables are at least one
scheduled monthly payment paid-ahead. There can be no assurance as to the number
of receivables which may become Paid-Ahead Receivables or the number or the
principal amount of the scheduled payments which may be paid-ahead.
USE OF PROCEEDS
The net proceeds from the sale of the notes will be applied by the
seller to purchase the receivables and the other trust property from the
transferor.
DESCRIPTION OF THE NOTES
The trust will issue the notes under an indenture to be dated as of
the closing date between the trust and The Chase Manhattan Bank, as indenture
trustee. We will file a copy of the indenture with the Securities and Exchange
Commission after the trust issues the notes. The following information
summarizes all material provisions of the notes and the indenture. The following
summary supplements the description of the general terms and provisions of the
notes of any given series and the related indenture set forth in the attached
prospectus, to which description we refer you. See "DESCRIPTION OF THE NOTES"
and "CERTAIN INFORMATION REGARDING THE SECURITIES" in the attached prospectus.
PAYMENTS OF INTEREST
Interest on the principal amounts of the notes will accrue at the
respective per annum interest rates for the various classes of notes set forth
on the cover of this prospectus supplement and will be payable to the
noteholders on each Payment Date. The trust will make payments to the
noteholders as of each Record Date.
CALCULATION OF INTEREST. Interest will accrue during each interest
period and will be calculated on the various classes of notes as follows:
o 30/360. Interest on the notes will be calculated on the basis of
a 360-day year of twelve 30-day months.
o UNPAID INTEREST ACCRUES. Interest accrued as of any Payment Date,
but not paid on such Payment Date will be due on the next Payment
Date, together with interest on such amount at the applicable
interest rate (to the extent lawful).
THE TRUST WILL PAY INTEREST PRO RATA TO CLASS A NOTEHOLDERS IF IT DOES
NOT HAVE ENOUGH FUNDS AVAILABLE TO PAY ALL INTEREST DUE. The amount available
for interest payments on the Class A notes could be less than the amount of
interest payable on the Class A notes on any Payment Date. In that event, the
Class A-1 noteholders, the Class A-2 noteholders, the Class A-3 noteholders, the
Class A-4 noteholders and the Class A-5 noteholders will receive their ratable
share of the aggregate amount available to be distributed in respect of interest
on the Class A notes. Each such class' ratable share of the amount available to
pay interest will be based on the amount of interest due on such class relative
to the total amount of interest due to the Class A noteholders.
INTEREST PAID ON THE CLASS B NOTES, THE CLASS C NOTES AND THE CLASS D
NOTES IS SUBORDINATE TO INTEREST PAID ON THE CLASS A NOTES. Interest on the
Class B notes will not be paid on any Payment Date until interest payments on
the Class A notes have been paid in full and the First Priority Principal
Distribution Amount, if any, has been allocated. If the amount available for
interest payments on the Class B notes is less than the amount of interest
payable on the Class B notes on any Payment Date, each of the holders of the
Class B notes will receive their ratable share - based upon the total amount of
interest due to such Class B noteholders - of the aggregate amount available to
be distributed in respect of interest on the Class B notes. Interest on the
Class C notes will not be paid on any Payment Date until interest payments on
the Class A notes have been paid in full, the First Priority Principal
Distribution Amount, if any, has been allocated, interest payments on the Class
B notes have been paid in full and the Second Priority Principal Distribution
Amount, if any, has been allocated. If the amount available for interest
payments on the Class C notes is less than the amount of interest payable on the
Class C notes on any Payment Date, each of the holders of the Class C notes will
receive their ratable share - based upon the total amount of interest due to
such Class C noteholders - of the aggregate amount available to be distributed
in respect of interest on the Class C notes. Interest on the Class D notes will
not be paid on any Payment Date until interest payments on the Class A notes
have been paid in full, the First Priority Principal Distribution Amount, if
any, has been allocated, interest payments on the Class B notes have been paid
in full, the Second Priority Principal Distribution Amount, if any, has been
allocated, interest payments on the Class C notes have been paid in full and the
Third Priority Principal Distribution Amount, if any, has been allocated. If the
amount available for interest payments on the Class D notes is less than the
amount of interest payable on the Class D notes on any Payment Date, each of the
holders of the Class D notes will receive their ratable share - based upon the
total amount of interest due to such Class D noteholders - of the aggregate
amount available to be distributed in respect of interest on the Class D notes.
See "DESCRIPTION OF THE SALE AND SERVICING AGREEMENT -- DISTRIBUTIONS" AND "--
RESERVE ACCOUNT" in this prospectus supplement.
EVENT OF DEFAULT REGARDING THE PAYMENT OF INTEREST
An Event of Default under the indenture will occur if the full amount
of interest due on the Controlling Class of notes is not paid within five days
of the related Payment Date. The failure to pay interest on any other class of
notes within five days of the related Payment Date will not be an Event of
Default.
See "DESCRIPTION OF THE NOTES -- THE INDENTURE -- EVENTS OF DEFAULT"
AND "-- RIGHTS UPON EVENT OF DEFAULT" in this prospectus supplement.
PAYMENTS OF PRINCIPAL
The trust will generally make principal payments to the noteholders on
each Payment Date in an amount equal to the Principal Distribution Amount. The
"Principal Distribution Amount" with respect to any Payment Date equals the sum
of:
o the First Priority Principal Distribution Amount;
o the Second Priority Principal Distribution Amount;
o the Third Priority Principal Distribution Amount; and
o the Regular Principal Distribution Amount.
The trust will pay principal on the notes from funds on deposit in the
Collection Account including amounts, if any, from the Reserve Account, in
accordance with the priorities described in "Description of the Sale and
Servicing Agreement -- Distributions" in this prospectus supplement.
PRIORITY OF PRINCIPAL REPAYMENTS. Principal payments on the notes will
generally be made sequentially on each Payment Date from amounts on deposit in
the Principal Distribution Account, in the following order of priority:
1. Prior to the Crossover Date, or if a Trigger Event is in effect,
sequentially to the notes commencing with the Class A-1 notes until
each class of notes is paid in full.
2. On and after the Crossover Date so long as a Trigger Event is not in
effect:
o to the Class A notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class A notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the
Crossover Date, on the first Payment Date after the Crossover
Date that a Trigger Event is not in effect) divided by (b) the
principal balance of the receivables as of the last day of the
second Collection Period preceding the Crossover Date (or if a
Trigger Event is in effect on the Crossover Date, the first
Payment Date after the Crossover Date that a Trigger Event is not
in effect) and (2) the principal balance of the receivables as of
the last day of the preceding Collection Period, in the following
order of priority:
o first to the Class A-1 notes until paid in full;
o second to the Class A-2 notes until paid in full;
o third to the Class A-3 notes until paid in full;
o fourth to the Class A-4 notes until paid in full; and
o fifth to the Class A-5 notes until paid in full.
o to the Class B notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class B notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the principal balance
of the receivables as of the last day of the second Collection Period
preceding the Crossover Date (or if a Trigger Event is in effect on
the Crossover Date, the first Payment Date after the Crossover Date
that a Trigger Event is not in effect) and (2) the principal balance
of the receivables as of the last day of the preceding Collection
Period.
o to the Class C notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class C notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the principal balance
of the receivables as of the last day of the second Collection Period
preceding the Crossover Date (or if a Trigger Event is in effect on
the Crossover Date, the first Payment Date after the Crossover Date
that a Trigger Event is not in effect) and (2) the principal balance
of the receivables as of the last day of the preceding Collection
Period.
o to the Class D notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class D notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the principal balance
of the receivables as of the last day of the second Collection Period
preceding the Crossover Date (or if a Trigger Event is in effect on
the Crossover Date, the first Payment Date after the Crossover Date
that a Trigger Event is not in effect) and (2) the principal balance
of the receivables as of the last day of the preceding Collection
Period.
o to the Class E notes, the amount required to reduce the principal
amount thereof to an amount equal to the product of (1) (a) the
principal amount of the Class E notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the principal balance
of the receivables as of the last day of the second Collection Period
preceding the Crossover Date (or if a Trigger Event is in effect on
the Crossover Date, the first Payment Date after the Crossover Date
that a Trigger Event is not in effect) and (2) the principal balance
of the receivables as of the last day of the preceding Collection
Period.
o any remaining amounts to the certificateholders.
NOTES MIGHT NOT BE REPAID ON THEIR FINAL SCHEDULED PAYMENT DATES. The
principal amounts of any class of notes to the extent not previously paid will
be due on the Final Scheduled Payment Date relating to that class of notes.
Those dates are listed on the cover of this prospectus supplement. The actual
date on which the aggregate outstanding principal amount of any class of notes
is paid may be earlier or later than the Final Scheduled Payment Date relating
to that class of notes based on a variety of factors, including those described
under "Maturity and Prepayment Considerations" in this prospectus supplement and
"Weighted Average Life of the Securities" in the prospectus.
EVENT OF DEFAULT REGARDING THE PAYMENT OF PRINCIPAL. An Event of
Default under the indenture will occur if any principal payment on any note is
not made when that payment is due and payable. See "The Indenture -- Events of
Default" and "-- Rights Upon Event of Default" in this prospectus supplement.
OPTIONAL REDEMPTION
All outstanding notes will be redeemed in whole, but not in part, on any
Payment Date on which the servicer exercises its option to purchase the
receivables. The servicer may purchase the receivables when the Pool Balance
will have declined to 10% or less of the initial Pool Balance, as described in
the prospectus under "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS --
TERMINATION." The redemption price for the receivables will be equal to the sum
of the aggregate outstanding principal amount of the receivables, plus accrued
and unpaid interest on the receivables; provided that the redemption price is
sufficient to repay all outstanding principal and accrued and unpaid interest on
the notes and the holders of a majority of the certificates consent to the
purchase.
THE INDENTURE
EVENTS OF DEFAULT. The occurrence of any one of the following events shall
be an event of default under the indenture:
o a default in the payment of any interest on any note of the
Controlling Class when the same becomes due and payable, and such
default shall continue for a period of five days;
o a default in the payment of the principal of any note when the same
becomes due and payable;
o a default in the observance or performance of any material covenant or
agreement of the trust made in the indenture-- other than a covenant
or agreement, a default in the observance or performance of which is
elsewhere specifically dealt with in the indenture-- or any
representation or warranty of the issuer made in the indenture or in
any certificate or other writing delivered pursuant to the indenture
or in connection with the indenture proving to have been incorrect in
any material respect as of the time when the same shall have been
made, which default materially and adversely affects the noteholders
or the indenture trustee, and such default shall continue or not be
cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 30 days-- or for such
longer period as provided in the indenture; or
o the bankruptcy of the trust or the occurrence of other circumstances
relating to the bankruptcy or insolvency of the trust, as described in
the indenture.
The amount of principal required to be paid to noteholders under the indenture,
however, generally will be limited to amounts available to be deposited in the
Principal Distribution Account. Thus, the failure to pay principal on a class of
notes generally will not result in the occurrence of an Event of Default until
the Final Scheduled Payment Date for that class of notes.
RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence and continuation of any
Event of Default, the indenture trustee or the holders of a majority in
principal amount of the Controlling Class may declare the principal of such
notes to be immediately due and payable. Such declaration may be rescinded by
the holders of a majority in principal amount of the Controlling Class then
outstanding if both of the following occur:
o the issuer has paid or deposited with the indenture trustee enough
money to pay:
o all payments of principal of and interest on all notes and all
other amounts that would then be due if the Event of Default
causing the acceleration of maturity had not occurred; and
o all sums paid or advanced by the indenture trustee and the
reasonable compensation, expenses, disbursements and advances of
the indenture trustee and its agents and counsel; and
o all Events of Default, other than the nonpayment of the principal of
the notes that has become due solely by the acceleration, have been
cured or waived.
Any such rescission could be treated, for United States federal income tax
purposes, as a constructive exchange of such notes by the noteholders for deemed
new notes upon which gain or loss would be recognized.
If an Event of Default has occurred, the indenture trustee may institute
proceedings to collect amounts due or foreclose on trust property, exercise
remedies as a secured party or sell the receivables. Upon the occurrence of an
Event of Default relating to the payment of principal of any note or a default
for five days or more in the payment of interest of any note of the Controlling
Class, in each case resulting in acceleration of the notes, the indenture
trustee may sell the receivables without obtaining the consent of the
noteholders or may elect to have the trust maintain possession of the
receivables and apply collections as received. However, the indenture trustee is
prohibited from selling the related receivables following an Event of Default
relating to the bankruptcy or occurrence of other circumstances of insolvency of
the trust, unless:
o the holders of 100% of the Controlling Class of notes consent to such
sale -- excluding notes held by the seller, the servicer or their
affiliates,
o the proceeds of such sale are sufficient to pay in full the principal
of and the accrued interest on the outstanding notes at the date of
such sale, or
o the indenture trustee determines that the proceeds of the receivables
would not be sufficient on an ongoing basis to make all payments on
the notes as such payments would have become due if such obligations
had not been declared due and payable, and the indenture trustee
obtains the consent of the holders of 66 2/3% of the aggregate
outstanding amount of the Controlling Class of notes.
In addition, if the Event of Default relates to a default by the trust in
observing or performing any material covenant or agreement -- other than an
Event of Default relating to non-payment of interest or principal, insolvency or
any other event which is otherwise specifically dealt with by the indenture --
the indenture trustee is prohibited from selling the receivables unless the
holders of all outstanding notes consent to such sale or the proceeds of such
sale are sufficient to pay in full the principal of and the accrued interest on
the outstanding notes.
In determining the sufficiency or insufficiency with respect to the three
immediately preceding paragraphs, the indenture trustee may, but should not be
required to, obtain and rely upon an opinion of an independent investment
banking or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the receivables for such purpose.
All costs and expenses incurred in obtaining such opinion shall be payable from
amounts held in the Collection Account.
If an Event of Default occurs and is continuing, the indenture trustee will
be under no obligation to exercise any of the rights or powers under such
indenture at the request or direction of any of the holders of any notes, if the
indenture trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to the provisions for indemnification and
certain limitations contained in the indenture, the holders of a majority in
principal amount of the Controlling Class of notes will have the right to direct
the time, method and place of conducting any proceeding or any remedy available
to the indenture trustee, and the holders of a majority in principal amount of
the Controlling Class may, in certain cases, waive any Event of Default, except
a default in the payment of principal or interest or a default in respect of a
covenant or provision of such indenture that cannot be modified without the
waiver or consent of the holders of all of the outstanding notes of the related
trust. Any such waiver could be treated, for United States federal income tax
purposes, as a constructive exchange of such notes by the related noteholders
for deemed new notes upon which gain or loss would be recognized.
APPOINTMENT OF ADDITIONAL INDENTURE TRUSTEES. Under the Trust Indenture Act
of 1939, the indenture trustee may be deemed to have a conflict of interest and
be required to resign as trustee for either the Class A notes, the Class B
notes, the Class C notes, the Class D notes or the Class E notes if an Event of
Default occurs under the indenture. In these circumstances, the indenture will
provide for a successor trustee to be appointed for one or all of the Class A
notes, the Class B notes, the Class C notes, the Class D notes and the Class E
notes in order that there be separate trustees for each of the Class A notes,
the Class B notes, the Class C notes, the Class D notes and the Class E notes.
In general, so long as any amounts remain unpaid with respect to the Class A
notes:
o only the indenture trustee for the Class A noteholders will have the
right to exercise remedies under the indenture; and
o only the Class A noteholders will have the right to direct or consent
to any action to be taken, including sale of the receivables.
In any case, the Class B noteholders will be entitled to their respective shares
of any proceeds of enforcement, subject to the subordination of the Class B
notes to the Class A notes as described in this prospectus supplement. When the
Class A notes are repaid in full, all rights to exercise remedies under the
indenture will transfer to the trustee for the Class B notes. The Class C
noteholders will be entitled to their respective shares of any proceeds of
enforcement, subject to the subordination of the Class C notes to the Class A
notes and the Class B notes as described in this prospectus supplement. When the
Class A notes and the Class B notes are repaid in full, all rights to exercise
remedies under the indenture will transfer to the trustee for the Class C notes.
The Class D noteholders will be entitled to their respective shares of any
proceeds of enforcement, subject to the subordination of the Class D notes to
the Class A notes, the Class B notes and the Class C notes as described in this
prospectus supplement. When the Class A notes, the Class B notes and the Class C
notes are repaid in full, all rights to exercise remedies under the indenture
will transfer to the trustee for the Class D notes. The Class E noteholders will
be entitled to their respective shares of any proceeds of enforcement, subject
to the subordination of the Class E notes to the Class A notes, the Class B
notes, the Class C notes and the Class D notes as described in this prospectus
supplement. When the Class A notes, the Class B notes, the Class C notes and the
Class D notes are repaid in full, all rights to exercise remedies under the
indenture will transfer to the trustee for the Class E notes.
If the indenture trustee relating to any class of notes resigns, its
resignation will become effective only after a successor indenture trustee for
that class of notes is appointed and the successor accepts the appointment.
PRIORITY OF PAYMENTS MAY CHANGE UPON CERTAIN EVENTS OF DEFAULT. Following
the occurrence and during the continuation of an Event of Default described in
the first, second and fourth bullet described in "-- Events of Default" which
has resulted in an acceleration of the notes, and upon the liquidation of the
receivables after any Event of Default, the priority of payments changes. In
particular, payments on the notes will generally be made sequentially on each
Payment Date following an acceleration of the notes, in the following order of
priority:
o interest on the Class A notes, ratably;
o to the principal amount of the Class A-1 notes, Class A-2 notes, Class
A-3 notes, Class A-4 notes and Class A-5 notes, ratably, until such
principal amount is paid in full;
o interest on the Class B notes;
o to the principal amount of the Class B notes until such principal
amount is paid in full;
o interest on the Class C notes;
o to the principal amount of the Class C notes until such principal
amount is paid in full;
o interest on the Class D notes;
o to the principal amount of the Class D notes until such principal
amount is paid in full;
o interest on the Class E notes; and
o to the principal amount of the Class E notes until such principal
amount is paid in full.
Following the occurrence of any other Event of Default which has resulted
in an acceleration of the notes, the trust will continue to pay interest and
principal on the notes on each Payment Date in the manner set forth in
"Description of the Sale and Servicing Agreement -- Priority of Payments" in
this prospectus supplement, until a liquidation, if any, of the receivables.
THE INDENTURE TRUSTEE
The Chase Manhattan Bank is the indenture trustee under the indenture. The
Chase Manhattan Bank is a New York banking corporation and its principal offices
are located at 450 West 33rd Street, New York, New York 10003.
DESCRIPTION OF THE SALE AND SERVICING AGREEMENT
We have summarized below the material terms of the sale and servicing
agreement. We have filed a form of the sale and servicing agreement as an
exhibit to the registration statement. We will file a copy of the actual sale
and servicing agreement with the SEC after we issue the notes. This summary is
not a complete description of all of the provisions of the sale and servicing
agreement. It is subject to all of the provisions of the sale and servicing
agreement.
SALE AND ASSIGNMENT OF THE RECEIVABLES
You can find information about the transfer of the receivables from the
originators directly or indirectly to the transferor, from the transferor to the
seller and from the seller to the trust on the closing date in the attached
prospectus under "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS -- SALE
AND ASSIGNMENT OF PRIMARY ASSETS."
ACCOUNTS
In general, the servicer will be permitted to retain collections on the
receivables until the Business Day preceding any Payment Date. However, the
servicer will be required to remit collections received with respect to the
receivables no later than the second Business Day after receipt to the
Collection Account if there is an Event of Servicing Termination, if the initial
servicer is no longer the servicer or if one of the other conditions set forth
in the sale and servicing agreement is not met. See "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS - COLLECTIONS" in the prospectus. In addition to the
Collection Account referred to under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS - TRUST ACCOUNTS" in the prospectus the servicer will establish the
Collection Account, the Note Distribution Account, the Reserve Account, the
Interest Distribution Account and the Principal Distribution Account.
SERVICING COMPENSATION AND EXPENSES
The servicer will be entitled to receive a servicing fee for each
Collection Period in an amount equal to the sum of (1) product of one-twelfth of
1% per annum and the Pool Balance as of the first day of the Collection Period
and (2) a supplemental servicing fee equal to late fees and extension fees in an
amount up to $20 per receivable (per occurrence) and payment holiday extension
fees in an amount up to $15 per receivable (per occurrence). The servicing fee,
together with any portion of the servicing fee that remains unpaid from prior
Payment Dates, will be payable on each Payment Date from funds on deposit in the
Collection Account with respect to the Collection Period preceding such Payment
Date, including funds, if any, deposited into the Collection Account from the
Reserve Account. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS --
SERVICING COMPENSATION AND PAYMENT OF EXPENSES" IN THE PROSPECTUS.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, the indenture trustee may, and
at the direction of the holders of not less than a majority of the principal
amount of the Controlling Class, will remove the servicer without the consent of
any of the other noteholders.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
If an Event of Servicing Termination occurs, a majority of the principal
amount of the Controlling Class, subject to the exceptions provided in the sale
and servicing agreement, may waive any Event of Servicing Termination except for
a failure to make any required deposits to or payments from any account, without
the consent of any of the other noteholders.
DISTRIBUTIONS
DEPOSITS TO THE COLLECTION ACCOUNT AND DETERMINATION OF AVAILABLE
COLLECTIONS. On or before each Payment Date, the servicer will cause all
collections on receivables and other amounts constituting the Available
Collections to be deposited into the Collection Account. On or before each
Payment Date, the servicer will notify the indenture trustee to make a
withdrawal from the Reserve Account and deposit into the Collection Account an
amount equal to the lesser of:
o the amount, if any, by which (a) the Total Required Payment exceeds
(b) the Available Funds for such Payment Date; and
o the amount of cash or other immediately available funds in the Reserve
Account on such Payment Date.
On each Determination Date, the servicer will determine the amount in the
Collection Account for distribution on the related Payment Date and will notify
the indenture trustee in writing. Payments to noteholders will be made on each
Payment Date in accordance with that determination.
SOURCES OF FUNDS AVAILABLE FOR DISTRIBUTION ON ANY PAYMENT DATE
Obligors
Reserve Account
Scheduled payments, Liquidation Originators,
Proceeds and prepayments on Transferor and
the receivables Seller
Reserve Account
Investment Earnings, if applicable
Servicer
Total Required Payment
minus Available Funds
Purchase Amount of
receivables purchased
Available Funds
Amounts deposited into the Collection
Account for distribution
PRIORITY OF PAYMENTS.
On the Business Day preceding each Payment Date, except as set forth above
under "DESCRIPTION OF THE NOTES -- THE INDENTURE -- PRIORITY OF PAYMENTS MAY
CHANGE UPON CERTAIN EVENTS OF DEFAULT," the servicer will instruct the indenture
trustee to make the following deposits and distributions, to the extent of funds
then on deposit in the Collection Account with respect to the Collection Period
preceding such Payment Date - including funds, if any, deposited into the
Collection Account from the Reserve Account - in the following order of
priority:
(1) to the servicer, the Servicing Fee and all unpaid Servicing Fees from
prior Collection Periods;
(2) to the Class A noteholders:
(a) the aggregate amount of interest accrued for the related Interest
Period on each of the Class A Notes at their respective interest
rates on the principal outstanding as of the previous Payment
Date after giving effect to all payments of principal to the
Class A noteholders on the preceding Payment Date; and
(b) the excess, if any, of the amount of interest payable to the
Class A noteholders on prior Payment Dates over the amounts
actually paid to the Class A noteholders on those prior Payment
Dates, plus interest on any such shortfall to the extent
permitted by law;
(3) to the Principal Distribution Account, the First Priority Principal
Distribution Amount, if any;
(4) to the Class B noteholders:
(a) the aggregate amount of interest accrued for the related Interest
Period on the Class B Notes at the interest rate on such notes on
the principal outstanding as of the previous Payment Date after
giving effect to all payments of principal to the Class B
noteholders on the preceding Payment Date; and
(b) the excess, if any, of the amount of interest payable to the
Class B noteholders on prior Payment Dates over the amounts
actually paid to the Class B noteholders on those prior Payment
Dates, plus interest on any such shortfall to the extent
permitted by law;
(5) to the Principal Distribution Account, the Second Priority Principal
Distribution Amount, if any;
(6) to the Class C Noteholders:
(a) the aggregate amount of interest accrued for the related Interest
Period on the Class C notes at the interest rate on such notes on
the principal outstanding as of the previous Payment Date after
giving effect to all payments of principal to the Class C
Noteholders on the preceding Payment Date; and
(b) the excess, if any, of the amount of interest payable to the
Class C Noteholders on prior Payment Dates over the amounts
actually paid to the Class C Noteholders on those prior Payment
Dates, plus interest on any such shortfall to the extent
permitted by law;
(7) to the Principal Distribution Account, the Third Priority Principal
Distribution Amount, if any;
(8) to the Class D Noteholders:
(a) the aggregate amount of interest accrued for the related Interest
Period on the Class D notes at the interest rate on such notes on
the principal outstanding as of the previous Payment Date after
giving effect to all payments of principal to the Class D
Noteholders on the preceding Payment Date; and
(b) the excess, if any, of the amount of interest payable to the
Class D Noteholders on prior Payment Dates over the amounts
actually paid to the Class D Noteholders on those prior Payment
Dates, plus interest on any such shortfall to the extent
permitted by law;
(9) to the Class E Noteholders:
(a) the aggregate amount of interest accrued for the related Interest
Period on the Class E notes at the interest rate on such notes on
the principal outstanding as of the previous Payment Date after
giving effect to all payments of principal to the Class E
Noteholders on the preceding Payment Date; and
(b) the excess, if any, of the amount of interest payable to the
Class E Noteholders on prior Payment Dates over the amounts
actually paid to the Class E Noteholders on those prior Payment
Dates, plus interest on any such shortfall to the extent
permitted by law;
(10) to the Principal Distribution Account, the Regular Principal
Distribution Amount;
(11) to the Principal Distribution Account, an amount sufficient to cause
the outstanding principal balance of the notes (after giving effect to all
payments on the Payment Date) to equal the Pool Balance as of the end of the
related collection period;
(12) to the Reserve Account, an amount sufficient to cause the amount on
deposit in the Reserve Account to equal the Reserve Account Required Amount;
(13) to the Class E noteholders, an amount sufficient to pay the Class E
notes in full; and
(14) to the certificateholders, any funds remaining on deposit in the
Collection Account with respect to the Collection Period preceding such Payment
Date.
Distribution of Funds on Deposit in the Collection Account
When No Event of Default Resulting in Acceleration has Occurred
Amounts deposited into the Collection
Account for distribution
Servicer Servicing Fee and prior unpaid
Servicing Fees
Accrued Class A
Class A-1 Noteholders Note Interest
(paid pro rata
to the respective
Class A-2 Noteholders classes)
Class A-3 Noteholders
First Priority Principal Distribution
Amounts, if any
Class A-4 Noteholders
Accrued Class B Note Interest
Class A-5 Noteholders
Second Priority Principal Distribution
Amounts, if any
Class B Noteholders Accrued Class C Note Interest
Class C Noteholders Third Priority Principal Distribution
Amounts, if any
Class D Noteholders Accrued Class D Note Interest
Class E Noteholders Accrued Class E Note Interest
Principal Regular Principal Distribution Amount
Distribution
Account
Parity Payment, if any
Reserve Account Deposit
Reserve
Account Class E Turbo Payment
Certificateholders
OVERVIEW OF HOW THE TRUST DISTRIBUTES PRINCIPAL. In general, the trust will
make principal payments on the notes under the following circumstances:
o to cause the note balance to equal the Pool Balance;
o to turbo the Class E notes;
o as the Pool Balance decreases; and
o on the respective Final Scheduled Payment Dates of each class of the
notes to the extent that the outstanding principal amounts on the
applicable notes were not previously repaid.
REQUIRED PRINCIPAL PAYMENTS MADE AS A RESULT OF NOTES REACHING THEIR FINAL
SCHEDULED PAYMENT DATES MAY DELAY INTEREST PAYMENTS ON SUBORDINATE CLASSES OF
NOTES. The principal amounts on the notes are generally expected to be repaid
prior to the applicable Final Scheduled Payment Date. However, if the principal
amount on any class of notes has not been fully repaid prior to its Final
Scheduled Payment Date, any remaining principal amounts on that class of notes
will be immediately due on that date, and will be payable before any payments of
principal or interest are made to more junior classes of notes. Interest on more
junior classes of notes may therefore be delayed as a result.
A substantial amount payable on a Final Scheduled Payment Date would
generally occur as a result of slower-than-expected payments on the receivables,
including:
o a larger than expected number of late payments on the receivables; or
o slower than expected prepayments on the receivables.
HIGHER-PRIORITY PRINCIPAL PAYMENTS MADE AS A RESULT OF LOSSES OR
PREPAYMENTS MAY DELAY INTEREST PAYMENTS ON CLASS B NOTES, CLASS C NOTES AND
CLASS D NOTES. The trust will pay principal prior to the payment of interest on
subordinate notes in certain cases where the Pool Balance has decreased to a
level which is less than the aggregate outstanding principal balance of the
senior class of notes.
o To the extent that the Pool Balance has decreased to a level which is
less than the aggregate outstanding principal balance on the Class A
notes, a First Priority Principal Distribution Amount will be
allocated prior to the payment of interest on the Class B notes, the
Class C notes and the Class D notes.
o To the extent that the Pool Balance has decreased to a level which is
less than the aggregate outstanding principal balance on the Class A
notes and Class B notes, a Second Priority Principal Distribution
Amount will be allocated prior to the payment of interest on the Class
C notes and the Class D notes.
o To the extent that the Pool Balance has decreased to a level which is
less than the aggregate outstanding principal balance on the Class A
notes, Class B notes and Class C notes, a Third Priority Principal
Distribution Amount will be allocated prior to the payment of interest
on the Class D notes.
Because of the prioritization of the above amounts, the occurrence of any
of the following events may result in insufficient funds for the trust to make
payments of interest on subordinate classes of notes on a timely basis:
o substantial losses suffered by the trust as a result of defaults which
are not covered by sufficient Liquidation Proceeds allocable to
principal or by sufficient credit enhancement; or
o delayed collections on the receivables resulting from either:
o a larger-than-expected number of late payments on the
receivables;
o slower-than-expected prepayments on the receivables; or
o reduction of the Pool Balance to zero through a sale of
receivables following an Event of Default.
PRIORITY IN WHICH THE TRUST DISTRIBUTES AMOUNTS IN THE PRINCIPAL
DISTRIBUTION ACCOUNT. The servicer will instruct the indenture trustee to pay
out all amounts on deposit in the Principal Distribution Account on each Payment
Date to the notes in the order of priority set forth in "DESCRIPTION OF THE
NOTES -- PAYMENTS OF PRINCIPAL".
RESERVE ACCOUNT
On the closing date, the Reserve Account will be created with an initial
deposit by the seller of $1,540,360.23. The Reserve Account will be funded on
each Payment Date as described under "--PRIORITY OF PAYMENTS" above, until the
amount on deposit in the Reserve Account equals the Reserve Account Required
Amount. Funds will be withdrawn from the Reserve Account on any Payment Date if,
and to the extent that, the Available Funds for the related Collection Period is
less than the Total Required Payment payable on such Payment Date and such
difference will be deposited into the Collection Account.
On each Payment Date on which the amount on deposit in the Reserve Account
is less than the Reserve Account Required Amount, the indenture trustee (based
upon the instructions of the servicer) will deposit therein amounts, if any,
remaining in the Collection Account after payment on such date of amounts senior
under "--PRIORITY OF PAYMENTS" above, until the amount on deposit therein equals
the Reserve Account Required Amount. Amounts in the Reserve Account on any
Payment Date (after giving effect to all distributions to be made on such
Payment Date) in excess of the Reserve Account Required Amount for such Payment
Date will be released to the Seller and will no longer be available to the
Noteholders.
Amounts on deposit in the Reserve Account will be invested by the indenture
trustee at the direction of the seller in Eligible Investments, and investment
earnings -- net of losses and investment expenses -- therefrom will be deposited
into the Collection Account on each Payment Date. Eligible Investments are
generally limited to obligations or securities that mature on or before the next
Payment Date. However, to the extent each rating agency rating the notes
confirms that such actions will not adversely affect its ratings of the notes,
funds in the Reserve Account may be invested in securities that will not mature
prior to the next Payment Date with respect to such notes and will not be sold
to meet any shortfalls.
DESCRIPTION OF THE ADMINISTRATION AGREEMENT
Wells Fargo Bank Minnesota, National Association, in its capacity as
administrator, will enter into the administration agreement. The administrator
will perform certain administrative duties on behalf of the trust. The
administrator will receive a monthly administration fee in the amount of $250.00
to be paid by the servicer.
MATERIAL LEGAL ASPECTS OF THE RECEIVABLES
Information regarding the material legal aspects of the receivables is set
forth under "CERTAIN LEGAL ASPECTS OF THE RECEIVABLES" in the attached
prospectus.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Stroock & Stroock & Lavan LLP, special tax counsel, is of the opinion that,
o based on the terms of the notes and the transactions relating to the
receivables as set forth herein, the offered notes will be treated as
debt for federal income tax purposes and
o based on the applicable provisions of the trust agreement, the sale
and servicing agreement and the indenture, for federal income tax
purposes, the trust will not be classified as an association taxable
as a corporation and the trust will not be treated as a publicly
traded partnership taxable as a corporation.
The trust and certificateholders will agree by their purchase of the
certificates, if there is more than one certificateholder, to treat the trust as
a partnership for purposes of federal and state income tax, franchise tax and
any other tax measured in whole or in part by income, with the assets of the
partnership being the assets held by the trust, the certificateholders as
partners of the partnership and the notes as debt of the partnership, and if
there is one certificateholder, to treat that holder as the owner of the assets
of the trust and to treat the trust as a disregarded entity. It is not
anticipated that the offered notes will be treated as issued will original issue
discount ("OID"). See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus.
STATE TAX MATTERS
Because of the variation in each state's and locality's tax laws, it is
impossible to predict the tax classification of the trust or the tax
consequences to the trust or to the holders of notes in all of the state and
local taxing jurisdictions in which they may be subject to taxation.
The federal and state tax discussions set forth above are included for
general information only and may not be applicable depending upon a noteholder's
particular tax situation. We suggest that prospective investors consult their
tax advisors with respect to the tax consequences to them of the purchase,
ownership and disposition of the notes, including the tax consequences under
state, local, foreign and other tax laws and the possible effects of changes in
federal or other tax laws.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan, as well as individual retirement
accounts and particular types of Keogh Plans subject to those provisions, and
entities deemed to hold plan assets of these plans (each, a "Benefit Plan"),
from engaging in particular transactions involving "plan assets" with persons
that are "parties in interest" under ERISA or "disqualified persons" under the
Code with respect to the Benefit Plan. A violation of these "prohibited
transaction" rules may generate excise tax and other penalties and liabilities
under ERISA and the Code for these persons. ERISA also imposes particular duties
on persons who are fiduciaries of Benefit Plans subject to ERISA. Under ERISA,
any person who exercises any authority or control respecting the management or
disposition of the assets of a Benefit Plan is considered to be a fiduciary of
the Benefit Plan, subject to exceptions not here relevant.
Some transactions involving the trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchases notes if assets of the trust were deemed to be assets of the
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "Plan Assets Regulation"), the assets of the trust would be treated as plan
assets of a Benefit Plan for the purposes of ERISA and the Code only if the
Benefit Plan acquired an equity interest in the trust and none of the exceptions
contained in the Plan Assets Regulation was applicable. An "equity interest" is
defined under the Plan Assets Regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. Although there is little guidance on the subject,
the seller believes that, at the time of their issuance the offered notes should
be treated as indebtedness without substantial equity features for purposes of
the Plan Assets Regulation. The debt status of the offered Notes could be
affected subsequent to their issuance by particular types of changes in the
financial condition of the trust.
Without regard to whether the offered notes are treated as an equity
interest under the Plan Assets Regulation, the acquisition or holding of the
offered notes by or on behalf of a Benefit Plan could be considered to give rise
to a prohibited transaction if the trust, the seller, the servicer, the
indenture trustee or the owner trustee is or becomes a party in interest or a
disqualified person with respect to a Benefit Plan or in the event that a
subsequent transfer of an offered notes occurs between a Benefit Plan and a
party in interest or disqualified person with respect to the Plan. Some
exemptions from the prohibited transaction rules could be applicable to the
purchase and holding of offered notes by a Benefit Plan depending on the type
and circumstances of the plan fiduciary making the decision to acquire the
offered notes. Included among these exemptions, each of which contains several
conditions which must be satisfied before the exemption applies, are: PTCE 90-1,
regarding particular transactions entered into by insurance company pooled
separate accounts; PTCE 95-60, regarding particular transactions entered into by
insurance company general accounts; PTCE 96-23, regarding particular
transactions effected by "in-house asset managers"; PTCE 91-38 regarding
particular types of transactions entered into by bank collective investment
funds; and PTCE 84-14, regarding particular transactions effected by "qualified
professional asset managers." By acquiring an offered note, each purchaser and
each transferee of an offered notes shall be deemed to represent and warrant
that either (1) it is not acquiring the note with the assets of a Benefit Plan;
or (2) its purchase and holding of the notes will qualify for prohibited
transaction exemptive relief under PTCE 95-60, PTCE 96-23, PTCE 91-38, PTCE
90-1, PTCE 84-14 or some other applicable exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and some church plans (as defined in Section 3(33) of ERISA) may
not be subject to ERISA requirements. However, governmental plans can be
subject, under federal, fiduciary, state or local law, to restrictions which are
similar to ERISA and church plans may be subject to other types of prohibited
transaction restrictions under the Code.
A Benefit Plan fiduciary considering the purchase of offered notes should
consult its tax and/or legal advisors regarding whether the assets of the trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential consequences.
UNDERWRITING
The seller and the underwriter, Deutsche Banc Alex. Brown Inc. have entered
into an underwriting agreement with respect to the offered notes. Subject to
certain conditions, the underwriter has agreed to purchase the offered notes.
The selling concessions that the underwriter may allow to certain dealers,
and the discounts that such dealers may reallow to certain other dealers,
expressed as a percentage of the principal amount of each class of notes and as
an aggregate dollar amount, will be as follows:
Selling Concessions Reallowance
not to exceed not to exceed
Class A-1 notes.......................
Class A-2 notes.......................
Class A-3 notes.......................
Class A-4 notes.......................
Class A-5 notes.......................
Class B notes.........................
Class C notes.........................
Class D notes.........................
The notes are a new issue of securities with no established trading market.
The seller has been advised by the underwriter that the underwriter intends to
make a market in the notes but is not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the notes.
In connection with the offering of the notes, the underwriter may purchase
and sell the notes in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriter of a greater number
of notes than they are required to purchase in the offering of the notes.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the notes
while the offering of the notes is in progress. "Naked" short sales are any
sales in excess of the amount of notes the underwriters are purchasing. The
underwriter must close out any naked short position by purchasing notes in the
open market. A naked short position is more likely to be created if the
underwriter is concerned that there may be downward pressure on the price of the
notes in the open market after pricing that could adversely affect investors who
purchase in the offering. Stabilizing transactions consist of various bids for,
or purchases of, the notes made by the underwriter in the open market prior to
the completion of the offering.
These activities by the underwriter may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The seller estimates that its share of the total expense of the offering of
notes, excluding underwriting discounts and commissions, will be approximately
$________________.
The seller has agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters with respect to the notes will be passed upon for the
seller and the underwriter by Stroock & Stroock & Lavan LLP.
GLOSSARY OF TERMS
"Available Collections" means, for any Payment Date, the sum of the
following amounts with respect to the Collection Period preceding such Payment
Date:
o all payments collected with respect to the receivables;
o all Liquidation Proceeds attributable to receivables which became
Defaulted Receivables during such Collection Period in accordance with
the servicer's customary servicing procedures, and all recoveries in
respect of Defaulted Receivables which were written off in prior
Collection Periods;
o the purchase amount received with respect to each receivable that
became a purchased receivable during such Collection Period; and
o partial prepayments of any refunded item included in the principal
balance of a receivable, such as extended warranty protection plan
costs, or physical damage, credit life, disability insurance premiums;
provided, however, that in calculating the Available Collections the
following will be excluded: (1) all payments and proceeds, including
Liquidation Proceeds, of any receivables the purchase amount of which
has been included in the Available Collections in a prior Collection
Period and (2) amounts consisting of any late, and other
administrative fees and expenses payable to the servicer as part of
the Servicing Fee.
"Available Funds" means, for any Payment Date, the sum of the Available
Collections for such Payment Date and any investment earnings accrued in the
Reserve Account since the prior Payment Date.
"Average Sixty-Day Delinquency Ratio" means the ratio of the average of the
aggregate principal balances of receivables delinquent 60 days or more for the
preceding three Collection Periods to the average Pool Balance for this period.
"Business Day" means a day that is not a Saturday or a Sunday and that in
the States of New York and California and the state in which the corporate trust
office of the owner trustee or the indenture trustee is located is neither a
legal holiday nor a day on which banking institutions are authorized by law,
regulation or executive order to be closed.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means an account maintained at the indenture trustee,
held in the name of the indenture trustee, into which the servicer is required
to deposit collections on the receivables.
"Collection Period" means each calendar month during the term of the sale
and servicing agreement. With respect to any Determination Date or Payment Date,
the "related Collection Period" or the "preceding Collection Period" means the
Collection Period preceding the month in which such Determination Date or
Payment Date occurs and the "second Collection Period preceding" means the
Collection Period two months preceding the month in which such Determination
Date or Payment Date occurs.
"Controlling Class" means, with respect to any outstanding notes, the Class
A notes (voting together as a single class) as long as any Class A notes are
outstanding, and thereafter the Class B notes as long as any Class B notes are
outstanding, and thereafter the Class C notes as long as any Class C notes are
outstanding, and thereafter the Class D notes as long as any Class D notes are
outstanding -- excluding notes held by the seller, the servicer or their
affiliates.
"Crossover Date" means the July 2005 Payment Date.
"Cumulative Realized Losses" means with respect to any Payment Date (1) the
aggregate principal balance of all receivables that have become Defaulted
Receivables during any Collection Period from the cut-off date through the
Collection Period preceding the Payment Date minus (2) all Liquidation Proceeds.
"Defaulted Receivable" means, with respect to any Collection Period, a
receivable (other than a receivable repurchased by Wells Fargo Bank, the seller
or the servicer) which the servicer has determined to charge off during such
Collection Period in accordance with its customary servicing practices (and, in
no event later than the end of the Collection Period during which any payment on
a receivable shall have been 120 days past due).
"Determination Date" means, with respect to any Collection Period, two
Business Days preceding the related Payment Date.
"Eligible Investments" means any one or more of the following types of
investments:
o direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America;
o demand deposits, time deposits or certificates of deposit of any
depository institution (including any affiliate of the seller,
indenture trustee or owner trustee) or trust company incorporated
under the laws of the United States of America or any state thereof or
the District of Columbia (or any domestic branch of a foreign bank)
and subject to supervision and examination by United States federal or
state banking or depository institution authorities (including
depository receipts issued by any such institution or trust company as
custodian with respect to any obligation referred to in the first
bullet point above or a portion of such obligation for the benefit of
the holders of such depository receipts); provided that at the time of
the investment or contractual commitment to invest therein (which
shall be deemed to be made again each time funds are reinvested
following each Payment Date), the commercial paper or other short-term
senior unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a person other than such
depository institution or trust company) of such depository
institution or trust company shall have a credit rating from Standard
& Poor's of A-1+ and from Moody's of P-1;
o commercial paper (including commercial paper of any affiliate of
seller) having, at the time of the investment or contractual
commitment to invest therein, a rating from Standard & Poor's of A-1
and from Moody's of P-1;
o investments in money market funds (including funds for which the
indenture trustee or owner trustee or any of their respective
affiliates is investment manager or advisor) having a rating from
Standard & Poor's of AAA-m or AAAm-G and from Moody's of Aaa;
o bankers' acceptances issued by any depository institution or trust
company referred to in the second bullet point above;
o repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or
any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America,
in either case entered into with a depository institution or trust
company (acting as principal) referred to in the second bullet point
above; and
o any other investment with respect to which each rating agency has
provided written notice that such investment would not cause such
rating agency to downgrade or withdraw its then current rating of any
class of notes.
"Event of Default" means an event of default under the indenture, as
described in "DESCRIPTION OF THE NOTES - PROVISIONS OF THE INDENTURE -- EVENTS
OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT" in the attached prospectus.
"Event of Servicing Termination" consists of any of the events specified
under "CERTAIN MATTERS REGARDING THE SERVICER - SERVICER DEFAULTS" in the
attached prospectus.
"Final Scheduled Payment Date" for each class of notes means the respective
dates set forth on the cover page of this prospectus supplement or, if such date
is not a Business Day, the next succeeding Business Day.
"First Priority Principal Distribution Amount" means, with respect to any
Payment Date, an amount equal to the excess, if any, of (a) the aggregate
outstanding principal amount of the Class A notes as of the preceding Payment
Date (after giving effect to any principal payments made on the Class A notes on
such preceding Payment Date); over (b) the Pool Balance at the end of the
related Collection Period; provided, however, that the First Priority Principal
Distribution Amount shall not exceed the sum of the aggregate outstanding
principal amount of all of the notes on such Payment Date (prior to giving
effect to any principal payments made on the notes on such Payment Date); and
provided, further that the First Priority Principal Distribution Amount on and
after the Final Scheduled Payment Date of a class of Class A notes shall not be
less than the amount that is necessary to reduce the outstanding principal
amount of such class of Class A notes and all earlier maturing classes of Class
A notes to zero.
"Interest Distribution Account" means the administration subaccount of the
Note Distribution Account established and maintained as such pursuant to the
sale and servicing agreement.
"Interest Period" means, with respect to any Payment Date, from and
including the closing date-in the case of the first Payment Date or from and
including the twentieth day of the calendar month preceding each Payment Date to
but excluding the twentieth day of the following calendar month.
"Liquidation Proceeds" means, with respect to any receivable that has
become a Defaulted Receivable, (a) insurance proceeds received by the servicer
with respect to any insurance policies relating to the related financed vehicle
or obligor, (b) amounts received by the servicer in connection with such
Defaulted Receivable pursuant to the exercise of rights under that receivable
and (c) the monies collected by the servicer (from whatever source, including
proceeds of a sale of the financed vehicle, a deficiency balance recovered after
the charge-off of the related receivable or as a result of any recourse against
the related dealer) on such Defaulted Receivable net of any expenses incurred by
the servicer in connection with such Defaulted Receivable and any payments
required by law to be remitted to the related obligor.
"Note Distribution Account" means the account designated as such,
established and maintained at the indenture trustee as such pursuant to the sale
and servicing agreement.
"Payment Date" means the date on which the trust will pay interest and
principal on the notes, which will be the twentieth day of each month or, if any
such day is not a Business Day, on the next Business Day. The first Payment Date
will be July 20, 2001.
"Pool Balance" will represent the aggregate principal balance of the
receivables at the end of the preceding Collection Period, or in the case of the
first Collection Period, the cut-off date, after giving effect to all payments
received from obligors, Liquidation Proceeds and purchase amounts to be remitted
all for such Collection Period and all realized losses during such Collection
Period.
"Principal Distribution Account" means the administrative subaccount of the
Note Distribution Account established and maintained as such pursuant to the
sale and servicing agreement.
"Principal Distribution Amount" for a Payment Date will be the sum of the
First Priority Principal Distribution Amount, the Second Priority Principal
Distribution Amount, the Third Priority Distribution Amount and the Regular
Principal Distribution Amount with respect to such Payment Date.
"Record Date" with respect to any Payment Date means the day immediately
preceding the Payment Date or, if the notes are issued as definitive notes, the
last day of the preceding month.
"Regular Principal Distribution Amount" means, with respect to any Payment
Date, an amount not less than zero equal to (x) the sum of (a) the decrease in
the Pool Balance during the related Collection Period plus (b) the portion, if
any, of the Regular Principal Distribution Amount payable on the prior Payment
Date that was not paid on the prior Payment Date minus (y) the sum of the First
Priority Principal Distribution Amount, if any, the Second Priority Principal
Distribution Amount, if any, and the Third Priority Principal Distribution
Amount, if any, previously deposited to the Principal Distribution Account each
with respect to such Payment Date; provided, however, that the Regular Principal
Distribution Amount shall not exceed the sum of the aggregate outstanding
principal amount of all of the notes on such Payment Date (after giving effect
to any principal payments made on the notes on such Payment Date in respect of
the First Priority Principal Distribution Amount, if any, the Second Priority
Principal Distribution Amount, if any and the Third Priority Principal
Distribution Amount, if any); and provided, further, that the Regular Principal
Distribution Amount on or after (1) the Class C Final Scheduled Payment Date
shall not be less than the amount that is necessary to reduce the outstanding
principal amount of the Class C notes to zero, (2) the Class D Final Scheduled
Payment Date shall not be less than the amount that is necessary to reduce the
outstanding principal amount of the Class D notes to zero and (3) the Class E
Final Scheduled Payment Date shall not be less than the amount that is necessary
to reduce the outstanding principal amount of the Class E notes to zero.
"Reserve Account" means an account, maintained at the indenture trustee
held in the name of the indenture trustee for the benefit of the noteholders,
into which the indenture trustee, as instructed by the servicer pursuant to the
provisions of the transaction documents, may make the deposits and withdrawals
specified in the prospectus and this prospectus supplement.
"Reserve Account Required Amount" means, with respect to any Payment Date,
the lesser of (1) $3,080,720.46 (1.00% of the Pool Balance as of the cut-off
date) and (2) the then outstanding principal balance of the notes.
"Reserve Account Transfer Amount" means, with respect to any Payment Date,
an amount equal to the lesser of (a) the amount of cash or other immediately
available funds on deposit in the Reserve Account on such Payment Date, and (b)
the amount, if any, by which (1) the Total Required Payments for such Payment
Date exceeds (2) the Available Funds for such Payment Date.
"Second Priority Principal Distribution Amount" means, with respect to any
Payment Date, an amount not less than zero equal to (i) the excess, if any, of
(a) the sum of the aggregate outstanding principal amount of the Class A Notes
and Class B Notes as of the preceding Payment Date (after giving effect to any
principal payments made on the Class A Notes and Class B Notes on such preceding
Payment Date) over (b) the Pool Balance at the end of the related Collection
Period, minus (ii) the First Priority Principal Distribution Amount, if any,
previously deposited to the Principal Distribution Account with respect to such
Payment Date; provided, however, that the Second Priority Principal Distribution
Amount shall not exceed the aggregate outstanding principal amount of the Notes
on such Payment Date-after giving effect to any principal payments made on the
Notes on such Payment Date in respect of the First Priority Principal
Distribution Amount, if any; and provided, further that the Second Priority
Principal Distribution Amount on or after the Class B Final Scheduled Payment
Date shall not be less than the amount that is necessary to reduce the
outstanding principal amount of the Class B Notes to zero.
"Servicing Fee" means, for each Collection Period, an amount equal to the
sum of (1) the product of one-twelfth of 1% per annum and the Pool Balance as of
the first day of that Collection Period and (2) a supplemental servicing fee
equal to late fees and extension fees in an amount up to $20 per receivable (per
occurrence) and payment holiday extension fees in an amount up to $15 per
receivable (per occurrence).
"Total Distribution Amount" means, for each Payment Date, the sum of: the
Available Funds and the Recourse Transfer Amount, in each case in respect of
such Payment Date.
"Third Priority Principal Distribution Amount" means, with respect to any
Payment Date, an amount not less than zero equal to (i) the excess, if any, of
(a) the sum of the aggregate outstanding principal amount of the Class A Notes,
Class B Notes and Class C Notes as of the preceding Payment Date (after giving
effect to any principal payments made on the Class A Notes, Class B Notes and
Class C Notes on such preceding Payment Date) over (b) the Pool Balance at the
end of the related Collection Period preceding such Payment Date, minus (ii) the
First Priority Principal Distribution Amount, if any, and the Second Priority
Principal Distribution Amount, if any, previously deposited to the Principal
Distribution Account with respect to such Payment Date; provided, however, that
the Third Priority Principal Distribution Amount shall not exceed the aggregate
outstanding principal amount of the Notes on such Payment Date-after giving
effect to any principal payments made on the Notes on such Payment Date in
respect of the First Priority Principal Distribution Amount, if any and the
Second Priority Principal Distribution Amount, if any; and provided, further
that the Third Priority Principal Distribution Amount on or after the Class C
Final Scheduled Payment Date shall not be less than the amount that is necessary
to reduce the outstanding principal amount of the Class C Notes to zero.
"Total Required Payment" means, with respect to any Payment Date, the sum
of the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods, the accrued and unpaid interest on the Class A notes, the First
Priority Principal Distribution Amount, the accrued and unpaid interest on the
Class B notes, the Second Priority Principal Distribution Amount, the accrued
and unpaid interest on the Class C notes, the Third Priority Principal
Distribution Amount, the accrued and unpaid interest on the Class D notes, the
accrued and unpaid interest on the Class E notes and the Regular Principal
Distribution Amount; provided, however, that following the occurrence and during
the continuation of an Event of Default which has resulted in an acceleration of
the notes, on any Payment Date until the Payment Date on which the outstanding
principal amount of all the notes has been paid in full, the Total Required
Payment shall mean the sum of the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods, the accrued and unpaid interest on the Class A
notes, the Class B notes, the Class C notes, the Class D notes and the Class E
notes and the amount necessary to reduce the outstanding principal amount of all
the notes to zero.
"Trigger Event" will be in effect for a Payment Date commencing with the
Crossover Date if one of the following conditions occur:
o the Average Sixty-Day Delinquency Ratio as of the last day of the
related Collection Period exceeds 5.00%;
o the Cumulative Realized Losses as of the last day of the related
Collection Period exceeds the following percentages of the original
Pool Balance for the specified Payment Date:
July 2005 through June 2006................. 3.50%
July 2006 through June 2007................. 4.25%
July 2007 and after......................... 5.00%;
o the amount on deposit in the Reserve Account for two consecutive
Payment Dates is less than the Reserve Account Required Amount
provided that this Trigger Event will no longer be in effect if the
amount on deposit in the Reserve Account for three consecutive Payment
Dates thereafter equals the Reserve Account Required Amount; or
o the aggregate outstanding principal amount of the notes (including the
Class E notes) immediately preceding the Payment Date is greater than
the Pool Balance as of the last day of the second Collection Period
preceding the Payment Date.
PROSPECTUS
ACE SECURITIES CORP.
Company
Asset Backed Certificates
Asset Backed Notes
(Issuable in Series)
Auto and Boat Receivables and Receivables Securities Trusts
--------------------
The Trust:
Each trust will be established to hold assets transferred to it by ACE
Securities Corp. The assets in each trust will generally consist of:
1. One or more pools of
A.
o boat installment loan agreements or boat retail installment
sale contracts secured by new and used boats, boat motors,
jet skis and waverunners, and security interests in the boat
products financed by the boat installment loan agreements or
retail installment sale contracts, or
o private securities evidencing ownership interests in or
secured by loans similar to the types of loans described
above; and
B. One or more pools of
o motor vehicle installment loan agreements or motor vehicle
retail installment sale contracts secured by new and used
automobiles, recreational vehicles, including motor homes,
campers, motorcycles, all-terrain-vehicles, and snowmobiles,
vans, trucks, buses and/or trailers, and security interests
in the vehicles financed by the motor vehicle installment
loan agreements or retail installment sale contracts, or
o private securities evidencing ownership interests in or
secured by loans similar to the types of loans described
above;
2. Government Securities;
3. All monies due under the above assets, which may be net of amounts payable
to the servicer; and
4. Funds or accounts established for the related trust, or one or more forms
of enhancement.
The assets in your trust are specified in the prospectus supplement for
that particular trust, while the types of assets that may be included in a
trust, whether or not in your trust, are described in greater detail in this
prospectus.
The Securities:
ACE Securities Corp. will sell the securities pursuant to a prospectus
supplement. The securities will be grouped into one or more series, each having
its own distinct designation. Each series will be issued in one or more classes
and will evidence beneficial ownership of, or be secured by, the assets in the
trust that the series relates to. A prospectus supplement for a series will
specify all of the terms of the series and of each of the classes in the series.
Neither the SEC nor any state securities commission has approved or
disapproved the offered securities or determined if this prospectus is accurate
or complete. Making any contrary representation is a criminal offense.
The date of this prospectus is June 21, 2001
TABLE OF CONTENTS
Risk Factors.................................................................3
The Company..................................................................8
The Trusts...................................................................8
The Trustee..................................................................9
The Receivables Pools........................................................9
The Collateral Certificates.................................................11
The Government Securities...................................................13
Weighted Average Life of the Securities.....................................21
Pool Factors and Trading Information........................................22
The Seller and the Servicer.................................................23
Use of Proceeds.............................................................23
Description of the Notes....................................................23
Description of the Certificates.............................................29
Certain Information Regarding the Securities................................30
Description of the Transfer and Servicing Agreements........................34
Certain Matters Regarding the Servicer......................................43
Certain Legal Aspects of the Receivables....................................46
Material Federal Income Tax Consequences....................................52
State and Local Tax Considerations..........................................71
ERISA Considerations........................................................72
Plan of Distribution........................................................78
Legal Matters...............................................................79
Prospectus Supplement.......................................................79
Reports to Securityholders..................................................79
Available Information.......................................................79
Incorporation of Certain Documents by Reference.............................80
INDEX OF TERMS..............................................................81
Annex I Global Clearance, Settlement and Tax Documentation Procedures......I-1
RISK FACTORS
THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE
CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER
"RISK FACTORS" IN THE PROSPECTUS SUPPLEMENT.
LIMITED LIQUIDITY MAY RESULT There will be no market for the securities of
IN DELAYS IN YOUR ABILITY any series prior to their issuance, and there
TO SELL SECURITIES OR LOWER can be no assurance that a secondary market
RETURNS will develop. If a secondary market does
develop, there can be no assurance that it
will provide holders with liquidity of
investment or that the market will continue
for the life of the securities of the related
series. Deutsche Banc Alex. Brown Inc.
presently expects to make a secondary market
in the securities, but has no obligation to
do so. Absent a secondary market for the
securities you may experience a delay if you
choose to sell your securities or the price
you receive may be less than you would
receive for a comparable liquid security.
LIMITED ASSETS FOR PAYMENTS - NO The securities of a series will be payable
RECOURSE TO COMPANY, SELLER OR solely from the assets of the trust fund for
SERVICER that series. Except for any related insurance
policies or credit support, there will be no
recourse to the company or any other person
for any default on the notes or any failure
to receive distributions on the certificates
with respect to any series. Consequently,
holders of securities of each series must
rely solely upon payments with respect to the
assets constituting the trust fund for a
series of securities, including, if
applicable, any amounts available pursuant to
any enhancement for that series, for the
payment of principal of and interest on the
securities of that series.
The only obligations, if any, of the company
with respect to the securities of any series
will be with respect to its breach of
specific representations and warranties. The
company does not have, and is not expected in
the future to have, any significant assets
with which to meet any obligation to
repurchase assets with respect to which there
has been a breach of any representation or
warranty. If, for example, the company were
required to repurchase a receivable, its only
sources of funds to make the repurchase would
be from funds obtained from the enforcement
of a corresponding obligation, if any, on the
part of the originator of the receivable, or
the seller, as the case may be, or from a
reserve fund established to provide funds for
repurchases. If the company does not have
sufficient assets and no other party is
obligated to repurchase defective assets, you
may experience a loss.
LIMITS ON ENHANCEMENT MAY RESULt Although we intend the enhancement for the
IN LOSSES TO YOU securities to reduce the risk of delinquent
payments or losses to holders of a series of
securities entitled to the benefit of the
enhancement, the amount of the enhancement
will be limited, as set forth in the related
prospectus supplement. In addition, the
amount available will decline and could be
depleted prior to the payment in full of the
related series of securities, and losses on
the primary assets could result in losses to
holders of those securities.
TIMING AND RATE OF PREPAYMENTS
MAY RESULT IN LOWER YIELD The yield to maturity experienced by a holder
of securities may be affected by the rate and
timing of payments of principal of the
receivables or of the underlying receivables
relating to the private securities. The rate
and timing of principal payments of the
securities of a series will be affected by a
number of factors, including the following:
o the extent of prepayments, which may be
influenced by a variety of factors,
o the manner of allocating principal
payments among the classes of securities
of a series as specified in the related
prospectus supplement, and
o the exercise of any right of optional
termination.
Prepayments may also result from repurchases
of receivables or underlying receivables, as
applicable, due to material breaches of
representations or warranties.
Interest payable on the securities of a
series on a distribution date will include
all interest accrued during the period
specified in the related prospectus
supplement. In the event interest accrues
during the calendar month prior to a
distribution date, the effective yield to
holders will be reduced from the yield that
would otherwise be obtainable if interest
payable on the security were to accrue
through the day immediately preceding each
distribution date, and the effective yield at
par to holders will be less than the
indicated coupon rate.
RISKS OF SUBORDINATED SECURITIES To the extent specified in the applicable
prospectus supplement, distributions of
interest on and principal of one or more
classes of securities of a series may be
subordinated in priority of payment to
interest and principal due on one or more
other classes of securities of the related
series. Any subordinated securities will be
affected to a greater degree by any losses on
the receivables or of the underlying
receivables relating to the private
securities.
POTENTIAL LACK OF SECURITY The company will assign security interests in
the financed vehicles securing the
receivables to the related trust. Due to
administrative burden and expense, however,
we will not cause the certificates of title
to the financed vehicles to be amended to
reflect the assignment to the trust unless
otherwise specified in the prospectus
supplement. In the absence of amendment, a
trust may not have a perfected security
interest in the financed vehicles securing
the receivables in some states. If a trust
does not have a perfected security interest
in a financed vehicle, its ability to realize
in the event of a default on that financed
vehicle may be adversely affected.
To the extent that the trust's security
interest in a financed boat is perfected, the
trust will have a prior claim over subsequent
purchasers of such financed boat and holders
of subsequently perfected security interests
in such financed boat. Under the laws of many
states, certain possessory liens for repairs
on a boat and storage, as well as certain
rights in favor of federal and state
governmental authorities arising from the use
of a boat in connection with illegal
activities, may take priority even over a
perfected security interest. Under the Ship
Mortgage Statutes, certain preferred maritime
liens will have priority over security
interests in financed boats perfected under
federal law. Certain federal tax liens may
have priority over the lien of a secured
party. In addition, through fraud or
negligence, the trust could lose its security
interest or the priority of its security
interest in a financed boat. If a security
interest in a financed boat is initially
perfected (by titling or UCC filing) under
applicable state law and the financed boat
subsequently is federally documented, the
trust could lose the priority of its security
interest in such financed boat to a purchaser
thereof or to the holder of a subsequently
perfected Preferred Mortgage covering such
financed boat. See "Certain Legal Aspects of
the Receivables--Security Interests in the
Financed Vehicles." ACE Securities Corp.
shall not have an obligation to repurchase a
contract as to which any of the
aforementioned occurrences result in the
trust's losing the priority of its security
interest or its security interest in such
financed boat after the date such security
interest was conveyed to the trust.
RISK OF COMMINGLING We will require the servicer to deposit all
payments on the receivables collected during
each collection period into the related
collection account within two business days
of receipt of the payments. However, if a
servicer satisfies particular requirements
for less frequent remittances we will not
require the servicer to deposit the amounts
into the collection account until the
business day preceding each distribution
date.
Pending deposit into the collection account,
collections may be invested by the servicer
at its own risk and for its own benefit and
will not be segregated from funds of the
servicer. If the servicer were unable to
remit the funds, the applicable
securityholders might incur a loss. To the
extent set forth in the related prospectus
supplement, the servicer may, in order to
satisfy the requirements described above,
obtain a letter of credit or other security
for the benefit of the related trust to
secure timely remittances of collections on
the receivables.
REMOVAL OF A SERVICER AFTER A
SERVICER DEFAULT The related prospectus supplement may provide
that with respect to a series of securities
issued by an owner trust, upon the occurrence
of a servicer default, the related indenture
trustee or noteholders may remove the
servicer without the consent of the related
trustee or any certificateholders. The
trustee or the certificateholders with
respect to a series may not have the ability
to remove the servicer if a servicer default
occurs. In addition, the noteholders with
respect to a series have the ability, with
specified exceptions, to waive defaults by
the servicer, including defaults that could
materially adversely affect the
certificateholders of the series.
BOOK-ENTRY REGISTRATION--
BENEFICIAL OWNERS NOT
RECOGNIZED BY TRUST Issuance of the securities in book-entry form
may reduce the liquidity of these securities
in the secondary trading market since
investors may be unwilling to purchase
securities for which they cannot obtain
physical certificates. Since transactions in
the securities can be effected only through
The Depository Trust Company and any other
entities set forth in the related prospectus
supplement, your ability to pledge a security
to persons or entities that do not
participate in The Depository Trust Company
or any other entities or otherwise to take
actions in respect of the related securities
may be limited due to lack of a physical
certificate representing the securities.
You may experience some delay in the receipt
of distributions of interest and principal on
the securities since the distributions will
be forwarded by the trustee to The Depository
Trust Company and The Depository Trust
Company will credit the distributions to the
accounts of its participants which will
subsequently credit them to your account
either directly or indirectly through
indirect participants.
THE SECURITIES MAY NOT BE A
SUITABLE INVESTMENT FOR YOU The securities are not a suitable investment
if you require a regular or predictable
schedule of payments or payment on any
specific date. The securities are complex
investments that should be considered only by
investors who, either alone or with their
financial, tax and legal advisors, have the
expertise to analyze the prepayment,
reinvestment, default and market risk, the
tax consequences of an investment, and the
interaction of these factors.
THE RATINGS FOR THE SECURITIES
ARE LIMITED IN SCOPE, MAY NOT
CONTINUE TO BE ISSUED AND DO NOT
CONSIDER THE SUITABILITY OF THE
SECURITIES FOR YOU We will issue a class of securities under
this prospectus only if that class receives
the rating specified in the prospectus
supplement. The rating considers only the
likelihood that the issuer will pay interest
on time and will ultimately pay principal in
full or make full distributions of
certificate balance. A security rating is not
a recommendation to buy, sell or hold the
securities. The rating agencies may revise or
withdraw the ratings at any time. Ratings on
the securities do not address the timing of
distributions of principal on the securities
prior to the applicable final scheduled
payment date. The ratings do not consider the
prices of the securities or their suitability
to a particular investor. If a rating agency
changes its rating or withdraws a rating, no
one has an obligation to provide additional
credit enhancement or to restore the original
rating.
THE COMPANY
ACE Securities Corp., the company, is special purpose corporation
incorporated in the State of Delaware on June 3, 1998. The principal executive
offices of the company are located at 6525 Morrison Boulevard, Suite 318,
Charlotte, North Carolina 28211. Its telephone number is (704) 365-0569. The
company does not have, nor is it expected in the future to have, any significant
assets.
The limited purposes of the company are, in general, to acquire, own and
sell loans and financial assets; to issue, acquire, own, hold and sell
securities and notes secured by or representing ownership interests in loans and
other financial assets, collections on the loans and related assets; and to
engage in any acts that are incidental to, or necessary, suitable or convenient
to accomplish, these purposes.
All of the shares of capital stock of the company are held by Altamond
Holdings Corp., a Delaware corporation.
THE TRUSTS
With respect to each series of securities, ACE Securities Corp. will
establish a separate trust (each, a "Trust") pursuant to a trust agreement (a
"Trust Agreement") between the company and the related trustee or pooling and
servicing agreement (a "Pooling and Servicing Agreement") among the company, the
servicer and the trustee for the related Trust, as applicable, for the
transactions described in this prospectus and in the related prospectus
supplement. The property of each Trust will include Primary Assets and all
payments due under the Primary Assets on and after the applicable cutoff date in
the case of Precomputed Receivables and all payments received under the
Precomputed Receivables on and after the applicable cutoff date or closing date,
as specified in the related prospectus supplement, in the case of Simple
Interest Receivables, Collateral Certificates, Government Securities and Private
Label Custody Receipt Securities. On the applicable closing date, after the
issuance of the notes and/or certificates of a given series, the company will
transfer or sell Primary Assets to the Trust in the outstanding principal amount
specified in the related prospectus supplement. The property of each Trust may
also include:
o amounts as from time to time may be held in separate trust accounts
established and maintained pursuant to the related Trust Agreement,
sale and servicing agreement (a "Sale and Servicing Agreement") among
the company, the servicer and the related Trust or Pooling and
Servicing Agreement, as applicable, and the proceeds of these
accounts, as described in this prospectus and in the related
prospectus supplement;
o security interests in vehicles or other products financed by the
Receivables (the "Financed Vehicles") and any other interest of the
originator in the Financed Vehicles;
o the rights to proceed from claims on physical damage, credit life and
disability insurance policies covering Financed Vehicles or the
obligors, as the case may be;
o any property that has secured a Receivable and that has been acquired
by the applicable Trust; and
o any and all proceeds of the Primary Assets or the foregoing.
To the extent specified in the related prospectus supplement, a Reserve Account
or other form of credit enhancement may be a part of the property of a given
Trust or may be held by the trustee for the benefit of holders of the related
securities.
The servicer specified in the related prospectus supplement, as servicer
under the Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable, will service the Receivables held by each Trust and will receive
fees for these services. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" in this prospectus
and "Description of the Transfer and Sale and Servicing Agreement--Servicing
Compensation" in the related prospectus supplement. To facilitate the servicing
of Receivables and unless otherwise specified in the related prospectus
supplement, the servicer may retain physical possession of the Receivables held
by each Trust and other documents relating to possession of the Receivables as
custodian for each Trust. Due to the administrative burden and expense, the
certificates of title to the Financed Vehicles will not be amended to reflect
the sale and assignment of the security interest in the Financed Vehicles to a
Trust. In the absence of an amendment, a Trust may not have a perfected security
interest in some of the Financed Vehicles in some states. See "Certain Legal
Aspects of the Receivables" and "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Primary Assets". In the case of Primary
Assets consisting of Collateral Certificates, Government Securities and/or
Private Label Custody Receipt Securities, the trustee specified in the related
prospectus supplement will manage the Collateral Certificates, Government
Securities and/or Private Label Custody Receipt Securities.
If the protection provided to (1) holders of notes issued by an owner trust
by the subordination of the related certificates and by the Reserve Account, if
any, or any other available form of credit enhancement for the series or (2)
certificateholders by any Reserve Account or other form of credit enhancement is
insufficient, the noteholders or certificateholders, as the case may be, will
have to look to payments by or on behalf of obligors on Receivables or on the
Collateral Certificates, the Government Securities, and the Private Label
Custody Receipt Securities, as applicable, and the proceeds from the
repossession and sale of Financed Vehicles that secure defaulted Receivables for
distributions of principal and interest on the securities. In this event, some
factors, such as the applicable Trust's not having perfected security interests
in all of the Financed Vehicles, may limit the ability of a Trust to realize on
the collateral securing the related Primary Assets, or may limit the amount
realized to less than the amount due under Receivables. Securityholders may be
subject to delays in payment on, or may incur losses on their investment in, the
securities as a result of defaults or delinquencies by obligors and depreciation
in the value of the related Financed Vehicles. See "Description of the Transfer
and Servicing Agreements--Credit and Cash Flow Enhancement" and "Certain Legal
Aspects of the Receivables".
The principal offices of each Trust and the related trustee will be
specified in the applicable prospectus supplement.
THE TRUSTEE
The trustee for each Trust will be specified in the related prospectus
supplement. The trustee's liability in connection with the issuance and sale of
the related securities is limited solely to the express obligations of the
trustee set forth in the related Trust Agreement and Sale and Servicing
Agreement or the related Pooling and Servicing Agreement, as applicable. A
trustee may resign at any time, in which event the servicer will be obligated to
appoint a successor trustee. The servicer may also remove the related trustee if
the trustee ceases to be eligible to continue as trustee under the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, and will be
obligated to appoint a successor trustee. Any resignation or removal of a
trustee and appointment of a successor trustee will not become effective until
the acceptance of the appointment by the successor trustee.
THE RECEIVABLES POOLS
The motor vehicle installment loan agreements or motor vehicle retail
installment sale contracts secured by: (1) new and used automobiles,
recreational vehicles, including motor homes, campers, motorcycles,
all-terrain-vehicles and snowmobiles, vans, trucks, buses and/or trailers (the
"Automobile Receivables") and (2) new and used boats, boat motors, jet skis
and/or waverunners (the "Boat Receivables", and together with the Automobile
Receivables, the "Receivables") in a Receivables Pool have been or will be
originated or acquired by an originator in the ordinary course of business, in
accordance with its credit and underwriting standards as described in the
related prospectus supplement.
The Receivables to be sold to each Trust will be selected for inclusion in
a Receivables Pool based on several criteria, which criteria include that,
subject to particular limitations which, if applicable, will be specified in the
related prospectus supplement, each Receivable
o is secured by a new or used vehicle,
o was originated or acquired, either from a motor vehicle dealer or a
financial institution, by the originator,
o provides for level monthly payments, except for the last payment,
which may be different from the level payments, that, unless otherwise
provided in the related prospectus supplement, amortize the amount
financed over the original term to maturity of the related Receivable,
o is a Precomputed Receivable or a Simple Interest Receivable and
o satisfies the other criteria, if any, set forth in the related
prospectus supplement. No selection procedures believed to be adverse
to Securityholders were or will be used in selecting the Receivables.
"Precomputed Receivables" consist of either (1) monthly actuarial
receivables ("Actuarial Receivables") or (2) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78s" ("Rule of 78s
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level monthly installment payments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of (x) an amount of interest equal to 1/12 of the
stated contract interest rate under the related Receivable multiplied by the
unpaid principal balance of the loan, plus (y) an amount allocable to principal
equal to the remainder of the monthly payment. A Rule of 78s Receivable provides
for the payment by the obligor of a specified total amount of payments, payable
in equal monthly installments on each due date, which total represents the
principal amount financed plus add-on interest in an amount calculated at the
stated contract interest rate under the related Receivable for the term of the
receivable. The rate at which the amount of add-on interest is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal amount are calculated in accordance with the Rule
of 78s.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under them over a series of fixed level
monthly payments. However, unlike the monthly payment under an Actuarial
Receivable, each monthly payment consists of an installment of interest that is
calculated on the basis of the outstanding principal balance of the receivable
multiplied by the stated contract interest rate under the related Receivable and
further multiplied by the period elapsed, as a fraction of a calendar year,
since the preceding payment of interest was made. As payments are received under
a Simple Interest Receivable, the amount received generally is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the obligor is obligated to pay a fixed
monthly installment until the final scheduled payment date, at which time the
amount of the final installment may be increased or decreased as necessary to
repay the then outstanding principal balance.
In the event of the prepayment in full, voluntarily or by acceleration, of
a Rule of 78s Receivable, under the terms of the contract a "refund" or "rebate"
will be made to the obligor of the portion of the total amount of payments then
due and payable allocable to "unearned" add-on interest, calculated in
accordance with a method equivalent to the Rule of 78s. If an Actuarial
Receivable is prepaid in full, with minor variations based upon state law, the
Actuarial Receivable requires that the rebate be calculated on the basis of a
constant interest rate. If a Simple Interest Receivable is prepaid, rather than
receive a rebate, the obligor is required to pay interest only to the date of
prepayment. The amount of a rebate under a Rule of 78s Receivable generally will
be less than the amount of a rebate on an Actuarial Receivable and generally
will be less than the remaining scheduled payments of interest that would have
been due under a Simple Interest Receivable for which all payments were made on
schedule.
To the extent provided in the related prospectus supplement, each Trust
will account for the Rule of 78s Receivables as if the Receivables were
Actuarial Receivables. Amounts received upon prepayment in full of a Rule of 78s
Receivable in excess of the then outstanding principal balance of the Receivable
and accrued interest on the Receivable, calculated pursuant to the actuarial
method, will not be paid to noteholders or passed through to certificateholders
of the applicable series, but will be paid to the servicer as additional
servicing compensation.
Information with respect to each Receivables Pool will be set forth in the
related prospectus supplement, including, to the extent appropriate, the
composition and distribution by annual percentage rate and by states of
origination of the Receivables, the portion of each Receivables Pool consisting
of Precomputed Receivables and of Simple Interest Receivables, and the portion
of each Receivables Pool secured by new vehicles and by used vehicles.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Information concerning the experience of the servicer pertaining to
delinquencies, repossessions and net losses with respect to loans it services
will be set forth in each prospectus supplement. There can be no assurance that
the delinquency, repossession and net loss experience on any Receivables Pool
will be comparable to prior experience or to the information.
THE COLLATERAL CERTIFICATES
The primary assets ("Primary Assets") for a series will include Receivables
or Collateral Certificates, which include certificates evidencing an undivided
interest in, or notes or loans secured by, Receivables. These Collateral
Certificates will have previously been offered and distributed to the public
pursuant to an effective registration statement or are being registered under
the securities Act in connection with the offering of a series of securities,
which offering, distribution and registration may have been undertaken, or may
be undertaken, by the company and/or one or more affiliates of the company, in
each case, subject to exceptions which, if applicable, will be described in the
related prospectus supplement. Collateral Certificates will have been issued
pursuant to a pooling and servicing agreement, a sale and servicing agreement, a
trust agreement, an indenture or similar agreement (an "Underlying Trust
Agreement"). The servicer (the "Underlying Servicer") of the underlying motor
vehicle installment loans or sale contracts will have entered into the
Underlying Trust Agreement with a trustee (the "Underlying Trustee").
The issuer of the Collateral Certificates (the "Underlying Issuer") will be
o a financial institution, corporation or other entity engaged generally
in the business of purchasing or originating motor vehicle installment
loan agreements and motor vehicle retail installment sale contracts,
o a limited purpose corporation organized for the purpose of, among
other things, establishing trusts, acquiring and selling receivables
to the trusts and selling beneficial interests in these trusts, or
o one of the trusts.
If so specified in the related prospectus supplement, the Underlying Issuer may
be the company and/or one or more affiliates of the company. The obligations of
the Underlying Issuer will generally be limited to specific representations and
warranties with respect to the assets conveyed by it to the related trust. The
related prospectus supplement will, subject to exceptions which, if applicable,
will be described in the related prospectus supplement, provide that the
Underlying Issuer will not have guaranteed any of the assets conveyed to the
related trust or any of the Collateral Certificates issued under the Underlying
Trust Agreement.
Distributions of principal and interest will be made on the Collateral
Certificates on the dates specified in the related prospectus supplement. The
Collateral Certificates may be entitled to receive nominal or no principal
distribution or nominal or no interest distributions. Principal and interest
distributions will be made on the Collateral Certificates by the Underlying
Trustee or the Underlying Servicer. The Underlying Issuer or the Underlying
Servicer may have the right to repurchase assets underlying the Collateral
Certificates after a specific date or under other circumstances specified in the
related prospectus supplement.
ENHANCEMENT RELATING TO COLLATERAL CERTIFICATES
Enhancement in the form of reserve funds, subordination of other securities
issued in connection with the Collateral Certificates, guarantees, letters of
credit, cash collateral accounts, insurance policies or other types of
enhancement may be provided with respect to the Receivables underlying the
Collateral Certificates or with respect to the Collateral Certificates
themselves. The type, characteristics and amount of enhancement will be a
function of particular characteristics of the Receivables and other factors and
will have been established for the Collateral Certificates on the basis of
requirements of rating agencies.
ADDITIONAL INFORMATION
The related prospectus supplement for a series for which the Primary Assets
include Collateral Certificates will specify, to the extent relevant and to the
extent the information is reasonably available to the company and the company
reasonably believes the information to be reliable:
o the aggregate approximate principal amount and type of the Collateral
Certificates to be included in the Primary Assets;
o the characteristics of the receivables which comprise the underlying
assets for the Collateral Certificates;
o the expected and final maturity of the Collateral Certificates;
o the interest rate of the Collateral Certificates;
o the Underlying Issuer, the Underlying Servicer, if other than the
Underlying Issuer, and the Underlying Trustee for the Collateral
Certificates;
o characteristics of the enhancement, if any, such as reserve funds,
insurance funds, insurance policies, letters of credit or guarantees
relating to the receivables underlying the Collateral Certificates or
to the Collateral Certificates themselves;
o the terms on which the underlying receivables for the Collateral
Certificates may, or are required to, be purchased prior to their
stated maturity or the stated maturity of the Collateral Certificates;
and
o the terms on which receivables may be substituted for those originally
underlying the Collateral Certificates.
THE GOVERNMENT SECURITIES
Primary Assets for a series may include, but will not consist entirely of,
any combination of
o receipts or other instruments created under the Department of the
Treasury's Separate Trading of Registered Interest and Principal of
securities, or STRIPS, program ("Treasury Strips"), which interest
and/or principal strips evidence ownership of specific interest and/or
principal payments to be made on particular United States Treasury
Bonds ("Treasury Bonds"),
o Treasury Bonds and
o other debt securities ("GSEs Bonds") of United States government
sponsored enterprises ("GSEs"; and together with Treasury Strips and
Treasury Bonds, collectively, "Government Securities").
The Government Securities, if any, included in a Trust are intended to
assure investors that funds are available to make specified payments of
principal and/or interest due on the related securities. Accordingly, the
Government Securities, if any, included in a Trust are intended both to (1)
support the ratings assigned to these securities, and (2) perform a function
similar to that described in this prospectus under "Description of the Transfer
and Servicing Agreements--Credit and Cash Flow Enhancement". A description of
the respective general features of Treasury Bonds, Treasury Strips and GSE Bonds
is set forth below.
The prospectus supplement for each series of securities the Trust with
respect to which contains Government Securities will contain information as to:
(1) the title and series of each Government Security, the aggregate
principal amount, denomination and form of each Government Security;
(2) the limit, if any, upon the aggregate principal amount of the
Government Security;
(3) the dates on which, or the range of dates within which, the principal
of, and premium, if any, on, the Government Security will be payable;
(4) the rate or rates, or the method of determination of the rate or
rates, at which the Government Security will bear interest, if any,
the date or dates from which the interest will accrue, and the dates
on which the interest will be payable;
(5) whether the Government Security was issued at a price lower than the
principal amount of that Government Security;
(6) material events of default or restrictive covenants provided for with
respect to the Government Security;
(7) the rating of the Government Security, if any;
(8) the issuer of each Government Security;
(9) the material risks, if any, posed by any Government Securities and
issuers of the Government Securities (which risks, if appropriate,
will be described in the "Risk Factors" section of the related
prospectus supplement); and
(10) any other material terms of the Government Security.
With respect to a Trust which includes a pool of Government Securities, the
related prospectus supplement will, to the extent applicable, describe the
composition of the Government Securities' pool, particular material events of
default or restrictive covenants common to the Government Securities, and, on an
aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in (3), (4) and
(5) of the preceding sentence and any other material terms regarding the pool.
The Government Securities included in a Trust will be senior, unsecured,
nonredeemable obligations of the issuer of the Government Securities, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Government Securities in a Trust with respect to a
series of securities is conditioned upon their characteristics being in form and
substance satisfactory to the Rating Agency rating the related series of
securities.
TREASURY BONDS
Treasury Bonds are issued by and are the obligations of the United States
of America. Accordingly, the payment of principal and interest on each Treasury
Bond will be guaranteed by the full faith and credit of the United States of
America. Interest is typically payable on the Bonds semiannually. Treasury Bonds
are issued in registered form in denominations of $1,000, $5,000, $10,000,
$100,000 and $1,000,000 and in book-entry form in integral multiples of these
amounts.
TREASURY STRIPS
In general, Treasury Strips are created by separating, or stripping, the
principal and interest components of Treasury Bonds that have an original
maturity of 10 or more years from the date of issue. A particular Treasury Strip
evidences ownership of the principal payment or one of the periodic interest
payments, generally semiannual, due on the Treasury Bond to which the Treasury
Strip relates.
In 1985 the Department of the Treasury announced that all new issues of
Treasury Bonds with maturities of 10 years or more would be transferable in
their component pieces on the Federal Reserve wire system. In so doing, the
Treasury created a generic, book-entry Treasury Strip named STRIPS (Separate
Trading of Registered Interest and Principal of Securities) which, unlike
private label Treasury Strips, can be issued without the need for a custodial
arrangement. The STRIPS program has eclipsed the private sector programs (which
are described below under "--Private Label Custody Receipt Securities"), and
investment banks no longer sponsor new issues of custodial receipts.
Treasury Strips may be either "serial" or "callable". A serial Treasury
Strip evidences ownership of one of the periodic interest payments to be made on
a Treasury Bond. No payments are made on the Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled to
receive a single payment of the face amount of the Treasury Strip. Callable
Treasury Strips relate to payments scheduled to be made after the related
Treasury Bonds have become subject to redemption. These Treasury Strips evidence
ownership of both principal of the related Treasury Bonds and each of the
related interest payments commencing, typically, on the first interest payment
date following the first optional redemption date. If the underlying Treasury
Bonds are actually redeemed, holders of callable Treasury Strips generally
receive a payment equal to the principal portion of the total face amount of the
Treasury Strips plus the interest payment represented by the Treasury Strips
maturing on the redemption date. No callable Treasury Strips will be included in
a Trust. The face amount of any Treasury Strip is the aggregate of all payments
scheduled to be received on the Treasury Strip. Treasury Strips are available in
registered form and generally may be transferred and exchanged by the holders of
the Treasury Strips in accordance with procedures applicable to the particular
issue of the Treasury Strips.
A holder of a private label Treasury Strip, as opposed to a STRIP, cannot
enforce payment on that Treasury Strip against the Treasury. Instead, the holder
must look to the custodian for payment. The custodian, and the holder of a
Treasury Strip that obtains ownership of the underlying Treasury Bond, can
enforce payment of the underlying Treasury Bond against the Treasury. If any
private label Treasury Strips are included in a Trust with respect to any series
of securities, the prospectus supplement for the series will include the
identity and a brief description of each custodian that issued the Treasury
Strips. If the company knows that the company of the Treasury Bonds underlying
the Treasury Strips is the company or any of its affiliates, the company will
disclose that fact in the related prospectus supplement.
GSE BONDS
As specified in the applicable prospectus supplement, the obligations of
one or more of the following GSEs may be included in a Trust: Federal National
Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Association
("Freddie Mac"), Student Loan Marketing Association ("Sallie Mae"), REFCO,
Tennessee Valley Authority ("TVA"), Federal Home Loan Banks ("FHLB"), to the
extent the obligations represent the joint and several obligations of the twelve
Federal Home Loan Banks, and Federal Farm Credit Banks ("FFCB"). GSE debt
securities are exempt from registration under the securities Act pursuant to
Section 3(a)(2) of the securities Act, or are deemed by statute to be so exempt,
and are not required to be registered under the Exchange Act. The securities of
any GSE, including a GSE Guaranteed Bond, will be included in a Trust only to
the extent that (1) its obligations are supported by the full faith and credit
of the United States government or (2) the organization makes publicly available
its annual report which shall include financial statements or similar financial
information with respect to the organization (a "GSE Issuer"). Unless otherwise
specified in the related prospectus supplement, the GSE Bonds will not be
guaranteed by the United States and do not constitute a debt or obligation of
the United States or of any agency or instrumentality of the United States other
than the related GSE.
Unless otherwise specified in the related prospectus supplement, none of
the GSE Bonds will have been issued pursuant to an indenture, and no trustee is
provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be governed
by a fiscal agency agreement. A Fiscal Agent is not a trustee for the holders of
the GSE Bonds and does not have the same responsibilities or duties to act for
the holders as would a trustee.
GSE Bonds may be subject to particular contractual and statutory
restrictions which may provide some protection to securityholders against the
occurrence or effects of specified events. Unless otherwise specified in the
related prospectus supplement, each GSE is limited to activities as will promote
its statutory purposes as set forth in the publicly available information with
respect to the issuer. A GSE's promotion of its statutory purposes, as well as
its statutory, structural and regulatory relationships with the federal
government, may cause or require the GSE to conduct its business in a manner
that differs from what an enterprise which is not a GSE might employ.
THE FEDERAL NATIONAL MORTGAGE ASSOCIATION
Fannie Mae is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act. It is the largest investor in home mortgage loans in the United States.
Fannie Mae originally was established in 1938 as a corporation wholly owned by
the United States government to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder owned and privately managed
corporation by legislation enacted in 1968 and 1970. Fannie Mae provides funds
to the mortgage market by purchasing mortgage loans from lenders, thus
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase loans from many capital market investors that ordinarily may not invest
in mortgage loans, therefore expanding the total amount of funds available for
housing. Operating nationwide, Fannie Mae helps to redistribute mortgage funds
from capital-surplus to capital-short areas. Fannie Mae also issues
mortgage-backed securities ("MBS"). Fannie Mae receives guaranty fees for its
guaranty of timely payment of principal of and interest on MBS. Fannie Mae
issues MBS primarily in exchange for pools of mortgage loans from lenders. The
issuance of MBS enables Fannie Mae to further its statutory purpose of
increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes
Fannie Mae, its business and operations and contains Fannie Mae's audited
financial statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include specific unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable prospectus supplement, these documents can
be obtained without charge from the Office of Investor Relations, Fannie Mae,
3900 Wisconsin Avenue, N.W., Washington, D.C. 20016, telephone (202) 752-7115.
Fannie Mae is not subject to the periodic reporting requirements of the Exchange
Act.
THE FEDERAL HOME LOAN MORTGAGE CORPORATION
Freddie Mac is a publicly held government-sponsored enterprise created on
July 24, 1970 pursuant to the Federal Home Loan Mortgage Corporation Act, Title
III of the Emergency Home Finance Act of 1970, as amended (the "FHLMC Act").
Freddie Mac'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 secondary market for home mortgages,
including mortgages secured by housing for low- and moderate-income families
involving a reasonable economic return to Freddie Mac, by increasing the
liquidity of mortgage investments and improving the distribution of investment
capital available for home mortgage financing. The principal activity of Freddie
Mac consists of the purchase of conventional residential mortgages and
participation interests in those mortgages from mortgage lending institutions
and the sale of guaranteed mortgage securities backed by the mortgages so
purchased. Freddie Mac generally matches and finances its purchases of mortgages
with sales of guaranteed securities. Mortgages retained by Freddie Mac are
financed with short- and long-term debt, cash temporarily held pending
disbursement to security holders, and equity capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to its
Information Statement which include specific unaudited financial data and other
information concerning the business and operations of Freddie Mac. Unless
otherwise specified in the applicable prospectus supplement, these documents can
be obtained from Freddie Mac by writing or calling Freddie Mac's Investor
Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia, 22102; outside
Washington, D.C. metropolitan area, telephone (800) 336-3672; within Washington,
D.C. metropolitan area, telephone (703) 759-8160. Freddie Mac is not subject to
the periodic reporting requirements of the Exchange Act.
THE STUDENT LOAN MARKETING ASSOCIATION
Sallie Mae is a stockholder-owned corporation established by the 1972
amendments to the Higher Education Act of 1965, as amended, to provide
liquidity, primarily through secondary market and warehousing activities, for
lenders participating in federally sponsored student loan programs, primarily
the Federal Family Education Loan ("FFEL") program and the Health Education
Assistance Loan Program. Under the Higher Education Act, Sallie Mae is
authorized to purchase, warehouse, sell and offer participations or pooled
interests in, or otherwise deal in, student loans, including, but not limited
to, loans insured under the FFEL program, and to make commitments for any of the
foregoing. Sallie Mae is also authorized to buy, sell, hold, underwrite and
otherwise deal in obligations of eligible lenders, if the obligations are issued
by the eligible lenders for the purpose of making or purchasing federally
guaranteed student loans under the Higher Education Act. As a federally
chartered corporation, Sallie Mae's structure and operational authorities are
subject to revision by amendments to the Higher Education Act or other federal
enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include specific unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable prospectus supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street, N.W.,
Washington, D.C. 20007, telephone (202) 298-3010. Sallie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
THE RESOLUTION FUNDING CORPORATION
REFCO is a mixed-ownership government corporation established by Title V of
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). The sole purpose of REFCO is to provide financing for the Resolution
Trust Corporation (the "RTC"). REFCO is to be dissolved, as soon as practicable,
after the maturity and full payment of all obligations issued by it. REFCO is
subject to the general oversight and direction of the Oversight Board, which is
comprised of the Secretary of the Treasury, the Chairman of the Board of
Governors of the Federal Reserve System, the Secretary of Housing and Urban
Development and two independent members to be appointed by the President with
the advice and consent of the Senate. The day-to-day operations of REFCO are
under the management of a three-member Directorate comprised of the Director of
the Office of Finance of the FHLB and two members selected by the Oversight
Board from among the presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was granted authority to issue nonvoting capital
certificates to REFCO in exchange for the funds transferred from REFCO to the
RTC. Pursuant to FIRREA, the net proceeds of these obligations are used to
purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCO obligations.
Information concerning REFCO may be obtained from the Secretary/Treasurer,
Resolution Funding Corporation, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090; telephone (703) 487-9517. REFCO is not subject to the periodic
reporting requirements of the Exchange Act.
THE FEDERAL HOME LOAN BANKS
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the "FHLB"), each wholly owned by its
member institutions. The mission of the FHLB is to enhance the availability of
residential mortgage credit by providing a readily available, low-cost source of
funds to their member institutions. A primary source of funds for the FHLB is
the proceeds from the sale to the public of debt instruments issued as
consolidated obligations, which are the joint and several obligations of all the
FHLB. The FHLB are supervised and regulated by the Federal Housing Finance
Board, which is an independent federal agency in the executive branch of the
United States government, but obligations of the FHLB are not obligations of the
United States government.
The Federal Home Loan Bank System produces annual and quarterly financial
reports in connection with the original offering and issuance by the Federal
Housing Finance Board of consolidated bonds and consolidated notes of the FHLB.
Unless otherwise specified in the applicable prospectus supplement, questions
regarding financial reports should be directed to the Deputy Director, Financial
Reporting and Operations Division, Federal Housing Finance Board, 1777 F Street,
N.W., Washington, D.C. 20006; telephone (202) 408-2901. Unless otherwise
specified in the applicable prospectus supplement, copies of financial reports
may be obtained by written request to Capital Markets Division, Office of
Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to the
periodic reporting requirements of the Exchange Act.
TENNESSEE VALLEY AUTHORITY
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act of
1933, as amended (the "TVA Act"). TVA's objective is to develop the resources of
the Tennessee Valley region in order to strengthen the regional and national
economy and the national defense. The programs of TVA consist of power and
nonpower programs. For the fiscal year ending September 30, 1995, TVA received
$139 million in congressional appropriations from the federal government for the
nonpower programs. The power program is required to be self-supporting from
revenues it produces. The TVA Act authorizes TVA to issue evidences of
indebtedness that may be serviced only from proceeds of its power program. TVA
bonds are not obligations of or guaranteed by the United States government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
specific unaudited financial data and other information concerning the business
and operations of TVA. Unless otherwise specified in the applicable prospectus
supplement, these documents can be obtained by writing or calling Tennessee
Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer, telephone (423) 632-3366. TVA is not
subject to the periodic reporting requirements of the Exchange Act.
FEDERAL FARM CREDIT BANKS
The Farm Credit System is a nationwide system of lending institutions and
affiliated service and other entities (the "System"). Through its Banks ("FCBs")
and related associations, the System provides credit and related services to
farmers, ranchers, producers and harvesters of aquatic products, rural
homeowners, some farm-related businesses, agricultural and aquatic cooperatives
and rural utilities. System institutions are federally chartered under the Farm
Credit Act of 1971, as amended (the "Farm Credit Act"), and are subject to
regulation by a Federal agency, the Farm Credit Administration (the "FCA"). The
FCBs and associations are not commonly owned or controlled. They are
cooperatively owned, directly or indirectly, by their respective borrowers.
Unlike commercial banks and other financial institutions that lend to the
agricultural sector in addition to other sectors of the economy, under the Farm
Credit Act the System institutions are restricted solely to making loans to
qualified borrowers in the agricultural sector, to some related businesses and
to rural homeowners. Moreover, the System is required to make credit and other
services available in all areas of the nation. In order to fulfill its broad
statutory mandate, the System maintains lending units in all 50 states and the
Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the sale
of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on all
Systemwide Debt Securities. Systemwide Debt Securities are issued by the FCBs
through the Federal Farm Credit Banks Funding Corporation, as agent for the FCBs
(the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information made
available by the Funding Corporation. This information consists of the most
recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent to the Farm Credit System Annual
Information Statement and particular press releases issued from time to time by
the Funding Corporation. Unless otherwise specified in the applicable prospectus
supplement, this information and the Farm Credit System Annual Report to
Investors for the current and two preceding fiscal years are available for
inspection at the Federal Farm Credit Banks Funding Corporation, Investment
Banking Services Department, 10 Exchange Place, Suite 1401, Jersey City, New
Jersey 07302, telephone (201) 200-8000. Upon request, the Funding Corporation
will furnish, without charge, copies of the above information. The FCBs are not
subject to the periodic reporting requirements of the Exchange Act.
PRIVATE LABEL CUSTODY RECEIPT SECURITIES
If so specified in the applicable prospectus supplement, the Trust for a
series may include, but will not consist entirely of, any combination of (1)
receipts or other instruments, other than Treasury Strips, evidencing ownership
of specific interest and/or principal payments to be made on particular Treasury
Bonds held by a custodian ("Private Label Custody Strips") and (2) receipts or
other instruments evidencing ownership of specific interest and/or principal
payments to be made on specific Resolution Funding Corporation ("REFCO") bonds
("REFCO Strips"; and together with Private Label Custody Strips, "Private Label
Custody Receipt Securities"). The Private Label Custody Receipt Securities, if
any, included in a Trust are intended to assure investors that funds are
available to make specified payments of principal and/or interest due on the
related securities. Accordingly, the Private Label Custody Receipt Securities,
if any, included in a Trust are intended both to (1) support the ratings
assigned to the securities, and (2) perform a function similar to that described
in this prospectus under "Description of the Transfer and Servicing
Agreements--Credit and Cash Flow Enhancement". A description of the respective
general features of Private Label Custody Strips and REFCO Strips is set forth
below.
The prospectus supplement for each series of securities the Trust with
respect to which contains Private Label Custody Receipt Securities will contain
information as to:
(1) the title and series of each Private Label Custody Receipt Security,
the aggregate principal amount, denomination and form of each Private
Label Custody Receipt Security;
(2) the limit, if any, upon the aggregate principal amount of each Private
Label Custody Receipt Security;
(3) the dates on which, or the range of dates within which, the principal
of, and premium, if any, on, each Private Label Custody Receipt
Security will be payable;
(4) the rate or rates, or the method of determination of the rate or
rates, at which each Private Label Custody Receipt Security will bear
interest, if any, the date or dates from which the interest will
accrue, and the dates on which the interest will be payable;
(5) whether each Private Label Custody Receipt Security was issued at a
price lower than the principal amount of that Private Label Custody
Receipt Security;
(6) material events of default or restrictive covenants provided for with
respect to each Private Label Custody Receipt Security;
(7) the rating of each Private Label Custody Receipt Security, if any;
(8) the issuer of each Private Label Custody Receipt Security;
(9) the material risks, if any, posed by each Private Label Custody
Receipt Security and the issuer of each Private Label Custody Receipt
Security, which risks, if appropriate, will be described in the "Risk
Factors" section of the related prospectus supplement; and
(10) any other material terms of each Private Label Custody Receipt
Security.
With respect to a Trust which includes a pool of Private Label Custody Receipt
Securities, the related prospectus supplement will, to the extent applicable,
describe the composition of the Private Label Custody Receipt Securities' pool,
particular material events of default or restrictive covenants common to the
Private Label Custody Receipt Securities, and, on an aggregate, percentage or
weighted average basis, as applicable, the characteristics of the pool with
respect to the terms set forth in (3), (4) and (5) of the preceding sentence and
any other material terms regarding the pool.
The Private Label Custody Receipt Securities included in a Trust will be
senior, unsecured, nonredeemable obligations of the issuers of the Private Label
Custody Receipt Securities, will be denominated in United States dollars and, if
rated, will be rated at least investment grade by at least one nationally
recognized rating agency. In addition, the inclusion of Private Label Custody
Receipt Securities in a Trust with respect to a series of securities is
conditioned upon their characteristics being in form and substance satisfactory
to the Rating Agency rating the related series of securities. Each Trust will be
provided with an opinion of Federal Tax Counsel to the effect that the Private
Label Custody Receipt Securities included in the Trust are exempt from the
registration requirements of the securities Act. A copy of the opinion will be
filed with the SEC in a Current Report on Form 8-K or in a post-effective
amendment to the Registration Statement.
PRIVATE LABEL CUSTODY STRIPS
The first "stripping" of Treasury Bonds occurred in the 1970s when
government securities dealers physically separated coupons from definitive
certificates and offered them to investors as tax-deferred investments.
Investors were able to purchase the "strip" at a deep discount and pay no
federal income tax until resale or maturity. This tax treatment was limited in
1982 by the Tax Equity and Fiscal Responsibility Act ("TEFRA") which required
holders of strips to accrue a portion of the discount toward par annually and
report this accrual, even though unrealized, as taxable income. TEFRA also
required that all new Treasury issues be made available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers created
custodial receipt programs in which Treasury Bonds in book-entry form were
deposited with custodians who would then issue certificates evidencing rights in
principal and interest payments. Some of the better known programs first came to
market in 1982 and 1983. Although available eventually in denominations as small
as $1,000, these custodial receipts lacked the liquidity of the physical strips.
While physical strips had multiple market-makers, custodial receipts were
proprietary and, as such, the sole market-maker would usually be an affiliate of
the program's sponsor. As a result, the market that developed for the receipts
was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker security known
as a TR (Treasury Receipt). A large secondary market quickly developed in these
generic Treasury Strips.
Treasury Receipts, physical strips and the proprietary receipts trade at
varying discounts from STRIPS which reflect, among other things, lower levels of
liquidity and the structuring difference discussed above.
A holder of a Private Label Custody Strip, as opposed to a STRIP, cannot
enforce payment on a Treasury Strip against the Treasury, instead, the holder
must look to the custodian for payment. The custodian, and the holder of a
Private Label Custody Strip that obtains ownership of the underlying Treasury
Bond, can enforce payment of the underlying Treasury Bond against the Treasury.
If any Private Label Custody Strips are included in a Trust with respect to any
series of securities, the prospectus supplement for the series will include the
identity and a brief description of each custodian that issued the Private Label
Custody Strips. If the company knows that the company of the Treasury Bonds
underlying the Private Label Custody Strips is the company or any of its
affiliates, the company will disclose this fact in the related prospectus
supplement.
REFCO STRIPS
A REFCO Bond may be divided into its separate components, consisting of:
(1) each future semiannual interest distribution (an "Interest Component"); and
(2) the principal payment (the "Principal Component") (each component
individually referred to in this prospectus as a "REFCO Strip"). REFCO Strips
are not created by REFCO. Instead, third parties such as investment banking
firms create them. Each REFCO Strip has an identifying designation and CUSIP
number. REFCO Strips generally trade in the market for Treasury Strips at yields
of a few basis points over Treasury Strips of similar maturities. REFCO Strips
are viewed generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of the
REFCO Bond must be in an amount which, based on the stated interest rate of the
REFCO Bond, will produce a semiannual interest payment of $1,000 or an integral
multiple of $1,000. REFCO Bonds may be separated into their components at any
time from the issue date until maturity. Once created, REFCO Strips are
maintained and transferred in integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on the REFCO Strip against
REFCO. Instead, the holder must look to the custodian for payment. The
custodian, and the holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond, can enforce payment of the underlying REFCO Bond against
REFCO. The identity and a brief description of each custodian that has issued
any REFCO Strip included in a Trust will be set forth in the related prospectus
supplement. If the company knows that the company of the REFCO Bonds underlying
the REFCO Strips included in the Trust is the company or any of its affiliates,
the company will disclose this fact in the related prospectus supplement.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the notes, if any, and the certificates of any
series generally will be influenced by the rate at which the principal balances
of the related Primary Assets are paid, which payment may be in the form of
scheduled amortization or prepayments. With respect to securities backed by
Receivables and to receivables underlying Collateral Certificates, the term
"prepayments" includes prepayments in full, partial prepayments, including those
related to rebates of extended warranty contract costs and insurance premiums,
liquidations due to defaults, as well as receipts of proceeds from physical
damage, credit life and disability insurance policies, or the Repurchase Amount
of Receivables and/or Collateral Certificates repurchased by the company, an
originator or a seller or purchased by a servicer for administrative reasons.
With respect to securities backed by Government Securities and/or Private Label
Custody Receipt Securities, as applicable, the term "prepayments" means the
Repurchase Amount of Government Securities and/or Private Label Custody Receipt
Securities repurchased by the company or purchased by a servicer for
administrative reasons. Substantially all of the Receivables and receivables
underlying Collateral Certificates are prepayable at any time without penalty to
the obligor. The rate of prepayment of automotive receivables is influenced by a
variety of economic, social and other factors, including the fact that an
obligor generally may not sell or transfer the Financed Vehicle securing a
receivable without the consent of the related originator. The rate of prepayment
on receivables may also be influenced by the structure of the loan. In addition,
under some circumstances, the company, an originator or the seller will be
obligated to repurchase Receivables from a given Trust as a result of breaches
of representations and warranties, and the servicer will be obligated to
purchase Receivables from the Trust pursuant to the Sale and Servicing Agreement
or Pooling and Servicing Agreement as a result of breaches of specific
covenants. See "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Primary Assets" and "Servicing Procedures". See also "Certain
Matters Regarding the Servicer--Termination" regarding the servicer's option to
purchase Primary Assets from a given Trust.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the notes and/or certificates of a
series on each Distribution Date since the amount will depend, in part, on the
amount of principal collected on the related Primary Assets during the
applicable Collection Period. Any reinvestment risks resulting from a faster or
slower incidence of payment of Primary Assets will be borne entirely by the
noteholders and certificateholders. The related prospectus supplement may set
forth some additional information with respect to the maturity and prepayment
considerations applicable to particular Primary Assets and the related series of
securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of notes will be a seven-digit
decimal which the servicer or trustee will compute prior to each distribution
with respect to the class of notes indicating the remaining outstanding
principal balance of that class of notes, as of the applicable Distribution
Date, after giving effect to payments to be made on the applicable Distribution
Date, as a fraction of the initial outstanding principal balance of the class of
notes. The "Certificate Pool Factor" for each class of certificates will be a
seven-digit decimal which the servicer or trustee will compute prior to each
distribution with respect to the class of certificates indicating the remaining
certificate balance of the class of certificates, as of the applicable
Distribution Date, after giving effect to distributions to be made on the
applicable Distribution Date, as a fraction of the initial certificate balance
of the class of certificates. Each Note Pool Factor and each Certificate Pool
Factor will be 1.0000000 as of the related closing date, and after will decline
to reflect reductions in the outstanding principal balance of the applicable
class of notes or the reduction of the certificate balance of the applicable
class of certificates. A noteholder's portion of the aggregate outstanding
principal balance of the related class of notes will be the product of (1) the
original denomination of the noteholder's Note and (2) the applicable Note Pool
Factor at the time of determination. A certificateholder's portion of the
aggregate outstanding certificate balance for the related class of certificates
will be the product of (a) the original denomination of the certificateholder's
Certificate and (b) the applicable Certificate Pool Factor at the time of
determination.
As provided in the related prospectus supplement, the noteholders, if any,
and the certificateholders will receive reports on or about each Distribution
Date concerning payments received on the Receivables, the Pool Balance and each
Note Pool Factor or Certificate Pool Factor, as applicable. In addition,
Securityholders of record during any calendar year will be furnished information
for tax reporting purposes not later than the latest date permitted by law. See
"Certain Information Regarding the Securities-- Statements to Securityholders".
THE SELLER AND THE SERVICER
Information with respect to the originator, the seller and the servicer
will be set forth in the related prospectus supplement.
USE OF PROCEEDS
If so provided in the related prospectus supplement, the net proceeds from
the sale of the securities of a series will be applied by the applicable Trust
to the purchase of the Primary Assets from the company or the seller, as
applicable. The company will use the portion of the net proceeds paid to it to
purchase the Primary Assets.
DESCRIPTION OF THE NOTES
Each owner trust will issue one or more classes of notes pursuant to an
indenture (an "Indenture") between the related owner trust and the indenture
trustee, a form of which has been filed as an exhibit to the Registration
Statement of which this prospectus forms a part. The following summary describes
the material provisions of each Indenture which are anticipated to be common to
any notes included in a series of securities. The following summary does not
purport to be a complete description of all terms of the related notes or
Indenture and therefore is subject to, and is qualified in its entirely by
reference to, the provisions of the related notes and Indenture.
If so specified in the related prospectus supplement, each class of notes
will initially be represented by one or more certificates registered in the name
of the nominee of DTC (together with any successor company selected by the
Trust, the "Depository"). The notes will be available for purchase in minimum
denominations of $1,000 or any other minimum denomination as shall be specified
in the related prospectus supplement and integral multiples of $1,000 or any
other minimum denomination so specified in the related prospectus supplement in
book-entry form or any other form as shall be specified in the related
prospectus supplement. If the notes are available in book-entry form only, the
company has been informed by DTC that DTC's nominee will be Cede unless another
nominee is specified in the related prospectus supplement. Accordingly, the
nominee is expected to be the holder of record of the notes of each class. If
the notes are available in book-entry form only, unless and until Definitive
notes are issued under the limited circumstances described in this prospectus or
in the related prospectus supplement, no noteholder will be entitled to receive
a physical certificate representing a Note. If the notes are available in
book-entry form only, all references in this prospectus and in the related
prospectus supplement to actions by noteholders refer to action taken by DTC
upon instructions from it participating organizations, and all references in
this prospectus and in the related prospectus supplement to distributions,
notices, reports and statements to noteholders refer to distributions, notices,
reports and statements to DTC or its nominee, as registered holder of the notes,
for distribution to noteholders in accordance with DTC's procedures with respect
to distributions. See "Certain Information Regarding the Securities--Book-Entry
Registration" and"--Definitive Securities".
DISTRIBUTION OF PRINCIPAL AND INTEREST
The timing and priority of payment, seniority, allocations of losses,
interest rate and amount of or method of determining payments of principal and
interest on each class of notes of a series will be described in the related
prospectus supplement. The right of holders of any class of notes to receive
payments of principal and interest may be senior or subordinate to the rights of
holders of one or more other class or classes of notes of the series, as
described in the related prospectus supplement. The related prospectus
supplement may provide that payments of interest on the notes will be made prior
to payments of principal on the notes. If so provided in the related prospectus
supplement, a series of notes may include one or more classes of strip notes
entitled to (1) principal payments with disproportionate, nominal or no interest
payments or (2) interest payments with disproportionate, nominal or no principal
payments. Each class of notes may have a different interest rate, which may be a
fixed, variable or adjustable interest rate, and which may be zero for some
classes of strip notes, or any combination of the foregoing. The related
prospectus supplement will specify the interest rate for each class of notes of
a series or the method for determining the interest rate. One or more classes of
notes of a series may be redeemable in whole or in part under the circumstances
specified in the related prospectus supplement, including as a result of the
exercise by the servicer of its option to purchase the related Receivable Pool.
See "Certain Matters Regarding the Servicer--Termination".
To the extent specified in any prospectus supplement, one or more classes
of notes of a given series may have fixed principal payment schedules, as set
forth in the prospectus supplement. Holders of any notes will be entitled to
receive payments of principal on any given Distribution Date in the applicable
amount set forth on the schedule with respect to the notes, in the manner and to
the extent set forth in the related prospectus supplement.
The related prospectus supplement may also provide that payment of interest
to noteholders of all classes within a series will have the same priority. Under
some circumstances, the amount available for payments could be less than the
amount of interest payable on the notes on a Distribution Date, in which case
each class of notes will receive its ratable share, based upon the aggregate
amount of interest due to the class of notes, of the aggregate amount available
to be distributed on the date as interest on the notes of the series. See
"Description of the Transfer and Servicing Agreements--Distributions"
and"--Credit and Cash Flow Enhancement".
In the case of a series of securities issued by an owner trust that
includes two or more classes of notes, the sequential order and priority of
payment in respect of principal and interest, and any schedule or formula or
other provisions applicable to the determination of the sequential order and
priority of payment in respect of principal and interest, of each class will be
set forth in the related prospectus supplement. Payments in respect of principal
of and interest on any class of notes will be made on a pro rata basis among all
the noteholders of the class or by any other method as is specified in the
prospectus supplement.
If specified in the related prospectus supplement, the Trust may issue
securities from time to time and use the proceeds of this issuance to make
principal payments with respect to a series.
PROVISIONS OF THE INDENTURE
Events of Default; Rights upon Event of Default. Unless otherwise provided
in the related prospectus supplement, "Events of Default" in respect of a series
of notes under the related Indenture will consist of:
(1) a default for five days or more in the payment of any interest on any
Note;
(2) a default in the payment of the principal of, or any installment of
the principal of, any Note when the same becomes due and payable;
(3) a default in the observance or performance of any material covenant or
agreement of the related Trust made in the related Indenture and the
continuation of any default for a period of 30 days, or for a longer
period, not in excess of 90 days, as may be reasonably necessary to
remedy the default; provided that the default is capable of remedy
within 90 days or less and servicer on behalf of the related trustee
delivers an Officer's Certificate to the related indenture trustee to
the effect that the trustee has commenced, or will promptly commence
and diligently pursue, all reasonable efforts to remedy the default,
after notice of the default is given to the related Trust by the
applicable indenture trustee or to the Trust and the related indenture
trustee by the holders of 25% of the aggregate outstanding principal
amount of the notes;
(4) any representation or warranty made by the Trust in the related
Indenture or in any certificate delivered pursuant to the related
Indenture or in connection with the related Indenture having been
incorrect in a material respect as of the time made, if the breach is
not cured with 30 days, or for a longer period, not in excess of 90
days, as may be reasonably necessary to remedy the default; provided
that the default is capable of remedy within 90 days or less and
servicer on behalf of the related trustee delivers an Officer's
Certificate to the related indenture trustee to the effect that the
trustee has commenced, or will promptly commence and diligently
pursue, all reasonable efforts to remedy the default, after notice of
the breach is given to the Trust by the applicable indenture trustee
or to the Trust and the indenture trustee by the holder of 25% of the
aggregate outstanding principal amount of the notes;
(5) particular events of bankruptcy, insolvency, receivership or
liquidation with respect to the Trust or a substantial part of the
property of the Trust and
(6) any other events as may be specified in the prospectus supplement.
The amount of principal required to be paid to noteholders of each series under
the related Indenture on any Distribution Date generally will be limited to
amounts available to be deposited in the applicable Note Distribution Account.
Therefore, the failure to pay principal on a class of notes generally will not
result in the occurrence of an Event of Default until the applicable final
scheduled Distribution Date for the class of notes.
If an Event of Default should occur and be continuing with respect to the
notes of any series, the related indenture trustee or holders of a majority in
principal amount of the notes may declare the principal of the notes to be
immediately due and payable. This declaration may, under some circumstances, be
rescinded by the holders of a majority in principal amount of the notes then
outstanding.
If the notes of any series are declared due and payable following an Event
of Default, the related indenture trustee may institute proceedings to collect
amounts due on the notes, foreclose on the property of the Trust, exercise
remedies as a secured party, sell the related Primary Assets or elect to have
the applicable Trust maintain possession of the Primary Assets and continue to
apply collections on these Primary Assets as if there had been no declaration of
acceleration. Subject to particular limitations that, if applicable, will be
specified in the related prospectus supplement, the indenture trustee will be
prohibited from selling the Primary Assets following an Event of Default, other
than a default in the payment of any principal of, or a default for five days or
more in the payment of any interest on, any Note of the series, unless
o the holders of all outstanding notes consent to the sale,
o the proceeds of the sale are sufficient to pay in full the principal
of and the accrued interest on the outstanding notes at the date of
sale or
o the indenture trustee determines that the proceeds of the Primary
Assets would not be sufficient on an ongoing basis to make all
payments on the notes as these payments would have become due if these
obligations had not been declared due and payable, and the indenture
trustee obtains the consent of the holders of 66 2/3% of the aggregate
outstanding principal amount of the notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related indenture trustee, if an Event of Default occurs and is
continuing with respect to a series of notes, the indenture trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of the notes if it reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities that might be incurred by it in complying with the request. Subject
to the provisions for indemnification and particular limitations contained in
the related Indenture, the holders of a majority of the aggregate outstanding
principal amount of the notes of a series will have the right to direct the
time, method and place of conducting any proceeding or exercising any remedy
available to the related indenture trustee. In addition, the holders of notes
representing a majority of the aggregate outstanding principal amount of the
notes may, in some cases, waive any default with respect to the notes, except a
default in the payment of principal of or interest on any Note or a default in
respect of a covenant or provision of the Indenture that cannot be modified or
amended without the waiver or consent of the holders of all the outstanding
notes of the series.
Except to the extent provided in the related prospectus supplement, no
holder of a Note will have the right to institute any proceeding with respect to
the related Indenture, unless:
o the holder previously has given to the applicable indenture trustee
written notice of a continuing Event of Default;
o the holders of not less than 25% of the outstanding principal amount
of the notes have made written request to the indenture trustee to
institute a proceeding in its own name as indenture trustee;
o the holder or holders have offered the indenture trustee reasonable
indemnity;
o the indenture trustee has for 60 days failed to institute a
proceeding; and
o no direction inconsistent with a written request has been given to the
indenture trustee during the 60-day period by the holders of a
majority of the outstanding principal amount of the notes of the
series.
With respect to any owner trust, none of the related indenture trustee in
its individual capacity, the related trustee in its individual capacity, any
holder of a Certificate representing an ownership interest in the Trust, or any
of their respective beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related notes or for the agreements of the Trust contained in
the applicable Indenture.
No Trust may engage in any activity other than as described in this
prospectus or in the related prospectus supplement. No Trust will incur, assume
or guarantee any indebtedness other than indebtedness incurred pursuant to the
related notes and the related Indenture, pursuant to any Advances made to it by
the servicer or otherwise in accordance with the Related Documents.
CERTAIN COVENANTS. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless
o the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia;
o the entity expressly assumes the Trust's obligation to make due and
punctual payments upon the notes of the related series and to perform
or observe every agreement and covenant of the Trust under the
Indenture;
o no Event of Default shall have occurred and be continuing immediately
after the merger or consolidation;
o the Trust has been advised by each Rating Agency that the merger or
consolidation will not result in the qualification, reduction or
withdrawal of its then-current rating of any class of the notes or
certificates of the series;
o the Trust has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the Trust or to any related noteholder or certificateholder;
o any action as is necessary to maintain the lien and security interest
created by the Indenture has been taken; and
o the Trust has delivered to the related indenture trustee an Officer's
Certificate and an opinion of counsel that the merger complies with
the requirements and conditions precedent of the Indenture.
No owner trust will:
o except as expressly permitted by the applicable Indenture, the
applicable Transfer and Servicing Agreements or other documents with
respect to the Trust (the "Related Documents"), sell, transfer,
exchange or otherwise dispose of any of the assets of the Trust;
o claim any credit on or make any deduction from the principal and
interest payment in respect to the related notes, other than amounts
withheld under the Code or applicable state tax laws, or assert any
claim against any present or former holder of the notes because of the
payment of taxes levied or assessed upon the Trust;
o dissolve or liquidate in whole or in part;
o permit the validity or effectiveness of the related Indenture to be
impaired or permit any person to be released from any covenants or
obligations with respect to the related notes under the Indenture
except as may be expressly permitted by the related Indenture;
o permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance to be created on or extent to or otherwise arise
upon or burden the assets of the Trust or any part of the Trust, or
any interest in the Trust or the proceeds of the Trust; or
o permit the lien of the related Indenture not to constitute a valid
first priority security interest, other than with respect to a tax,
mechanics' or similar lien, in the asset of the Trust.
Each indenture trustee and the related noteholders, by accepting the
related notes, will covenant that they will not at any time institute against
the applicable Trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
MODIFICATION OF INDENTURE. Each trustee and the related indenture trustee
may, with the consent of the holders of a majority of the aggregate outstanding
principal amount of the notes of the related series, execute a supplemental
indenture to add provisions to, change in any manner or eliminate any provisions
of, the related Indenture, or modify (except as provided below) in any manner
the rights of the related noteholders. Except as otherwise provided in the
related Indenture, without the consent of the holder of each outstanding Note
affected by the related supplemental indenture, no supplemental indenture will:
o change the due date of any installment of principal of or interest on
any Note or reduce the principal amount of any Note, the interest rate
specified on any Note or the redemption price with respect to any
Note, change the provisions of the related Indenture relating to the
application of collections on, or the proceeds of the sale of, the
property of the related Trust to payment of principal or interest on
the notes of the series, or change any place of payment where or the
coin or currency in which any Note or any interest on any Note is
payable;
o impair the right to institute suit for the enforcement of specific
provisions of the related Indenture;
o reduce the percentage of the aggregate amount of the outstanding notes
of the series, the consent of the holders of which is required for any
supplemental indenture or for any waiver of compliance with specific
provisions of the related Indenture or of particular defaults under
the related Indenture and their consequences as provided for in the
related Indenture;
o modify or alter the provisions of the related Indenture regarding the
voting of notes held by the applicable owner trust, any other obligor
on the notes, the seller or an affiliate of any of them;
o reduce the percentage of the aggregate outstanding amount of the
notes, the consent of the holders of which is required to direct the
related indenture trustee to sell or liquidate the Primary Assets if
the proceeds of the sale would be insufficient to pay the principal
amount and accrued and unpaid interest on the outstanding notes of the
series;
o decrease the percentage of the aggregate principal amount of the notes
required to amend the sections of the related Indenture that specify
the percentage of the aggregate principal amount of the notes of the
series necessary to amend the related Indenture or other related
agreements; or
o permit the creation of any lien ranking prior to or on a parity with
the lien of the related Indenture with respect to any of the
collateral for the notes or, except as otherwise permitted or
contemplated in the Indenture, terminate the lien of the related
Indenture on any of the collateral or deprive the holder of any Note
of the security afforded by the lien of the related Indenture.
An owner trust and the related indenture trustee may also enter into
supplemental indentures, without obtaining the consent of the noteholders of the
related series,
(1) to cure any ambiguity;
(2) to correct or supplement any provisions in the Indenture; or
(3) for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the
related Indenture;
provided that the action referred to in clause (3) above will not materially and
adversely affect the interest of any noteholder.
ANNUAL COMPLIANCE STATEMENT. Each owner trust will be required to file
annually with the related indenture trustee a written statement as to the
fulfillment of its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. If required by the Trust Indenture Act,
the indenture trustee for each owner trust will mail each year to all related
noteholders a brief report relating to its eligibility and qualification to
continue as indenture trustee under the related Indenture, any amounts advanced
by it under the Indenture, the amount, interest rate and maturity date of
particular indebtedness, if any, owing by the owner trust to the applicable
Indenture Trust in its individual capacity, the property and funds physically
held by the indenture trustee as indenture trustee and any action taken by it
that materially affects the related notes that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. Each Indenture will be discharged
with respect to the collateral securing the related notes upon the delivery to
the related indenture trustee for cancellation of all of the notes or, with
limitations, upon deposit with the indenture trustee of funds sufficient for the
payment in full of all the notes.
THE INDENTURE TRUSTEE
The indenture trustee for a series of notes will be specified in the
related prospectus supplement. The indenture trustee for any series may resign
at any time, in which event the related owner trust will be obligated to appoint
a successor indenture trustee for the series. Additionally, the Holders of a
majority of the outstanding amount of the notes of a series may remove the
related indenture trustee and appoint a successor indenture trustee. An owner
trust may also remove the related indenture trustee if the indenture trustee
ceases to be eligible to continue in that capacity under the related Indenture,
if particular insolvency events occur with respect to the indenture trustee or
if the indenture trustee otherwise becomes incapable of acting as indenture
trustee. In these circumstances, the owner trust will be obligated to appoint a
successor indenture trustee for the applicable series of notes. No resignation
or removal of the indenture trustee and appointment of a successor indenture
trustee for a series of notes will become effective until the acceptance of the
appointment by the successor indenture trustee for the series and payment of all
fees and expenses owed to the outgoing indenture trustee.
DESCRIPTION OF THE CERTIFICATES
Each Trust will issue one or more classes of certificates pursuant to a
Trust Agreement or Pooling and Servicing Agreement, as applicable. A form of
each of the Trust Agreement and the Pooling and Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this prospectus forms
a part. The following summary describes the material provisions of the Trust
Agreement and the Pooling and Servicing Agreement, in each case, which are
anticipated to be common to any certificates included in a series of securities.
The following summary does not purport to be a complete description of all terms
of the related notes, Trust Agreement or Pooling and Servicing Agreement and
therefore is subject to, and is qualified in its entirety by reference to, the
provisions of the related certificates and Trust Agreement or Pooling and
Servicing Agreement, as applicable.
If so specified in the related prospectus supplement and except for the
certificates, if any, of a series purchased by the company, a seller or any of
their respective affiliates, each class of certificates will initially be
represented by one or more certificates registered in the name of the
Depository. The certificates will be available for purchase in minimum
denominations of $10,000 or any other minimum denomination as shall be specified
in the related prospectus supplement and integral multiples of $1,000 in excess
of $10,000 or any other minimum denomination so specified in the related
prospectus supplement in book-entry form only, or any other form as shall be
specified in the related prospectus supplement. If the certificates are
available in book-entry form only, the company has been informed by DTC that
DTC's nominee will be Cede. Accordingly, the nominee is expected to be the
holder of record of the certificates of any series. If the certificates are
available in book-entry form only, unless and until Definitive certificates are
issued under the limited circumstances described in this prospectus or in the
related prospectus supplement, no certificateholder, other than the company, a
seller or any of their respective affiliates, will be entitled to receive a
physical certificate representing a Certificate. If the certificates are
available in book-entry form only, all references in this prospectus and in the
related prospectus supplement to actions by certificateholders refer to actions
taken by DTC upon instructions from the Participants, and all references in this
prospectus and in the related prospectus supplement to distributions, notices,
reports and statements to certificateholders refer to distributions, notices,
reports and statements to DTC or its nominee, as the case may be, as the
registered holder of the certificates, for distribution to certificateholders in
accordance with DTC's procedures with respect to distributions. See "Certain
Information Regarding the Securities--Book-Entry Registration" and"--Definitive
Securities". Any Certificate of a series owned by the company, a seller or any
of their respective affiliates will be entitled to equal and proportionate
benefits under the applicable Trust Agreement or Pooling and Servicing
Agreement, as applicable, except that, unless otherwise provided in the related
Trust Agreement, the certificates will be deemed not to be outstanding for the
purpose of determining whether the requisite percentage of certificateholders
has given any request, demand, authorization, direction, notice, or consent or
taken any other action under the Related Documents.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
certificate pass-through rate and amount of or method of determining
distributions with respect to principal and interest on each class of
certificates of a series will be described in the related prospectus supplement.
Distributions of interest on these certificates will be made on the dates
specified in the related prospectus supplement (the "Distribution Date") and
will be made prior to distributions with respect to principal of the
certificates. To the extent provided in the related prospectus supplement, a
series of certificates may include one or more classes of strip certificates
entitled to (1) principal distributions with disproportionate, nominal or no
interest distributions or (2) interest distributions with disproportionate,
nominal or no principal distributions. Each class of certificates may have a
different certificate pass-through rate, which may be a fixed, variable or
adjustable certificate pass-through rate, and which may be zero for some classes
of strip certificates, or any combination of the foregoing. The related
prospectus supplement will specify the certificate pass-through rate for each
class of certificates of a series or the method for determining the certificate
pass-through rate.
In the case of a series of securities that includes two or more classes of
certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination of the timing, sequential
order, priority of payment or amount of distributions in respect of interest and
principal, of each class will be as set forth in the related prospectus
supplement. In the case of certificates issued by an owner trust, distributions
in respect of these certificates will be subordinated to payments in respect of
the notes of the related series and to the extent described in the related
prospectus supplement. Distributions in respect of interest on and principal of
any class of certificates will be made on a pro rata basis among all holders of
certificates of the class.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
If so specified in the related prospectus supplement, DTC will act as
securities company for each class of securities offered by this prospectus. Each
class of securities initially will be represented by one or more certificates
registered in the name of Cede, the nominee of DTC. As the nominee of DTC, it is
anticipated that the only "noteholder" and/or "certificateholder" with respect
to a series of securities will be Cede. Beneficial owners of the securities
("Security Owners") will not be recognized as "noteholders" by the related
indenture trustee, as the term is used in each Indenture, or as
"certificateholders" by the related trustee, as the term is used in each Trust
Agreement or Pooling and Servicing Agreement, as applicable, and Security Owners
will be permitted to exercise the rights of noteholders or certificateholders
only indirectly through DTC and its participating members ("Participants").
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code (the "UCC") in effect in the
State of New York, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for the
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entries, thus
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
Security Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
the securities may do so only through Participants and Indirect Participants. In
addition, all Security Owners will receive all distributions of principal and
interest from the related indenture trustee or the related trustee, as
applicable, through Participants or Indirect Participants. Under a book-entry
format, Security Owners may experience some delay in their receipt of payments,
since these payments will be forwarded by the applicable trustee or indenture
trustee to DTC's nominee. DTC will then forward the payments to the
Participants, which will then forward them to Indirect Participants or Security
Owners.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the securities and to
receive and transmit distributions of principal of and interest on the
securities. Participants and Indirect Participants with which Security Owners
have accounts with respect to the securities similarly are required to make
book-entry transfers and to receive and transmit the payments on behalf of their
respective Security Owners. Accordingly, although Security Owners will not
possess physical certificates representing the securities, the Rules provide a
mechanism by which Participants and Indirect Participants will receive payments
and transfer or exchange interests, directly or indirectly, on behalf of
Security Owners.
Because DTC can act only on behalf of Participants, who in turn may act on
behalf of Indirect Participants, the ability of a Security Owner to pledge
securities to persons or entities that do not participate in the DTC system, or
otherwise take actions with respect to the securities, may be limited due to the
lack of a physical certificate representing the securities.
DTC has advised the company that it will take any action permitted to be
taken by a Security Owner under the Indenture, Trust Agreement or Pooling and
Servicing Agreement, as applicable, only at the direction of one or more
Participants to whose account with DTC the securities are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent that
these actions are taken on behalf of Participants whose holdings include the
undivided interests.
Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte,
L-2967 Luxembourg ("Clearstream, Luxembourg"), was incorporated in 1970 as
"Cedel S.A.", a company with limited liability under Luxembourg law (a societe
anonyme). Cedel S.A. subsequently changed its name to Cedelbank. On January 10,
2000, Cedelbank's parent company, Cedel International, societe anonyme ("CI")
merged its clearing, settlement and custody business with that of Deutsche Borse
Clearing AG ("DBC"). The merger involved the transfer by CI of substantially all
of its assets and liabilities (including its shares in CB) to a new Luxembourg
company, New Cedel International, societe anonyme ("New CI"), which is 50% owned
by CI and 50% owned by DBC's parent company Deutsche Borse AG. The shareholders
of these two entities are banks, securities dealers and financial institutions.
Cedel International currently has 92 shareholders, including U.S. financial
institutions or their subsidiaries. No single entity may own more than 5 percent
of Cedel International's stock.
Further to the merger, the Board of Directors of New Cedel International
decided to rename the companies in the group in order to give them a cohesive
brand name. The new brand name that was chosen is "Clearstream". With effect
from January 14, 2000 New CI has been renamed "Clearstream International,
societe anonyme". On January 18, 2000, Cedelbank was renamed "Clearstream
Banking, societe anonyme", and Cedel Global Services was renamed "Clearstream
Services, societe anonyme".
On January 17, 2000 DBC was renamed "Clearstream Banking AG". This means
that there are now two entities in the corporate group headed by Clearstream
International which share the name "Clearstream Banking", the entity previously
named "Cedelbank" and the entity previously named "Deutsche Brse Clearing AG".
Clearstream, Luxembourg holds securities for its customers ("Clearstream,
Luxembourg Participants") and facilitates the clearance and settlement of
securities transactions between Clearstream, Luxembourg customers through
electronic book-entry changes in accounts of Clearstream, Luxembourg customers,
thereby eliminating the need for physical movement of certificates. Transactions
may be settled by Clearstream, Luxembourg in any of 36 currencies, including
United States Dollars. Clearstream, Luxembourg provides to its customers, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg also deals with domestic securities markets in over 30
countries through established depository and custodial relationships.
Clearstream, Luxembourg is registered as a bank in Luxembourg, and as such is
subject to regulation by the Commission de Surveillance du Secteur Financier,
"CSSF", which supervises Luxembourg banks. Clearstream, Luxembourg's customers
are world-wide financial institutions including underwriters, securities brokers
and dealers, banks, trust companies and clearing corporations. Clearstream,
Luxembourg's U.S. customers are limited to securities brokers and dealers, and
banks. Currently, Clearstream, Luxembourg has approximately 2,000 customers
located in over 80 countries, including all major European countries, Canada,
and the United States. Indirect access to Clearstream, Luxembourg is available
to other institutions that clear through or maintain a custodial relationship
with an account holder of Clearstream, Luxembourg. Clearstream, Luxembourg has
established an electronic bridge with Morgan Guaranty Trust Company of New York
as the Operator of the Euroclear System (MGT/EOC) in Brussels to facilitate
settlement of trades between Clearstream, Luxembourg and MGT/EOC.
Except as required by law, none of Deutsche Banc Alex. Brown Inc., the
company, the related seller, the related servicer, or related indenture trustee,
if any, or the related trustee will have any liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of securities of any series held by DTC's nominee, or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests.
DEFINITIVE SECURITIES
If so stated in the related prospectus supplement, the notes and/or
certificates of a given series will be issued in fully registered, certificated
form ("Definitive notes" and "Definitive certificates", respectively, and,
collectively, "Definitive Securities") to noteholders or certificateholders or
their respective nominees, rather than to DTC or its nominee, only if
o the related trustee of a grantor trust or the related indenture
trustee in the case of an owner trust, as applicable, determines that
DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the related securities
and the indenture trustee or trustee, as applicable, is unable to
locate a qualified successor,
o the indenture trustee or trustee, as applicable, elects, at its
option, to terminate the book-entry system through DTC or
o after the occurrence of an Event of Default or Servicer Default,
Security Owners representing at least a majority of the outstanding
principal amount of the notes or certificates, as applicable, of the
series, advise the related trustee through DTC that the continuation
of a book-entry system through DTC, or a successor to DTC, is no
longer in the best interests of the related Security Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the related trustee or indenture trustee, as applicable,
will be required to notify the related Security Owners, through Participants, of
the availability of Definitive Securities. Upon surrender by DTC of the
certificates representing all securities of any affected class and the receipt
of instructions for re-registration, the trustee will issue Definitive
Securities to the related Security Owners. Distributions on the related
Definitive Securities will subsequently be made by the related trustee or
indenture trustee, as applicable, directly to the holders in whose name the
related Definitive Securities are registered at the close of business on the
applicable record date, in accordance with the procedures set forth in this
prospectus and in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable. Distributions will be made by
check mailed to the address of the holders as they appear on the register
specified in the related Indenture, Trust Agreement or Pooling and Servicing
Agreement, as applicable; however, the final payment on any securities, whether
Definitive Securities or securities registered in the name of a Depository or
its nominee, will be made only upon presentation and surrender of the securities
at the office or agency as specified in the notice of final distribution to
Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the related trustee or indenture trustee, or any security registrar appointed
by the related trustee or the indenture trustee, as applicable. No service
charge will be imposed for any registration of transfer or exchange, but the
trustee or indenture trustee may require payment of a sum sufficient to cover
any tax or other governmental charge imposed in connection with a registration
of transfer or exchange.
STATEMENTS TO SECURITYHOLDERS
With respect to each series of securities, on or prior to each Distribution
Date, the related servicer will prepare and forward to the related indenture
trustee or trustee to be included with the distribution to each Securityholder
of record a statement setting forth for the related Collection Period the
following information, and any other information specified in the related
prospectus supplement:
(1) the amount of the distribution allocable to principal of each class of
securities of the series;
(2) the amount of the distribution allocable to interest on each class of
securities of the series;
(3) if applicable, the amount of the Servicing Fee paid to the related
servicer with respect to the related Collection Period;
(4) the outstanding principal balance and Note Pool Factor for each class
of notes, if any, and the certificate balance and Certificate Pool
Factor for each class of certificates of the series as of the related
record date;
(5) the balance of any Reserve Account or other form of credit
enhancement, after giving effect to any additions to the balance of
the Reserve Account or withdrawals from the Reserve Account or
reductions to the Reserve Account to be made on the following
Distribution Date; and
(6) the aggregate amount of realized losses, if any, in respect of
Receivables and any other loss, delinquency or other ratios set forth
in the related prospectus supplement for the related Collection
Period.
Items (1), (2) and (4) above with respect to the notes or certificates of a
series will be expressed as a dollar amount per $1,000 of initial principal
balance of the notes or the initial certificate balance of the certificates, as
applicable.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of each Trust, the
related trustee or indenture trustee, as applicable, will mail to each person
who at any time during the related calendar year shall have been a registered
Securityholder a statement containing information for the purposes of the
Securityholder's preparation of federal income tax returns. See "Material
Federal Income Tax Consequences".
LIST OF SECURITYHOLDERS
Three or more holders of the notes of any series or one or more holders of
the notes evidencing not less than 25% of the aggregate outstanding principal
balance of the notes of the series may, by written request to the related
indenture trustee, obtain access to the list of all noteholders maintained by
the indenture trustee for the purpose of communicating with other noteholders
with respect to their rights under the related Indenture or under the notes. The
indenture trustee may elect not to afford the requesting noteholders access to
the list of noteholders if it agrees to mail the desired communication or proxy,
on behalf of and at the expense of the requesting noteholders, to all
noteholders of the series.
Three or more holders of the certificates of any series or one or more
holders of the certificates evidencing not less than 25% of the certificate
balance of the certificates may, by written request to the related trustee,
obtain access to the list of all certificateholders maintained by the trustee
for the purpose of communicating with other certificateholders with respect to
their rights under the related Trust Agreement or Pooling and Servicing
Agreement, as applicable, or under the certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material provisions, in each case, to
the extent anticipated to be common to any series of securities, of:
o each Receivables Purchase Agreement pursuant to which the seller will
transfer Receivables to the company,
o each Trust Agreement or Pooling and Servicing Agreement pursuant to
which a Trust will be created, Collateral Certificates, Government
Securities and/or Private Label Custody Receipt Securities, as
applicable, may be sold or transferred to the Trust, certificates will
be issued, and the servicer will service Receivables and the trustee
will manage Government Securities, if any and Private Label Custody
Receipt Securities, if any, in the case of a grantor trust,
o each Sale and Servicing Agreement pursuant to which the company will
transfer Receivables to a Trust and the servicer will service
Receivables, in the case of an owner trust, or
o in the case of securities backed by Collateral Certificates, each
Trust Agreement pursuant to which a Trust will be created, Collateral
Certificates will be sold or transferred to the Trust, Government
Securities and Private Label Custody Receipt Securities may be sold or
transferred to the Trust and a trustee will manage Collateral
Certificates, Government Securities, if any, and Private Label Custody
Receipt Securities, if any (collectively, the "Transfer and Servicing
Agreements").
Forms of the Transfer and Servicing Agreements have been filed as exhibits to
the Registration Statement of which this prospectus forms a part. The following
summary does not purport to be a complete description of all of the terms of the
Transfer and Servicing Agreements and therefore is subject to, and is qualified
in its entirety by reference to, the provisions of the related Transfer and
Servicing Agreement.
SALE AND ASSIGNMENT OF PRIMARY ASSETS
In the case of Primary Assets consisting of Receivables, on or prior to the
related closing date, the entity specified in the related prospectus supplement
will transfer and assign to the company, pursuant to a Receivables Purchase
Agreement, without recourse, all of its right, title and interest in and to
Receivables in the outstanding principal amount specified in the related
prospectus supplement, including its security interests in the related Financed
Vehicles. Each Receivable will be identified in a schedule appearing as an
exhibit to the related Receivables Purchase Agreement (the "Schedule of
Receivables").
In each Receivables Purchase Agreement one or more entities will represent
and warrant to the company, among other things, that
o the information set forth in the Schedule of Receivables is correct in
all material respects as of the applicable cutoff date;
o the obligor on each Receivable is contractually required to maintain
physical damage insurance covering the related Financed Vehicle;
o on the closing date, the Receivables are free and clear of all
security interests, liens, charges and encumbrances, and no offsets,
defenses or counterclaims have been asserted or threatened;
o at the closing date, each of the Receivables is secured by a
perfected, first-priority security interest in the related Financed
Vehicle in favor of the originator;
o each Receivable, at the time it was originated, complied and, in all
material respects with applicable federal and state laws, including,
without limitation, consumer credit, truth-in-lending, equal credit
opportunity and disclosure laws; and
o any other representations and warranties that may be set forth in the
related prospectus supplement.
To the extent specified in the related prospectus supplement, as of the
last day of the second Collection Period, or, if the company so elects, the last
day of the first Collection Period, following the discovery by or notice to the
company of any breach of a representation and warranty that materially and
adversely affects the interests of the related Trust in any Receivable, the
company will be obligated to repurchase the Receivable or cause the related
entity to repurchase the Receivables or cause the related entity to repurchase
the Receivables, unless the breach is cured in a timely fashion. The purchase
price for any of these Receivables will be equal to the unpaid principal balance
owed by the obligor on the Receivable, plus accrued and unpaid interest on the
unpaid principal balance at the applicable APR to the last day of the month of
repurchase (the "Repurchase Amount"). This repurchase obligation will constitute
the sole remedy available to the Securityholders, the related trustee and any
related indenture trustee for any uncured breach.
On the related closing date, the company will transfer and assign to the
related Trust, pursuant to a Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, without recourse, all of its right, title
and interest in and to Primary Assets in the outstanding principal amount
specified in the related prospectus supplement. Concurrently with the transfer
and assignment of Primary Assets to the related Trust, the related trustee or
indenture trustee, as applicable, will execute, authenticate and deliver the
related securities.
Pursuant to the terms of the Sale and Servicing Agreement or the Pooling
and Servicing Agreement, as applicable, the company will assign to the related
Trust the representations and warranties made by the related seller or
originator under the related Receivables Purchase Agreement for the benefit of
the related Securityholders and will make limited representations and warranties
with respect to the other Primary Assets included in the Trust. To the extent
that the applicable entity does not repurchase a Primary Asset in the event of a
breach of its representations and warranties with respect to the Primary Asset,
the company will not be required to repurchase the Primary Asset unless the
breach also constitutes a breach of one of the company's representations and
warranties under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, with respect to that Primary Asset, if any,
and the breach materially and adversely affects the interests of the
Securityholders in any Primary Asset. Neither the seller nor the company nor any
other entity will have any other obligation with respect to the Primary Assets
or the securities.
TRUST ACCOUNTS
With respect to each owner trust, the servicer will establish and maintain
with the related indenture trustee, or the trustee will establish and maintain,
(a) one or more accounts, on behalf of the related Securityholders, into which
all payments made on or in respect of the related Primary Assets will be
deposited (the "Collection Account") and (b) an account, in the name of the
indenture trustee on behalf of the noteholders, into which amounts released from
the Collection Account and any Reserve Account or other form of credit
enhancement for payment to the noteholders will be deposited and from which all
distributions to the noteholders will be made (the "Note Distribution Account").
With respect to each owner trust and grantor trust, the servicer or the related
trustee will establish and maintain an account, in the name of the trustee on
behalf of the certificateholders, into which amounts released from the
Collection Account and any Reserve Account or other form of credit enhancement
for distribution to the certificateholders will be deposited and from which all
distributions to the certificateholders will be made (the "Certificate
Distribution Account"). With respect to any grantor trust, the servicer or the
related trustee will also establish and maintain the Collection Account and any
other Trust Account in the name of the related trustee on behalf of the related
certificateholders.
If so provided in the related prospectus supplement, the servicer will
establish for each series of securities an additional account (the "Payahead
Account"), in the name of the related indenture trustee, in the case of an owner
trust, or trustee, in the case of a grantor trust, into which, to the extent
required in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, early payments made by or on behalf of obligors on
Precomputed Receivables will be deposited until the time these payments become
due. Until the time payments are transferred from the Payahead Account to the
Collection Account, they will not constitute collected interest or collected
principal and will not be available for distribution to noteholders or
certificateholders. Any other accounts to be established with respect to a Trust
will be described in the related prospectus supplement.
For each series of securities, funds in the Collection Account, Note
Distribution Account, Certificate Distribution Account and any Reserve Account
or other accounts identified in the related prospectus supplement (collectively,
the "Trust Accounts") will be invested as provided in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, in
Eligible Investments. "Eligible Investments" will generally be limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the related securities. Eligible Investments will generally be limited
to obligations or securities that mature on or before the date of the next
scheduled distribution to Securityholders of the series. However, to the extent
permitted by the Rating Agencies, funds in any Reserve Account may be invested
in securities that will not mature prior to the date of the next scheduled
distribution with respect to the notes or certificates and will not be sold
prior to maturity to meet any shortfalls. Thus, the amount of available funds on
deposit in a Reserve Account at any time may be less than the balance of that
Reserve Account. If the amount required to be withdrawn from a Reserve Account
to cover shortfalls in collections on the related Receivables (as provided in
the related prospectus supplement) exceeds the amount of available funds on
deposit in the Reserve Account, a temporary shortfall in the amounts distributed
to the related noteholders or certificateholders could result, which could, in
turn, increase the average life of the related notes or certificates. Unless
otherwise and to the extent provided in the related prospectus supplement,
investment earnings on funds deposited in the Trust Accounts, net of losses and
investment expenses (collectively, "Investment Earnings"), will be deposited in
the applicable Collection Account on each Distribution Date and will be treated
as collections of interest on the related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a company institution organized under the laws of the United
States of America or any one of the states of the United States of America or
the District of Columbia, or any domestic branch of a foreign bank, having
corporate trust powers and acting as trustee for funds deposited in the account,
so long as any of the securities of the company institution have a credit rating
from each Rating Agency in one of its generic rating categories that signifies
investment grade. "Eligible Institution" means, with respect to a Trust, (a) the
corporate trust department of the related indenture trustee or trustee, as
applicable, or (b) a company institution organized under the laws of the United
States of America or any one of the states of the United States of America or
the District of Columbia, or any domestic branch of a foreign bank, (1) that has
either (A) a long-term unsecured debt rating acceptable to the Rating Agencies
or (B) a short-term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies and (2) whose deposits are insured by the
FDIC.
PRE-FUNDING
If so specified in the related prospectus supplement, a portion of the
issuance proceeds of the securities of a particular series (this amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account")
to be established with the trustee, which will be used to acquire additional
Receivables from time to time during the time period specified in the related
prospectus supplement (the "Pre-Funding Period"). Prior to the investment of the
Pre-Funded Amount in additional Receivables, the Pre-Funded Amount may be
invested in one or more Eligible Investments. Except as otherwise provided in
the applicable Agreement, an "Eligible Investment" is any of the following, in
each case as determined at the time of the investment or contractual commitment
to invest in the relevant Eligible Investment, to the extent these investments
would not require registration of the Trust Fund as an investment company
pursuant to the Investment Company Act of 1940:
(a) negotiable instruments or securities represented by instruments in
bearer or registered or book-entry form which evidence
(1) obligations which have the benefit of the full faith and credit
of the United States of America, including company receipts
issued by a bank as custodian with respect to any instrument or
security held by the custodian for the benefit of the holder of
the company receipt,
(2) demand deposits or time deposits in, or bankers' acceptances
issued by, any depositary institution or trust company
incorporated under the laws of the United States of America or
any state of the United States of America and subject to
supervision and examination by Federal or state banking or
depositary institution authorities; provided that at the time of
the trustee's investment or contractual commitment to invest in
the relevant Eligible Investment, the certificates of deposit or
short-term deposits, if any, or long-term unsecured debt
obligations, other than the obligations whose rating is based on
collateral or on the credit of a Person other than the
institution or trust company, of the depositary institution or
trust company has a credit rating in the highest rating category
from each Rating Agency,
(3) certificates of deposit having a rating in the highest rating
category from each Rating Agency or
(4) investments in money market funds which are, or which are
composed of instruments or other investments which are, rated in
the highest rating category from each Rating Agency;
(b) demand deposits in the name of the trustee in any depositary
institution or trust company referred to in clause (a)(2) above;
(c) commercial paper, having original or remaining maturities of no more
than 270 days, having a credit rating in the highest rating category
from each Rating Agency;
(d) Eurodollar time deposits that are obligations of institutions whose
time deposits carry a credit rating in the highest rating category
from each Rating Agency;
(e) repurchase agreements involving any Eligible Investment described in
any of clauses (a)(1), (a)(3) or (d) above, so long as the other party
to the repurchase agreement has its long-term unsecured debt
obligations rated in the highest rating category from each Rating
Agency; and
(f) any other investment with respect to which each Rating Agency rating
the securities indicates will not result in the reduction or
withdrawal of its then existing rating of the securities. Except as
otherwise provided in the applicable Agreement, any Eligible
Investment must mature no later than the Business Day prior to the
next Distribution Date.
During any Pre-Funding Period, the seller or any other party specified in
the related prospectus supplement will be obligated, subject only to the
availability of additional Receivables, to transfer to the related Trust Fund
additional Receivables from time to time during the related Pre-Funding Period.
Additional Receivables will be required to satisfy specific eligibility criteria
more fully set forth in the related prospectus supplement, which eligibility
criteria will be consistent with the eligibility criteria of the Receivables
included in the Trust Fund as of the closing date subject to exceptions as are
expressly stated in the related prospectus supplement.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of securities will be specified in the related prospectus
supplement, it is anticipated that:
o the Pre-Funding Period will not exceed 90 days from the related
closing date;
o that the additional loans to be acquired during the Pre-Funding Period
will be subject to the same representations and warranties as the
Receivables included in the related Trust Fund on the closing date,
although additional criteria may also be required to be satisfied, as
described in the related prospectus supplement; and
o the Pre-Funded Amount will not exceed 25% of the principal amount of
the securities issued pursuant to a particular offering.
SERVICING PROCEDURES
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the company and each Trust will designate the servicer as
custodian to maintain possession, as the Trust's agent, of the related
Receivables and any other documents relating to the Receivables. The seller's
and the servicer's accounting records and computer systems will be marked to
reflect the sale and assignment of the related Receivables to each Trust, and
UCC financing statements reflecting the sale and assignment will be filed.
The servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and will, consistent with the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, follow
the collection procedures as it follows with respect to comparable Receivables
it services for itself and others. The prospectus supplement will specify that
the servicer may, in its discretion, arrange with the obligor on a Receivable to
extend or modify the payment schedule, but no arrangement will, if inconsistent
with its normal procedures, for purposes of any Sale and Servicing Agreement or
Pooling and Servicing Agreement, reduce the contract rate of, the amount of the
scheduled payments under, or extend the final payment date of, any Receivable
beyond the "Final Scheduled Maturity Date" (as the term is defined with respect
to any Receivables Pool in the related prospectus supplement). Some arrangements
may result in the servicer purchasing the Receivables for the Repurchase Amount,
while others may result in the servicer making Advances. The servicer may sell
the related Financed Vehicle securing any Receivable at a public or private
sale, or take any other action permitted by applicable law. See "Certain Legal
Aspects of the Receivables".
COLLECTIONS
With respect to each Trust, the servicer or the trustee will deposit all
payments on the related Primary Assets, from whatever source, and all proceeds
of the related Primary Assets, collected during the period specified in the
related prospectus supplement (a "Collection Period") into the related
Collection Account not later than two business days after receipt of payments
and proceeds of the related Primary Assets or any other period as specified in
the related prospectus supplement. However, notwithstanding the foregoing,
unless otherwise provided in the related prospectus supplement, these amounts
may be remitted to the Collection Account by the servicer on a monthly basis on
or prior to the applicable Distribution Date if no Servicer Default exists and
each other condition to making deposits less frequently than daily as may be
specified by the Rating Agencies or set forth in the related prospectus
supplement is satisfied. Pending deposit into the Collection Account, the
collections may be invested by the servicer at its own risk and for its own
benefit and will not be segregated from its own funds. If the servicer were
unable to remit the funds to the Collection Account on any Distribution Date,
Securityholders might incur a loss. To the extent set forth in the related
prospectus supplement, the servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit of
the related Trust to secure timely remittances of collections on the related
Primary Assets and payment of the aggregate Repurchase Amount with respect to
Receivables repurchased by the servicer.
Collections on a Precomputed Receivable during any Collection Period will
be applied first to the repayment of any outstanding Precomputed Advances made
by the servicer with respect to the Receivable, as described below, and then to
the scheduled monthly payment due on the Receivable. Any portion of the
collections remaining after the scheduled monthly payment has been made (these
excess amounts, the "Payaheads") will, unless the remaining amount is sufficient
to prepay the Precomputed Receivable in full, and subject to limitations which,
if applicable, will be specified in the related prospectus supplement, be
transferred to and kept in the Payahead Account until a later Distribution Date
on which the Payaheads may be applied either to the scheduled monthly payment
due during the related Collection Period or to prepay the Receivable in full.
ADVANCES
If specified in the related prospectus supplement, to the extent the
collections of interest and principal on a Precomputed Receivable for a
Collection Period fall short of the related scheduled payment, the servicer
generally will advance the shortfall (a "Precomputed Advance"). The servicer
will be obligated to make a Precomputed Advance on a Precomputed Receivable only
to the extent that the servicer, in its sole discretion, expects to recoup the
Advance from subsequent collections or recoveries on the Receivable or other
Precomputed Receivables in the related Receivables Pool. The servicer will
deposit the Precomputed Advance in the applicable Collection Account on or
before the business day preceding the applicable Distribution Date. The servicer
will recoup its Precomputed Advance from subsequent payments by or on behalf of
the related obligor or from insurance or liquidation proceeds with respect to
the related Receivable and will release its right to reimbursement in
conjunction with its purchase of the Receivable as servicer or, upon determining
that reimbursement from the preceding sources is unlikely, will recoup its
Precomputed Advance from any collections made on other Precomputed Receivables
in the related Receivables Pool.
If specified in the related prospectus supplement, on or before the
business day prior to each Distribution Date, the servicer will deposit into the
related Collection Account an amount equal to the amount of interest that would
have been due on the related Simple Interest Receivables at their respective
annual percentage rates for the related Collection Period, assuming that the
Simple Interest Receivables are paid on their respective due dates, minus the
amount of interest actually received on the Simple Interest Receivables during
the applicable Collection Period (a "Simple Interest Advance", and together with
Precomputed Advances, "Advances"). If the calculation results in a negative
number, an amount equal to the amount shall be paid to the servicer in
reimbursement of outstanding Simple Interest Advances. In addition, if specified
in the related prospectus supplement, if a Simple Interest Receivable becomes a
Liquidated Receivable (as the term is defined in the related prospectus
supplement), the amount of accrued and unpaid interest on the Simple Interest
Receivable that became a Liquidated Receivable, but not including interest for
the then current collection Period, will be withdrawn from the Collection
Account and paid to the servicer in reimbursement of outstanding Simple Interest
Advances. No advances of principal will be made with respect to Simple Interest
Receivables.
NET DEPOSITS
For administrative convenience, unless the servicer or the trustee is
required to remit collections to the Collection Account on a daily basis as
described under "Collections" above, the servicer or the trustee will be
permitted to make deposits of collections, aggregate Advances and Repurchase
Amounts for any Trust for or in respect of each Collection Period net of
distributions to be made to the servicer with respect to the Collection Period.
The servicer also may cause a single, net transfer to be made from the
Collection Account to the Payahead Account, or vice versa.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
To the extent provided in the related prospectus supplement, with respect
to each Trust the related servicer will be entitled to receive, out of interest
collected on or in respect of the related Primary Assets serviced by the
servicer, a fee for each Collection Period (the "Servicing Fee") in an amount
equal to the percentage per annum specified in the related prospectus supplement
(the "Servicing Fee Rate") of the Pool Balance related to the Primary Assets as
of the first day of the related Collection Period. Unless otherwise provided in
the related prospectus supplement, the Servicing Fee, together with any portion
of the Servicing Fee that remains unpaid from prior Distribution Dates, will be
paid solely to the extent of the Interest Distribution Amount; however, the
Servicing Fee will be paid prior to the distribution of any portion of the
Interest Distribution Amount to the holders of the notes or certificates of any
series.
To the extent provided in the related prospectus supplement, the servicer
will also collect and retain any late fees, prepayment charges and other
administrative fees or similar charges allowed by applicable law with respect to
Receivables and will be entitled to reimbursement from each Trust for some
liabilities. Payments by or on behalf of obligors will be allocated to scheduled
payments under the related Receivable and late fees and other charges in
accordance with the servicer's normal practices and procedures.
If applicable, the Servicing Fee will compensate the servicer for
performing the functions of a third party servicer of motor vehicle receivables
as an agent for the related Trust, including collecting and posting all
payments, responding to inquiries of obligors on the Receivables, investigating
delinquencies, sending payment statements and reporting the collateral. The
Servicing Fee will also compensate the servicer for administering the
Receivables, including making Advances, accounting for collection, furnishing
monthly and annual statements to the related Indenture Trust and/or trustee, and
generating federal income tax information for the Trust and for the related
noteholders and/or certificateholders as well as the Trust's compliance with the
reporting provisions under the Exchange Act. The Servicing Fee may also
reimburse the servicer for particular taxes, the fees of the related indenture
trustee and/or trustee, accounting fees, outside auditor fees, date processing
cost and other costs incurred in connection with administering the Primary
Assets.
DISTRIBUTIONS
With respect to each series of securities, beginning on the Distribution
Date specified in the related prospectus supplement, distributions of principal
and interest, or, where applicable, principal only or interest only, on each
class of securities entitled to these distributions will be made by the related
trustee or indenture trustee, as applicable, to the certificateholders and
noteholders of the series. The timing, calculation, allocation, order, source
and priorities of, and requirements for, all payments to the holders of each
class of notes and/or distributions to holders of each class of certificates
will be set forth in the related prospectus supplement.
With respect to each Trust, on each Distribution Date collections on or in
respect of the related Primary Assets will be transferred from the Collection
Account to the Note Distribution Account or Certificate Distribution Account, as
applicable, for distribution to the noteholders and certificateholders to the
extent provided in the related prospectus supplement. Credit enhancement, such
as a Reserve Account, will be available to cover shortfalls in the amount
available for distribution on the date to the extent specified in the related
prospectus supplement. As and to the extent described in the related prospectus
supplement, distributions in respect of principal of a class of securities of a
series may be subordinate to distributions in respect of interests on the class,
and distributions in respect of one or more classes of certificates of the
series may be subordinate to payments in respect of the notes, if any, of the
series or other classes of certificates. Distributions of principal on the
securities of a series may be based on the amount of principal collected or due,
or the amount of realized losses incurred, in a Collection Period.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of any credit and cash flow enhancement arrangements
and the provider of the credit and cash flow enhancement arrangements, if
applicable, with respect to each class of securities of a series will be set
forth in the related prospectus supplement. To the extent provided in the
related prospectus supplement, credit or cash flow enhancement may be in the
form of subordination of one or more classes of securities, Reserve Accounts,
spread accounts, letters of credit, surety bonds, insurance policies,
over-collateralization, credit or liquidity facilities, guaranteed investment
contracts, swaps or other interest rate protection agreements, repurchase
obligations, other agreements with respect to third party payments or other
support, cash deposits, or any other arrangements that are incidental to or
related to the Primary Assets included in a Trust as may be described in the
related prospectus supplement, or any combination of the foregoing. If specified
in the applicable prospectus supplement, credit or cash flow enhancement for a
class of securities may cover one or more other classes of securities of the
same series, and credit enhancement for a series of securities may cover one or
more other series of securities.
The existence of a Reserve Account or other form of credit enhancement for
the benefit of any class or series of securities is intended to enhance the
likelihood of receipt by the Securityholders of the class or series of the full
amount of principal and interest due on the applicable class or series and to
decrease the likelihood that the Securityholders will experience losses. The
credit enhancement for a class or series of securities will not, as a general
rule, provide protection against all types of loss and will not guarantee
repayment of all principal and interest on a class or series of securities. If
losses occur which exceed the amount covered by credit enhancement or which are
not covered by the credit enhancement, Securityholders will bear their allocable
share of these losses, as described in the prospectus supplement. In addition,
if a form of credit enhancement covers more than one series of securities,
Securityholders of any series will be subject to the risk that credit
enhancement may be exhausted by the claims of Securityholders of other series.
Reserve Account. If so provided in the related prospectus supplement,
pursuant to the related Transfer and Servicing Agreement, the company or the
seller will establish for a series or class or classes of securities an account
(the "Reserve Account"), which will be maintained with the related indenture
trustee or trustee, as applicable. A Reserve Account will be funded by an
initial deposit by the company or the seller, as applicable, on the closing date
in the amount set forth in the related prospectus supplement. As further
described in the related prospectus supplement, the amount on deposit in the
Reserve Account may be increased or reinstated on each Distribution Date, to the
extent described in the related prospectus supplement, by the deposit there of
amounts from collections on the Primary Assets. The related prospectus
supplement will describe the circumstances under which and the manner in which
distributions may be made out of the Reserve Account, either to holders of the
securities covered by the Reserve Account or to the company, the seller or to
any other entity.
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, will provide that a firm of independent public accountants will
furnish annually to the related Trust and indenture trustee and/or trustee a
statement as to compliance by the Sale and servicer during the preceding twelve
months, or, in the case of the first statement, during a shorter period that
shall have elapsed since the applicable closing date, with particular standards
relating to the servicing of the Receivables, the servicer's accounting records
and computer files with respect to the servicer's compliance and other matters.
Each Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, will also provide for delivery to the related Trust and indenture
trustee and/or trustee each year of a certificate signed by an officer of the
servicer stating that the servicer has fulfilled it obligations under the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months, or, in the case of the first
certificate, during a shorter period that shall have elapsed since the
applicable closing date, or, if there has been a default in the fulfillment of
any obligation, describing each default. The servicer will agree to give each
indenture trustee and/or trustee, as applicable, notice of particular Servicer
Defaults under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable.
Copies of the foregoing statements and certificates may be obtained by
Securityholders by a request in writing addressed to the related trustee or
indenture trustee, as applicable, at the Corporate Trust Office for the trustee
or indenture trustee specified in the related prospectus supplement.
STATEMENTS TO TRUSTEES AND THE TRUST
Prior to each Distribution Date with respect to each series of securities,
the servicer will provide to the applicable indenture trustee, if any, and the
applicable trustee as of the close of business on the last day of the preceding
Collection Period a statement setting forth substantially the same information
as is required to be provided in the periodic reports provided to
Securityholders of the series as described under "Certain Information Regarding
the Securities--Statements to Securityholders".
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the servicer may not resign from its obligations and duties as
servicer under the applicable Agreement, except upon determination that the
servicer's performance of his duties is no longer permissible under applicable
law or if resignation is required by regulatory authorities. No resignation will
become effective until the related indenture trustee or trustee, as applicable,
or a successor servicer has assumed the servicing obligations and duties under
the related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or
Securityholders for taking any action or for refraining from taking any action
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, or for errors in judgment; provided, that neither the
servicer nor any person will be protected against any liability that would
otherwise be imposed by reason of wilful misfeasance, bad faith or gross
negligence in the performance of the servicer's duties or by reason of reckless
disregard of its obligations and duties under the applicable Agreement. In
addition, each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the servicer is under no obligation to appear in, prosecute or
defend any legal action that is not incidental to its servicing responsibilities
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the servicer is a party, or any entity succeeding to all or
substantially all of the business of the servicer, or any corporation which
assumes the obligations of the servicer, will be the successor to the servicer
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable.
SERVICER DEFAULTS
A "Servicer Default" under each Sale and Servicing Agreement and Pooling
and Servicing Agreement will consist of:
(1) any failure by the servicer to deliver to the related trustee or
indenture trustee, as applicable, for deposit in any of the Trust
Accounts any required payment or to direct the related trustee or
Indenture Trust, as applicable, to make any required distributions
from the Trust Accounts, which failure continues unremedied for five
business days after discovery by an officer of the servicer or written
notice of failure is given by the applicable entity;
(2) any failure by the servicer duly to observe or perform in any material
respect any covenant or agreement in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, which
failure materially and adversely affects the rights of the related
Securityholders and which continues unremedied for 60 days after
written notice of failure is given to the servicer by the applicable
entity;
(3) specific events of bankruptcy, insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings and
particular actions by the servicer indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay
its obligations; and
(4) any other events as may be set forth in the related prospectus
supplement.
RIGHTS UPON SERVICER DEFAULT
Unless otherwise set forth in the related prospectus supplement, in the
case of an owner trust, as long as a Servicer Default under the related Sale and
Servicing Agreement remains unremedied, the related indenture trustee or holders
of notes of the related series evidencing not less than 50% of the aggregate
principal amount of the notes then outstanding may terminate all the rights and
obligations of the servicer under the related Sale and Servicing Agreement, and
upon this termination the indenture trustee or a successor servicer appointed by
the indenture trustee will succeed to all the responsibilities, duties and
liabilities of the servicer under the related Sale and Servicing Agreement and
will be entitled to similar compensation arrangements. Generally, in the case of
any grantor trust, as long as a Servicer Default under the related Pooling and
Servicing Agreement remains unremedied, the related trustee or holders of
certificates of the related series evidencing not less than 25% of the
certificate balance may terminate all the rights and obligations of the servicer
under the related Pooling and Servicing Agreement, and upon this termination the
trustee or a successor servicer appointed by the trustee will succeed to all the
responsibilities, duties and liabilities of the servicer under the related
Pooling and Servicing Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the servicer, and no Servicer Default other than the appointment
has occurred, the trustee or official may have the power to prevent any
indenture trustee or the related noteholders or the trustee or the related
certificateholders from effecting a transfer of servicing. If the related
indenture trustee, if any, or the related trustee is unwilling or unable to act
as successor to the servicer, the indenture trustee or trustee, as applicable,
may appoint, or may petition a court of competent jurisdiction to appoint, a
successor with a net worth of at least $100,000,000 and whose regular business
includes the servicing of motor vehicle receivables. The indenture trustee, if
any, or the trustee may arrange for compensation to be paid to the successor
servicer, which in no event may be greater than the compensation payable to the
servicer under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable.
WAIVER OF PAST DEFAULTS
To the extent provided in the related prospectus supplement, (1) in the
case of each owner trust, holders of the related notes evidencing not less than
a majority of the aggregate outstanding principal amount of the notes, or of
certificates evidencing not less than a majority of the outstanding certificate
balance, in the case of any default that does not adversely affect the indenture
trustee or noteholders, and (2) in the case of each grantor trust, holders of
certificates evidencing not less than a majority of the certificate balance,
may, on behalf of all the noteholders and certificateholders, waive any default
by the servicer in the performance of its obligations under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, and its
consequences, except a default in making any required deposits to or payments
from any Trust Account or in respect of a covenant or provision in the Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, that
cannot be modified or amended without the consent of each Securityholder, in
which event the related waiver will require the approval of holders of all of
the securities of the series. No waiver will impair the Securityholders' right
with respect to any subsequent Servicer Default.
AMENDMENT
Unless otherwise provided in the related prospectus supplement, each of the
Transfer and Servicing Agreements may be amended by the parties to the Transfer
and Servicing Agreements without the consent of the related noteholders or
certificateholders:
(1) to cure any ambiguity,
(2) to correct or supplement any provisions in the related Transfer and
Servicing Agreement, or
(3) for the purpose of adding any provisions to, or changing in any manner
or eliminating any of the provisions of, the related Transfer and
Servicing Agreement;
provided, that any action in this clause (3) will not, in the opinion of counsel
satisfactory to the related trustee or indenture trustee, as applicable,
adversely affect in any material respect the interests of the company or any
noteholder.
The Transfer and Servicing Agreements may also be amended from time to time
by the parties to the Transfer and Servicing Agreements with the consent of the
holders of notes evidencing at least a majority of the aggregate principal
amount of the then outstanding notes, if any, and with the consent of the
holders of certificates evidencing at least a majority of the aggregate
principal amount of the then outstanding certificates, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the related Transfer and Servicing Agreement or of modifying in any manner
the rights of the noteholders or certificateholders, as applicable; provided
that no amendment may (1) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on or in respect of
the related Primary Assets or distributions that are required to be made for the
benefit of the noteholders or certificateholders or (2) reduce the aforesaid
percentage of the notes or certificates of the series the holders of which are
required to consent to any amendment, without the consent of the holders of all
of the outstanding notes or certificates, as the case may be, of the series.
PAYMENT IN FULL OF THE NOTES
Upon the payment in full of all outstanding notes of a given series and the
satisfaction and discharge of the related Indenture, the related trustee will
succeed to all the rights of the indenture trustee, and the certificateholders
of the series generally will succeed to the rights of the noteholders of the
series under the related Sale and Servicing Agreement.
TERMINATION
The obligations of the related servicer, the related trustee and the
related indenture trustee, if any, with respect to a Trust pursuant to the
related Transfer and Servicing Agreement will terminate upon the latest to occur
of
o the maturity or other liquidation of the last Primary Asset and the
disposition of any amounts received upon liquidation of any remaining
Primary Asset,
o the payment to noteholders, if any, and certificateholders of all
amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and
o the occurrence of either event described below.
The entity specified in the related prospectus supplement will be
permitted, at its option, to purchase from a Trust all remaining Primary Assets
as of the end of any Collection Period, if the then outstanding Pool Balance is
10%, or, if entity specified in the related prospectus supplement is a bank, 5%,
or less of the Pool Balance as of the related cutoff date, at a purchase price
equal to the price specified in the related prospectus supplement.
If and to the extent provided in the related prospectus supplement, the
indenture trustee or trustee, as applicable, will, within ten days following a
Distribution Date as of which the Pool Balance is equal to or less than the
percentage of the original Pool Balance specified in the related prospectus
supplement, solicit bids for the purchase of the Primary Assets remaining in the
Trust, in the manner and subject to the terms and conditions set forth in the
related prospectus supplement. If the indenture trustee or trustee receives
satisfactory bids as described in the related prospectus supplement, then the
Primary Assets remaining in the Trust will be sold to the highest bidder.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTERESTS IN FINANCED VEHICLES
In states in which retail installment contracts such as the Receivables
evidence the credit sale of automobiles, recreational vehicles, vans, trucks,
buses and trailers by dealers to obligors, the contracts also constitute
personal property security agreements and include grants of security interests
in the vehicles under the UCC as in effect in these states. Perfection of
security interests in the automobiles, recreational vehicles, vans, trucks,
buses and trailers financed, directly or indirectly, by a seller is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In general, a security interest in automobiles, recreational
vehicles, vans, trucks, buses and trailers is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured party's
lien on the vehicles' certificate of title. However, security interests in boats
may be perfected in one of three ways: in certificate of title states, a
security interest is perfected as described above; in other states, a security
interest may be perfected by filing a UCC-1 financing statement, however, a
purchase money lien in consumer goods is perfected without any filing
requirement and if a boat is required to be documented under Federal law, a
preferred mortgage may be obtained under the Ship Mortgage Act by filing the
mortgage with the Coast Guard, which is the exclusive method for perfecting
security interests in documented boats.
The contracts may represent marine retail installment sale contracts
purchased from Dealers or direct loans to Obligors secured by boats (the
"Financed Boats"). When originated, each contract may have granted a security
interest in the Financed Boat financed thereby. Each such security interest
would be required to be perfected under applicable state law and, in the case of
certain Financed Boats described below, under applicable federal law. Generally,
security interests in boats may be perfected in one of three ways: (i) in
"title" states, by notation of the secured party's lien on the certificate of
title issued by an applicable state motor vehicle or wildlife department or
other appropriate state agency; (ii) in non-title states, by filing a UCC-1
financing statement; and (iii) in respect of a boat eligible for documentation
under federal law, by filing all documents necessary to create a first preferred
ship mortgage (a "Preferred Mortgage") under the Ship Mortgage Act of 1920 (1988
Recodification) ss. 30101 et seq. (the "Ship Mortgage Statutes"). Vessels that
meet the federal five net ton standard (determined in a manner prescribed by 46
CFR Part 69 (Measurement of Vessels)) qualify for documentation under federal
law ("U.S. Documentable Boats"). However, federal documentation of vessels used
exclusively for recreational purposes is discretionary.
In the event that the originator of a contract failed to perfect the
security interest in a Financed Boat (for example, by complying with the UCC
rather than the applicable certificate of title statute, or by failing to comply
with applicable state title law, or the Ship Mortgage Statutes or applicable
United States Coast Guard (the "Coast Guard") regulations), such originator
would not have a perfected first priority security interest in such Financed
Boat. In this event, if third party liens equal or exceed the value of the
Financed Boat, the only recourse of the Trust would be against the Obligor on an
unsecured basis, or, if applicable, against a Dealer or financial intermediary
pursuant to its repurchase obligation or against the Originator or Seller.
Under the Ship Mortgage Statutes, in the absence of an assignment of record
of a Preferred Mortgage, the assignment of the related contract by itself will
not convey the perfected preferred mortgage lien on the Financed Boat subject to
such Preferred Mortgage and the Trust will not have a perfected security
interest in such Financed Boat. However, to the extent specified in the related
prospectus supplement, pursuant to the Sale and Servicing Agreement, the Company
will agree to cause filings of the assignments to the Trust of certain specified
Preferred Mortgages (each a "Designated Preferred Mortgage") showing the chain
of ownership of each such Preferred Mortgage from the originator of each such
contract to the Trust, within the time period specified in the related Sale and
Services Agreement. However, due to administrative burden and expense,
assignments may not be made of all Preferred Mortgages relating to the
contracts. Under the Ship Mortgage Statutes, in the absence of an assignment of
a Preferred Mortgage, or in the event an assignment of a Preferred Mortgage is
not effective, the Trust will not have a perfected security interest in the
related Financed Boat as against third parties without knowledge of the
transfer. In such case, if third party liens equal or exceed the value of such
Financed Boat, the only recourse of the Trust would be against the related
Obligor on an unsecured basis.
Under the laws of many states, certain possessory liens for repairs
performed on a Financed Boat and storage, as well as certain rights in favor of
federal and state governmental authorities arising from the use of a boat in
connection with illegal activities, may take priority over a security interest
perfected under state law. Certain U.S. federal tax liens may also have priority
over the security interest of a secured party. Under the Ship Mortgage Statutes,
a Preferred Mortgage supersedes a perfected state law security interest, a state
or federally created lien or forfeiture rights (so long as the secured party is
innocent of wrongdoing) other than preferred maritime liens such as those
arising under federal statutory or common-law for captain's or crew's wages,
tort claims (so-called "general average" claims) and salvage claims. Maritime
liens arising under federal law or state laws for repair, storage or supplies
which are subordinate to a preferred ship mortgage lien typically have priority
over state security interests under federal law or under applicable law of the
state where the contract was originated or under applicable law of the state to
which the related Financed Boats may have been relocated. Preferred federal
maritime liens are, of course, also prior to all state created security
interests or liens. Such liens could arise at any time during the term of a
contract. No notice will be given to the Owner Trustee or the Indenture Trustee
in the event such a lien arises.
Generally all of the Receivables name the originator as obligee or assignee
and as the secured party. The originator will take all actions necessary under
the laws of the state in which the Financed Vehicle is located to perfect the
originator's security interest in the Financed Vehicle, including, where
applicable, having a notation of its lien recorded on the vehicle's certificate
of title or file a UCC-1 Financing Statement. If the originator, because of
clerical error or otherwise, has failed to take action with respect to the
Financed Vehicle, it will not have a perfected security interest and its
security interest may be subordinate to the interest of, originator among
others, subsequent purchasers of the Financed Vehicle that give value without
notice of the originator's security interest and to whom a certificate of
ownership is issued in the purchaser's name, holders of perfected security
interests in the Financed Vehicle and the trustee in bankruptcy of the obligor.
The originator's security interest may also be subordinate to third parties in
the event of fraud or forgery by the obligor or administrative error by state
recording officials or in the circumstances noted below.
Pursuant to each Sale and Servicing Agreement and Pooling and Servicing
Agreement, the company will assign its interests in the Financed Vehicles
securing the related Receivables to the related Trust. However, because of
administrative burden and expense, the certificate of title will not be amended
to identify the Trust as the new secured party on the certificates of title
relating to the Financed Vehicles. Unless otherwise specified in the related
prospectus supplement, the servicer will hold certificates of title relating to
the Financed Vehicles in its possession as custodian for the Trust pursuant to
the related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable. See "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Primary Assets".
In most states, assignments such as those under the related Trust Agreement
or Pooling and Servicing Agreement, as applicable, are effective conveyances of
a security interest in the related Financed Vehicle without amendment of any
lien noted on the vehicle's certificate of title, and the assignee succeeds by
assignment to the assignor's rights as secured party. Although re-registration
of the motor vehicle is not necessary in these states to convey a perfected
security interest in the Financed Vehicles to a Trust, because the related Trust
will not be listed as legal owner on the certificates of title to the Financed
Vehicles, a Trust's security interest could be defeated through fraud or
negligence. However, in the absence of fraud or forgery by the vehicle owner or
the servicer or administrative error by state of local agencies, the notation of
the originator's lien on a certificate of title will be sufficient to protect a
Trust against the rights of subsequent purchasers of a Financed Vehicle or
subsequent creditors who take a security interest in a Financed Vehicle. If
there are any Financed Vehicles as to which the seller fails to obtain a
first-priority perfected security interest, the Trust's security interest would
be subordinate to, among others, subsequent purchasers of Financed Vehicles and
holders of perfected security interests in Financed Vehicles. A failure,
however, would constitute a breach of the originator's representations and
warranties under the related Receivables Purchase Agreement and the company will
be required to repurchase (or cause the repurchase) the Receivable from the
Trust unless the breach is cured in a timely manner. See "Description of the
Transfer and Servicing Agreements--Sale and Assignment of Primary Assets" and
"Risk Factors--Potential Lack of Security".
Under the laws of most states in which a perfected security interest is
governed by a certificate of title statute, a perfected security interest in a
motor vehicle continues for four months after the vehicle is moved to a new
state from the one in which it is initially registered and after until the owner
re-registers the motor vehicle in the new state. A majority of these states
require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title of the vehicle or, in the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender from the state of re-registration if the security interest is noted on
the certificate of title. Thus, the secured party would have the opportunity to
reperfect its security interest in the vehicle in the state of relocation.
However, these procedural safeguards will not protect the secured party if,
through fraud, forgery or administrative error, an obligor somehow procures a
new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require a certificate of title for
registration of a vehicle, re-registration could defeat perfection. In the
ordinary course of servicing the Receivables, the servicer will take steps to
effect re-perfection upon receipt of notice of re-registration or information
from the obligor as to relocation. Similarly, when an obligor sells a Financed
Vehicle and the purchaser of that Financed Vehicle attempts to re-register the
vehicle, the originator must surrender possession of the certificate of title or
will receive notice as a result of having its lien noted on the certificate of
title and accordingly will have an opportunity to require satisfaction of the
related Receivable before its lien is released. Under each Sale and Servicing
Agreement and Pooling and Servicing Agreement, the servicer will be obligated to
take appropriate steps, at its own expense, to maintain perfection of security
interests in the related Financed Vehicles and is obligated to purchase the
related Receivable if it fails to do so.
In states which the perfection of a security interest is governed by the
filing of a UCC-1 financing statement, or the obligor moves from a title state
to a non-title state, the servicer will file a UCC-1 financing statement in the
new state of the obligor as soon as possible after receiving notice of the
obligor's change of residence. UCC-1 financing statements expire after five
years. When the term of a loan exceeds five years, the filing must be continued
in order to maintain the servicer's perfected security interest. The servicer
takes steps to effect continuation. In the event that an obligor moves to a
state other than the state in which the UCC-1 financing statement is filed or in
some states to a different county in the state, under the laws of most states
the perfection of the security interest in the boat would continue for four
months after relocation, unless the perfection in the original jurisdiction
would have expired earlier. A new financing statement must be filed in the state
of relocation or, if the state is a title state, a notation on the certificate
of title must be made in order to continue the security interest. The servicer
generally takes steps to effect re-perfection upon notification of an address
change. Generally, in both title states and in non-title states, the servicer
will not re-perfect a state law security interest which has expired or where the
obligor has moved if the Receivable has a small balance, a short remaining term
and the obligor has a good payment record.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected,
first-priority security interest in the vehicle. The Code also grants priority
to particular federal tax liens over the lien of a secured party. The laws of
some states and federal law permit the confiscation of motor vehicles by
governmental authorities under some circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected security
interest in a confiscated motor vehicle. In each Receivables Purchase Agreement,
the originator or seller will represent and warrant that, as of the date any
Receivable is sold to the Trust, the security interest in the related Financed
Vehicle is or will be prior to all other present liens, other than tax liens and
other liens that arise by operation of law, upon and security interests in the
Financed Vehicle. However, liens for repairs or taxes could arise, or the
confiscation of a Financed Vehicle could occur, at any time during the term of a
Receivable. No notice will be given to the related trustee, the related
indenture trustee, if any, or related Securityholders in the event a lien arises
or confiscation occurs. Any lien or confiscation arising or occurring after the
closing date will not give rise to a repurchase obligation of the originator or
seller under the related Receivables Purchase Agreement.
REPOSSESSION
In the event of default by an obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless these
means would constitute a breach of the peace. Self-help repossession is the
method employed by the servicer in most cases and is accomplished simply by
taking possession of the related motor vehicle. In cases where the obligor
objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order must be obtained from the appropriate state
court, and the vehicle must then be recovered in accordance with that order. In
some jurisdictions, the secured party is required to notify an obligor debtor of
the default and the intent to repossess the collateral and to give the obligor a
period of time within which to cure the default prior to repossession.
Generally, the right to cure may only be exercised on a limited number of
occasions during the term of the related contract.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation, accrued
interest on the unpaid principal balance of the obligation, plus reasonable
expenses for repossessing, holding and preparing the collateral for disposition
and arranging for its sale, plus, in some jurisdictions, reasonable attorneys'
fees or, in some states, by payment of delinquent installments or the unpaid
principal balance of the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of the resale of any Financed Vehicle generally will be
applied first to the expenses of resale and repossession and then to the
satisfaction of the related indebtedness. While some states impose prohibitions
or limitations on deficiency judgments if the net proceeds from any resale do
not cover the full amount of the indebtedness, a deficiency judgment can be
sought in other states that do not prohibit or limit deficiency judgments.
However, the deficiency judgment would be a personal judgment against the
obligor for the shortfall, and a defaulting obligor can be expected to have very
little capital or sources of income available following repossession; in many
cases, therefore, it may not be useful to seek a deficiency judgment or, if one
is obtained, it may be settled at a significant discount or be uncollectible. In
addition to the notice requirement, the UCC requires that every aspect of the
sale or other disposition, including the method, manner, time, place and terms,
be "commercially reasonable". Generally, courts have held that when a sale is
not "commercially reasonable", the secured party loses its right to a deficiency
judgment. In addition, the UCC permits the debtor or other interested party to
recover for any loss caused by noncompliance with the provisions of the UCC.
Also, prior to a sale, the UCC permits the debtor or other interested person to
restrain the secured party from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC.
Occasionally, after the resale of a motor vehicle and payment of all
related expenses and indebtedness, there is a surplus of funds. In that case,
the UCC requires the creditor to remit the surplus to any holder of a
subordinate lien with respect to the related vehicle or, if no subordinate
lienholder exists, to the former owner of the vehicle.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Relief Act, state adaptations of the National Consumer
Act and of the Uniform Consumer Credit Code, and state motor vehicle retail
installment sales acts, retail installment sales acts and other similar laws.
Also, the laws of some states impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability could affect the
ability of an assignee, such as a Trust, to enforce consumer finance contracts
such as Receivables.
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting a seller in a consumer credit transaction, and some related
creditors and their assignees, to all claims and defenses that the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract,
and the holder of the contract may also be unable to collect any balance
remaining due under the contract from the obligor. Most of the Receivables will
be subject to the requirements of the FTC Rule. Accordingly, each Trust, as
holder of the related Receivables, will be subject to any claims or defenses
that the purchasers of the related Financed Vehicles may assert against the
sellers of those Financed Vehicles. See "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Primary Assets".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the Fourteenth Amendment to the Constitution of the United
States. Courts have generally either upheld the notice provisions of the UCC and
related laws as reasonable or have found that the creditors' repossession and
resale do not involve sufficient state action to afford constitutional
protection to borrowers.
Under each Receivables Purchase Agreement the seller or originator will
represent and warrant that each Receivable complies in all material respects
with all applicable federal and state laws. Accordingly, if an obligor has a
claim against a Trust for a violation of any law and that claim materially and
adversely affects the interests of the Trust in a Receivable, the violation
would constitute a breach of the seller's or originator's representation and
warranty and would create an obligation of the company to repurchase (or cause
the repurchase) the Receivable unless the breach is cured. See "Description of
the Transfer and Servicing Agreements--Sale and Assignment of Primary Assets".
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle and, as part of the rehabilitation
plan, may reduce the amount of the secured indebtedness to the market value of
the motor vehicle at the time of bankruptcy, as determined by the court, leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under the related contract or change the rate of interest and time of repayment
of the indebtedness.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material United
States federal income tax consequences of the purchase, ownership and
disposition of securities. The summary does not purport to deal with federal
income tax consequences applicable to all categories of holders, some of which
may be subject to special rules. For example, it does not discuss the tax
treatment of beneficial owners of notes ("Note Owners") or certificates
("Certificate Owners") that are insurance companies, regulated investment
companies or dealers in securities. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving both debt and
equity interests issued by a trust with terms similar to those of the notes and
the certificates. As a result, the IRS might disagree with all or part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the notes and
the certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated under the Code and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of tax counsel specified in the related prospectus supplement
("Federal Tax Counsel") regarding some related federal income tax matters
discussed below. An opinion of Federal Tax Counsel, however, is not binding on
the IRS or the courts. No ruling on any of the issues discussed below will be
sought from the IRS. The opinion of Federal Tax Counsel specifically addresses
only those issues specifically identified below as being covered by that
opinion; however, the opinion also states that the additional discussion set
forth below accurately sets forth the advice of Federal Tax Counsel with respect
to material federal income tax issues. For purposes of the following summary,
references to the Trust, the notes, the certificates and related terms, parties
and documents shall be deemed to refer, unless otherwise specified in this
prospectus, to each Trust and the notes, certificates and related terms, parties
and documents applicable to the Trust.
TRUSTS WHICH ARE NOT TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUSTS.
In the case of a Trust which is not intended to be treated as a grantor
trust (an "owner trust"), Federal Tax Counsel will deliver its opinion that the
Trust will not be an association, or publicly traded partnership, taxable as a
corporation for federal income tax purposes. The opinion of Federal Tax Counsel
will be based on the assumption that the terms of the Trust Agreement and
related documents will be complied with, and on counsel's conclusions that the
nature of the income of the Trust, or restrictions, if any, on transfers of the
certificates, will exempt the Trust from the rule that some publicly traded
partnerships are taxable as corporations.
If a Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all of its income on the related Primary
Assets, which might be reduced by its interest expense on the notes. Any
corporate income tax could materially reduce cash available to make payments on
the notes and distributions on the certificates, and Certificate Owners, and
possibly Note Owners, could be liable for any resulting corporate income tax
that is unpaid by the Trust.
TAX CONSEQUENCES TO NOTE OWNERS.
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Trust will agree, and the Note
Owners will agree by their purchase of notes, to treat the notes as debt for
federal tax purposes. Federal Tax Counsel will, subject to exceptions which, if
applicable, will be specified in the related prospectus supplement, advise the
owner trust that the notes will be classified as debt for federal income tax
purposes, or classified in any other manner as shall be provided in the related
prospectus supplement. If, contrary to the opinion of Federal Tax Counsel, the
IRS successfully asserted that one or more of the notes did not represent debt
for federal income tax purposes, the notes might be treated as equity interests
in the Trust. If so treated, the Trust might be treated as a publicly traded
partnership that would be taxable as a corporation unless it met particular
qualifying income tests, and the resulting taxable corporation would not be able
to reduce its taxable income by deductions for interest expense on notes
recharacterized as equity. Treatment of the notes as equity interests in a
partnership could have adverse tax consequences to some holders, even if the
Trust were not treated as a publicly traded partnership taxable as a
corporation. For example, income allocable to foreign holders might be subject
to United States tax and United States tax return filing and withholding
requirements, income allocable to tax-exempt holders might constitute "unrelated
business taxable income" (if some, but not all, of the notes were
recharacterized as equity in a partnership), individual holders might be subject
to limitations on their ability to deduct their share of Trust expenses, and
income from the Trust's assets would be taxable to Note Owners without regard to
whether cash distributions are made to such Note Owners and without regard to
the Note Owners' method of tax accounting. The discussion below assumes that the
notes will be characterized as debt for federal income tax purposes.
INTEREST INCOME ON THE NOTES-GENERAL. Expect as discussed below, interest
on a note generally is includable in a Note Owner's income as ordinary interest
income when actually or constructively received, if the Note Owner uses the cash
method of accounting for federal income tax purposes, or when accrued, if the
Note Owner uses an accrual method of accounting for federal income tax purposes.
ORIGINAL ISSUE DISCOUNT. Notes of certain series may be issued with
"original issue discount" within the meaning of Section 1273(a) of the Code.
Holders of notes issued with original issue discount generally must include
original issue discount in gross income for federal income tax purposes as it
accrues, in advance of receipt of the cash attributable to such income, under a
method that takes account of the compounding of interest. The Code requires that
information with respect to the original issue discount accruing on any note be
reported periodically to the IRS and to certain categories of Note Owners.
Each Trust will report original issue discount, if any, to the Note Owners
based on the Treasury regulations relating to original issue discount (the "OID
Regulations"). The OID Regulations concerning contingent payment debt
instruments do not apply to the prepayable debt instruments, such as the notes.
The OID Regulations provide that, in the case of debt instruments such as
the notes, (i) the amount and rate of accrual of original issue discount will be
calculated based on a reasonable assumed prepayment rate (the "Prepayment
Assumption"), and (ii) adjustments will be made in the amount and rate of
accrual of such discount to reflect differences between the actual prepayment
rate and the Prepayment Assumption. The method for determining the appropriate
assumed prepayment rate will eventually be set forth in Treasury regulations,
but those regulations have not yet been issued. The applicable legislative
history indicates, however, that such regulations will provide that the assumed
prepayment rate for securities such as the notes will be the rate used in
pricing the initial offering of those securities. If the notes of a series are
issued with original issue discount, the Prospectus Supplement for that series
of notes will specify the Prepayment Assumption. However, no representation is
made that the notes of that series will, in fact, prepay at a rate based on the
Prepayment Assumption or at any other rate.
In general, a note will be considered to be issued with original issue
discount if its stated redemption price at maturity exceeds its issue price.
Except as discussed below under"--Payment Lag Notes; Initial Period
Considerations," and"--Qualified Stated Interest," and in the case of certain
Variable Rate Notes (as defined below) and accrual notes, the stated redemption
price at maturity of a note is its principal amount. The issue price of a note
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the class of notes is sold. Notwithstanding the
general definition of original issue discount, such discount will be considered
to be zero for any note on which such discount is less than 0.25% of its stated
redemption price at maturity multiplied by its weighted average life. The
weighted average life of a note apparently is computed for purposes of this de
minimis rule as the sum, for all distributions included in the stated redemption
price at maturity of the note, of the amounts determined by multiplying (i) the
number of complete years (rounding down for partial years) from the applicable
closing date to the date on which each such distribution is expected to be made,
determined under the Prepayment Assumption, by (ii) a fraction, the numerator of
which is the amount of such distribution and the denominator of which is the
note's stated redemption price at maturity. The OID Regulations provide that
holders will include any de minimis original issue discount ratably as payments
of stated principal are made on the notes.
The Note Owner of a note issued with original issue discount must include
in gross income the sum of the "daily portions" of such original issue discount
for each day during its taxable year on which it held such note. In the case of
an original Note Owner, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an "accrual period") that begins on the day
following a Distribution Date (or in the case of the first such period, begins
on the applicable closing date) and ends on the next succeeding Distribution
Date. The original issue discount accruing during each accrual period is then
allocated ratably to each day during such period to determine the daily portion
of original issue discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the note, if any, in future periods and (B) the distributions made on the note
during the accrual period that are included in such note's stated redemption
price at maturity, over (ii) the adjusted issue price of such note at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the notes will be prepaid in future periods at a rate computed in
accordance with the Prepayment Assumption and (ii) using a discount rate equal
to the original yield to maturity of the notes. For these purposes, the original
yield to maturity of the notes will be calculated based on their issue price and
assuming that the notes will be prepaid in accordance with the Prepayment
Assumption. The adjusted issue price of a note at the beginning of any accrual
period will equal the issue price of such note, increased by the portion of the
original issue discount that has accrued during prior accrual periods, and
reduced by the amount of any distributions made on such note in prior accrual
periods that were included in such note's stated redemption price at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, a Note Owner may only be
entitled to offset such amount against positive original issue discount accruing
on such note in future accrual periods. Such a Note Owner may be entitled to
deduct a loss to the extent that its remaining basis would exceed the maximum
amount of future payments to which such Note Owner is entitled. However,
Treasury regulations do not address this issue.
A subsequent Note Owner that purchases a note issued with original issue
discount at a cost that is less than its remaining stated redemption price at
maturity will also generally be required to include in gross income, for each
day on which it holds such note, the daily portions of original issue discount
with respect to the note, calculated as described above. However, if (i) the
excess of the remaining stated redemption price at maturity over such cost is
less than (ii) the aggregate amount of such daily portions for all days after
the date of purchase until final retirement of such note, then such daily
portions will be reduced proportionately in determining the income of such Note
Owner.
QUALIFIED STATED INTEREST. Interest payable on a note which qualifies as
"qualified stated interest" for purposes of the OID Regulations will not be
includable in the stated redemption price at maturity of the note. Conversely,
if the interest on a note does not constitute "qualified stated interest," such
interest will be includable in the stated redemption price at maturity of the
note and the note, consequently, will have original issue discount. Interest
payments will not qualify as qualified stated interest unless the interest
payments are "unconditionally payable." The OID Regulations state that interest
is unconditionally payable if reasonable legal remedies exist to compel timely
payment, or the debt instrument otherwise provides terms and conditions that
make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment of interest a remote
contingency, as defined in the OID Regulations. Any terms or conditions that do
not reflect arm's length dealing or that the Note Owner does not intend to
enforce are not considered.
PREMIUM. A purchaser of a note that purchases such note at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased such note at a premium, and may, under Section 171 of the Code,
elect to amortize such premium under a constant yield method over the life of
the note. The Prepayment Assumption is probably taken into account in
determining the life of the note for this purpose. Except as provided in
regulations, amortizable premium will be treated as an offset to interest income
on the note.
PAYMENT LAG NOTES; INITIAL PERIOD CONSIDERATIONS. Certain notes may provide
for distributions of interest based on a period that is the same length as the
interval between Distribution Dates but ends prior to each Distribution Date.
Any interest that accrues prior to the applicable closing date may be treated
under the OID Regulations either (i) as part of the issue price and the stated
redemption price at maturity of the notes or (ii) as not included in the issue
price or the stated redemption price. The OID Regulations provide a special
application of the de minimis rule for debt instruments with long first accrual
periods where the interest payable for the first period is at a rate which is
effectively less than that which applies in all other periods. In such cases,
for the sole purpose of determining whether original issue discount is de
minimis, the OID Regulations provide that the stated redemption price is equal
to the instrument's issue price plus the greater of the amount of foregone
interest or the excess (if any) of the instrument's stated principal amount over
its issue price.
VARIABLE RATE NOTES. Under the OID Regulations, notes paying interest at a
variable rate (each, a "Variable Rate Note") are subject to special rules. A
Variable Rate Note will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate Note by more than a specified de minimis amount; (ii) it
provides for stated interest, paid or compounded at least annually, at a current
value of (a) one or more qualified floating rates, (b) a single fixed rate and
one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate; and (iii) it does not provide for any principal payments that are
contingent, as defined in the OID Regulations, except as provided in (i), above.
Because the OID Regulations relating to contingent payment debt instruments do
not apply to prepayable debt instruments, such as the notes, principal payments
on the notes should not be considered contingent for this purpose.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Note is denominated. A multiple of a qualified floating rate will
generally not itself constitute a qualified floating rate for purposes of the
OID Regulations. However, a variable rate equal to (i) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (ii) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate will constitute a qualified floating rate for purposes
of the OID Regulations. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Rate Note will be treated as
a single qualified floating rate (a "Presumed Single Qualified Floating Rate").
Two or more qualified floating rates with values within 25 basis points of each
other as determined on the Variable Rate Note's issue date will be conclusively
presumed to be a Presumed Single Qualified Floating Rate. Notwithstanding the
foregoing, a variable rate that would otherwise constitute a qualified floating
rate, but which is subject to one or more restrictions such as a cap or floor,
will not be a qualified floating rate for purposes of the OID Regulations unless
the restriction is fixed throughout the term of the Variable Rate Note or the
restriction is not reasonably expected as of the issue date to significantly
affect the yield of the Variable Rate Note.
An "objective rate" is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon
objective financial or economic information. The OID Regulations also provide
that other variable rates may be treated as objective rates if so designated by
the IRS in the future. Despite the foregoing, a variable rate of interest on a
Variable Rate Note will not constitute an objective rate if it is reasonably
expected that the average value of such rate during the first half of the
Variable Rate Note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Variable Rate Note's term. Further, an objective rate does not include a
rate that is based on information that is within the control of the issuer (or a
party related to the issuer) or that is unique to the circumstances of the
issuer (or a party related to the issuer). An objective rate will qualify as a
"qualified inverse floating rate" if such rate is equal to a fixed rate minus a
qualified floating rate and variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the qualified floating rate. The
OID Regulations also provide that if a Variable Rate Note provides for stated
interest at a fixed rate for an initial period of less than one year followed by
a variable rate that is either a qualified floating rate or an objective rate
and if the variable rate on the Variable Rate Note's issue date is intended to
approximate the fixed rate, then the fixed rate and the variable rate together
will constitute either a single qualified floating rate or objective rate, as
the case may be (a "Presumed Single Variable Rate"). If the value of the
variable rate and the initial fixed rate are within 25 basis points of each
other as determined on the Variable Rate Note's issue date, the variable rate
will be conclusively presumed to approximate the fixed rate.
For Variable Rate Notes that qualify as "variable rate debt instruments"
under the OID Regulations and provide for interest at either a single qualified
floating rate, a single objective rate, a Presumed Single Qualified Floating
Rate or a Presumed Single Variable Rate throughout the term (a "Single Variable
Rate Note"), original issue discount is computed as described above
in"--Interest Income on the Notes--Original Issue Discount" based on the
following: (i) stated interest on the Single Variable Rate Note which is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually will constitute qualified stated interest; (ii) by
assuming that the variable rate on the Single Variable Rate Note is a fixed rate
equal to: (a) in the case of a Single Variable Rate Note with a qualified
floating rate or a qualified inverse floating rate, the value, as of the issue
date, of the qualified floating rate or the qualified inverse floating rate or
(b) in the case of a Single Variable Rate Note with an objective rate (other
than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Rate Note; and (iii) the
qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or is
less than) the interest assumed to be paid under the assumed fixed rate
described in (ii), above.
In general, any Variable Rate Note other than a Single Variable Rate Note
(a "Multiple Variable Rate Note") that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Multiple Variable Rate Note. The OID
Regulations generally require that such a Multiple Variable Rate Note be
converted into an "equivalent" fixed rate debt instrument by substituting any
qualified floating rate or qualified inverse floating rate provided for under
the terms of the Multiple Variable Rate Note with a fixed rate equal to the
value of the qualified floating rate or qualified inverse floating rate, as the
case may be, as of the Multiple Variable Rate Note's issue date. Any objective
rate (other than a qualified inverse floating rate) provided for under the terms
of the Multiple Variable Rate Note is converted into a fixed rate that reflects
the yield that is reasonably expected for the Multiple Variable Rate Note. (A
Multiple Variable Rate Note may not bear more than one objective rate.) In the
case of a Multiple Variable Rate Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or a
qualified inverse floating rate, if the Multiple Variable Rate Note provides for
a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Multiple Variable Rate Note as of
the Multiple Variable Rate Note's issue date is approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate Note is then converted into an "equivalent" fixed rate debt
instrument in the manner described above.
Once the Multiple Variable Rate Note is converted into an "equivalent"
fixed rate debt instrument pursuant to the foregoing rules, the amounts of
original issue discount and qualified stated interest, if any, are determined
for the "equivalent" fixed rate debt instrument by applying the original issue
discount rules to the "equivalent" fixed rate debt instrument in the manner
described above in"--Interest Income on the Notes--Original Issue Discount." A
holder of the Multiple Variable Rate Note will account for such original issue
discount and qualified stated interest as if the holder held the "equivalent"
fixed rate debt instrument. In each accrual period, appropriate adjustments will
be made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate Note during the accrual
period.
If a Variable Rate Note does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Variable Rate Note would be
treated as a contingent payment debt obligation. The manner in which a Variable
Rate Note would be taxed if such note were treated as a contingent payment debt
obligation is not governed by the OID Regulations relating to contingent payment
debt obligations which do not apply to prepayable debt instruments, such as the
notes, and Treasury regulations do not otherwise address this point.
MARKET DISCOUNT. A Note Owner that acquires a note at a market discount
(that is, a discount that exceeds any unaccrued original issue discount) will
recognize gain upon receipt of a principal distribution, regardless of whether
the distribution is scheduled or is a prepayment. In particular, the Note Owner
will be required to allocate that principal distribution first to the portion of
the market discount on such note that has accrued but has not previously been
includable in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued provide otherwise, market
discount on a note may be treated, at the election of the holder of the note, as
accruing either (i) under a constant yield method, taking into account the
Prepayment Assumption, or (ii) in proportion to accruals of original issue
discount (or, if there is no original issue discount, in proportion to stated
interest on the note).
In addition, a Note Owner may be required to defer deductions for a portion
of the Note Owner's interest expense on any debt incurred or continued to
purchase or carry a note purchased with market discount. The deferred portion of
any interest deduction would not exceed the portion of the market discount on
the note that accrues during the taxable year in which such interest would
otherwise be deductible and, in general, would be deductible when such market
discount is included in income upon receipt of a principal distribution on, or
upon the sale of, the note. The Code requires that information necessary to
compute accruals of market discount be reported periodically to the IRS and to
certain categories of Note Owners.
Notwithstanding the above rules, market discount on a note will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such note multiplied by its weighted
average remaining life. Weighted average remaining life presumably is calculated
in a manner similar to weighted average life (described above under"--Interest
Income on the Notes--Original Issue Discount"), taking into account
distributions (including prepayments) prior to the date of acquisition of such
note by the subsequent purchaser. If market discount on a note is treated as
zero under this rule, the actual amount of such discount must be allocated to
the remaining principal distributions on such note in proportion to the amounts
of such principal distributions, and when each such distribution is made, gain
equal to the discount, if any, allocated to the distribution will be recognized.
ELECTION TO TREAT ALL INTEREST UNDER THE CONSTANT YIELD RULES. The OID
Regulations provide that the holder of a debt instrument issued after April 4,
1994 may elect to include in gross income all interest that accrues on such debt
instrument using the constant yield method. For purposes of this election,
interest includes stated interest, original issue discount, and market discount,
as adjusted to account for any premium. Note Owners should consult their own tax
advisors regarding the availability or advisability of such an election.
SALES OF NOTES. If a note is sold, the seller will recognize gain or loss
equal to the difference between the amount realized on the sale and its adjusted
basis in the note. A holder's adjusted basis in a note generally equals the cost
of the note to the holder, increased by income reported by the holder with
respect to the note and reduced (but not below zero) by distributions on the
note (other than qualified stated interest) received by the holder and by
amortized premium. While any such gain or loss generally will be capital gain or
loss provided the Note is held as a capital asset, gain recognized on the sale
of a note by a seller who purchased the note at a market discount would be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period the note was held by such seller,
reduced by any market discount includable in income under the rules described
above under"--Interest Income on the Notes--Market Discount." Further, the notes
will be "evidences of indebtedness" within the meaning of Section 582(c)(1) of
the Code, so that gain or loss recognized from a sale of a note by a bank or
other financial institution to which such section applies would be ordinary
income or loss.
SHORT-TERM NOTES. In the case of a note with a maturity of one year or less
from its issue date (a "Short-Term Note"), no interest is treated as qualified
stated interest, and therefore all interest is included in original issue
discount. Note Owners that report income for federal income tax purposes on an
accrual method and some other Note Owners, including banks and certain dealers
in securities, (collectively, "Short-Term Accruers") are required to include
original issue discount in income on Short-Term Notes on a straight-line basis,
unless an election is made to accrue the original issue discount according to a
constant yield method based on daily compounding.
Any other Note Owner of a Short-Term Note is not required to accrue
original issue discount for federal income tax purposes, unless it elects to do
so. In the case of a Note Owner that is not required, and does not elect, to
include original issue discount in income currently, any gain realized on the
sale, exchange or retirement of a Short-Term Note is ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or, if
elected, according to a constant yield method based on daily compounding,
through the date of sale, exchange or retirement. In addition, Note Owners that
are not required, and do not elect, to include original issue discount in income
currently are required to defer deductions for any interest paid on indebtedness
incurred or continued to purchase or carry a Short-Term Note in an amount not
exceeding the deferred interest income with respect to the Short-Term Note,
which includes both the accrued original issue discount and accrued interest
that are payable but that have not been included in gross income, until the
deferred interest income is realized. A Note Owner may elect to apply the
foregoing rules, except for the rule characterizing gain on sale, exchange or
retirement as ordinary, with respect to "acquisition discount" rather than
original issue discount. Acquisition discount is the excess of the stated
redemption price at maturity of the Short-Term Note over the Note Owner's basis
in the Short-Term Note. This election applies to all obligations acquired by the
taxpayer on or after the first day of the first taxable year to which the
election applies, unless revoked with the consent of the IRS. A Note Owner's tax
basis in a Short-Term Note is increased by the amount included in the Note
Owner's income with respect to the Note.
FOREIGN INVESTORS IN NOTES. Except as discussed below, a Note Owner that is
not a "United States person" (as defined below) generally will not be subject to
United States income or withholding tax in respect of a distribution on a note
provided that (i) the holder complies to the extent necessary with certain
certification requirements, which generally relate to the identity of the
beneficial owner and the status of the beneficial owner as a person that is not
a United States person (as defined below), (ii) the holder is not a "10-percent
shareholder" within the meaning of Section 871(h)(3)(B) of the Code, which could
be interpreted to include a person that directly or indirectly owns 10% or more
of the certificates in the Trust, (iii) the holder is not a "controlled foreign
corporation" (as defined in the Code) related to the Trust or related to a 10
percent holder of certificates in the Trust, and (iv) the holder is not engaged
in a United States trade or business, or otherwise subject to federal income tax
as a result of any direct or indirect connection to the United States other than
through its ownership of a note. For these purposes, the term "United States
person" means (i) a citizen or resident of the United States, (ii) a corporation
or partnership (or other entity properly treated as a corporation or partnership
for federal income tax purposes) created or organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate whose
income is includable in gross income for United States federal income taxation
regardless of its source, and (iv) a trust for which one or more United States
fiduciaries have the authority to control all substantial decisions and for
which a court of the United States can exercise primary supervision over the
trust's administration. A "Foreign Person" is any person that is not a United
States person. Each Note Owner should consult its tax advisors regarding the tax
documentation and certifications that must be provided to secure the exemption
from United States withholding taxes.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a Foreign Person generally will be exempt from
United States federal income and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the Foreign Person and (ii) in the case of an individual Foreign
Person, the Foreign Person is not present in the United States for 183 days or
more in the taxable year.
If the interest, gain or income on a note held by a Foreign Person is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement
establishing that such income is so effectively connected), the holder generally
will be subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the Foreign Person
is a foreign corporation, it may be subject to a branch profits tax equal to 30%
of its "effectively connected earnings and profits," within the meaning of the
Code, for the taxable year, as adjusted for certain items, unless it qualifies
for a lower rate under an applicable tax treaty (as modified by the branch
profits tax rules).
BACKUP WITHHOLDING ON NOTES. Distributions made on the notes and proceeds
from the sale of notes to or through certain brokers may be subject to a
"backup" withholding tax of 31 percent of "reportable payments" (including
interest accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) if the holder of the notes fails
to comply with certain identification procedures, unless the Note Owner is an
exempt recipient under applicable provisions of the Code and, if necessary,
demonstrates such status (this rate, called the backup withholding rate, will be
reduced to 30.5% effective August 7, 2001, and further reduced gradually to 28%
by the year 2006). Any amounts so withheld from distributions on the notes would
be refunded by the IRS or allowable as a credit against the Note Owner's federal
income tax.
TAX CONSEQUENCES TO CERTIFICATE OWNERS OF OWNER TRUST
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Trust will agree, and the
related Certificate Owners will agree by their purchase of certificates, if
there is more than one Certificate Owner, to treat the Trust as a partnership
for purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership being
the assets held by the Trust, the partners of the partnership being the
Certificate Owners, including, to the extent relevant, the seller in its
capacity as recipient of distributions from any reserve fund, and the notes
being debt of the partnership, and if there is one Certificate Owner, to treat
the Certificate Owner as the owner of the assets of the Trust and to treat the
Trust as a disregarded entity. However, the proper characterization of the
arrangement involving the Trust, the certificates, the notes, the seller, the
company and the servicer is not certain because there is no authority on
transactions closely comparable to that contemplated in this prospectus.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the Trust. Generally, provided such
certificates are issued at or close to face value, any such characterization
would not result in materially adverse tax consequences to holders of
Certificates as compared to the consequences from treatment of the certificates
as equity in a partnership, described below. The following discussion assumes
that the certificates represent equity interests in a partnership. The following
discussion also assumes that all payments on the certificates are denominated in
U.S. dollars, none of the Certificates have interest rates which would qualify
as contingent interest under the Treasury regulations relating to original issue
discount, and that a series of securities includes a single class of
certificates. If these conditions are not satisfied with respect to any given
series of certificates, additional tax considerations with respect to such
certificates will be disclosed in the applicable Prospectus Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificate Owner will be required to take into
account separately the Certificate Owner's allocable share of income, gains,
losses, deductions and credits of the Trust, whether or not there is a
corresponding cash distribution. Thus, cash basis holders will in effect be
required to report income from the certificates on the accrual basis and
Certificate Owners may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay the taxes. The Trust's income will
consist primarily of interest and finance charges earned on the related Primary
Assets, including appropriate adjustments for market discount, original issue
discount and bond premium, and any gain upon collection or disposition of the
Primary Assets.
The Trust's deductions will consist primarily of interest accruing with
respect to the notes, servicing and other fees, and losses or deductions upon
collection or disposition of Primary Assets.
The federal income tax treatment of any Collateral Certificates held by the
Trust will depend on the terms of the Collateral Certificates and their
characterization (for example, as indebtedness) for federal income tax purposes.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (i.e., the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificate Owners will be allocated taxable income of the
Trust for each month equal to the sum of:
o the interest or other income that accrues on the certificates in
accordance with their terms for the relevant month including, as
applicable, interest accruing at the related certificate pass-through
rate for that month and interest on amounts previously due on the
certificates but not yet distributed;
o any Trust income attributable to discount on the related Primary
Assets that corresponds to any excess of the principal amount of the
certificates over their initial issue price;
o any prepayment premium payable to the Certificate Owners for the
applicable month; and
o any other amounts of income payable to the Certificate Owners for the
applicable month.
The allocation will be reduced by any amortization by the Trust of premium on
Primary Assets that corresponds to any excess of the issue price of certificates
over their principal amount. Losses will generally be allocated in the manner in
which they are borne.
Based on the economic arrangement of the parties, the foregoing approach
for allocating Trust income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificate Owners. Moreover, even
under the foregoing method of allocation, Certificate Owners may be allocated
income equal to the entire certificate pass-through rate plus the other items
described above, even though the Trust might not have sufficient cash to make
current cash distributions of the amount. In addition, because tax allocations
and tax reporting will be done on a uniform basis for all Certificate Owners,
but Certificate Owners may be purchasing certificates at different times and at
different prices, Certificate Owners may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
Assuming notes are also issued, all or substantially all of the taxable
income allocated to a Certificate Owner that is a pension, profit sharing or
employee benefit plan or other tax-exempt entity, including an individual
retirement account, will constitute "unrelated business taxable income"
generally taxable to the holder under the Code.
An individual taxpayer's share of expenses of the Trust, including fees to
the servicer, but not interest expense, would be miscellaneous itemized
deductions and thus deductible only to the extent such expenses plus all other
miscellaneous itemized deductions exceeds two percent of the individual's
adjusted gross income. An individual taxpayer will be allowed no deduction for
his share of expenses of the Trust, other than interest, in determining his
liability for alternative minimum tax. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds a prescribed
threshold amount will be reduced by the lesser of (1) 3% of the excess of
adjusted gross income over the specified threshold amount or (2) 80% of the
amount of itemized deductions otherwise allowable for the applicable taxable
year. Accordingly, deductions might be disallowed to the individual in whole or
in part and might result in the Certificate Owner being taxed on an amount of
income that exceeds the amount of cash actually distributed to the holder over
the life of the Trust. In the case of a partnership that has 100 or more
partners and elects to be treated as an "electing large partnership," 70% of
that partnership's miscellaneous itemized deductions will be disallowed,
although the remaining deductions will generally be allowed at the partnership
level and will not be subject to the 2% floor that would otherwise be applicable
to individual partners.
The Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis to the extent relevant.
If the IRS were to require that the calculations be made separately for each
Primary Asset, the calculations may result in some timing and character
differences under some circumstances.
DISCOUNT AND PREMIUM. The purchase price paid by the Trust for the related
Primary Assets may be greater or less than the remaining principal balance of
the Primary Assets at the time of purchase. If so, the Primary Assets will have
been acquired at a premium or market discount, as the case may be. See "Tax
Consequences to Note Owners--Premium" and"-- Market Discount" above. As
indicated above, the Trust will make this calculation on an aggregate basis, but
it is possible that the IRS might require that it be recomputed on a Primary
Asset-by-Primary Asset basis. Further, to the extent a Primary Asset is a
Treasury Strip, Private Label Custody Strip, REFCO Strip or other instrument
evidencing ownership of specific interest and/or principal of a particular bond,
it will be subject to the rules relating to original issue discount (in lieu of
the rules relating to market discount). See " Tax Consequences to Note
Owners--Original Issue Discount" above.
If the Trust acquires the Primary Assets at a market discount or premium,
the Trust will elect to include any market discount in income currently as it
accrues over the life of the Primary Assets or to offset any premium against
interest income on the Primary Assets. As indicated above, a portion of the
market discount income or premium deduction may be allocated to Certificate
Owners.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If a termination occurs under Section 708 of the Code, the
Trust will be considered to contribute its assets to a new Trust, which would be
treated as a new partnership, in exchange for certificates in the new Trust. The
original Trust will then be deemed to distribute the certificates in the new
Trust to each of the owners of certificates in the original Trust in liquidation
of the original Trust. The Trust will not comply with particular technical
requirements that might apply when a constructive termination occurs. As a
result, the Trust may be subject to some tax penalties and may incur additional
expenses if it is required to comply with those requirements. Furthermore, the
Trust might not be able to comply with these requirements due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
Any gain or loss would be long-term capital gain or loss if the Certificate
Owner's holding period exceeded one year. A Certificate Owner's tax basis in a
Certificate will generally equal its cost, increased by its share of Trust
income allocable to the Certificate Owner and decreased by any distributions
received or losses allocated with respect to the certificate. In addition, both
the tax basis in the certificates and the amount realized on a sale of a
certificate would include the Certificate Owner's share, determined under
Treasury Regulations, of the notes and other liabilities of the Trust. A
Certificate Owner acquiring certificates at different prices will generally be
required to maintain a single aggregate adjusted tax basis in the certificates
and, upon a sale or other disposition of some of the certificates, allocate a
portion of the aggregate tax basis to the certificates sold, rather than
maintaining a separate tax basis in each certificate for purposes of computing
gain or loss on a sale of that certificate.
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash distributions with respect to the certificates, the excess will generally
give rise to a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificate Owners in
proportion to the principal amount of certificates owned by them as of the close
of the last day of the applicable month. As a result, a Certificate Owner
purchasing certificates may be allocated tax items, which will affect the
purchaser's tax liability and tax basis, attributable to periods before the
actual transaction.
The use of a monthly convention may not be permitted by existing Treasury
regulations. If a monthly convention is not allowed, or only applies to
transfers of less than all of the partner's interest, taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Trust's
method of allocation between transferors and transferees may be revised to
conform to a method permitted by future laws, regulations or other IRS guidance.
SECTION 731 DISTRIBUTIONS. In the case of any distribution to a Certificate
Owner, no gain will be recognized to that Certificate Owner to the extent that
the amount of any money distributed for that Certificate does not exceed the
adjusted basis of that Certificate Owner's interest in the Certificate. To the
extent that the amount of money distributed exceeds that Certificate Owner's
adjusted basis, gain will be currently recognized. In the case of any
distribution to a Certificate Owner, no loss will be recognized except upon a
distribution in liquidation of a Certificate Owner's interest. Any gain or loss
recognized by a Certificate Owner generally will be capital gain or loss.
SECTION 754 ELECTION. In the event that a Certificate Owner sells its
certificates at a profit (or loss), the purchasing Certificate Owner will have a
higher (or lower) basis in the certificates than the selling Certificate Owner
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust current does not intend to make an
election under Section 754 of the Code. As a result, Certificate Owners might be
allocated a greater or lesser amount of Trust income than would be appropriate
based on their own purchase price for certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or cause to be kept
complete and accurate books of the Trust. The trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificate Owner's allocable share of items of Trust
income and expense to Certificate Owners and the IRS on Schedule K-1. The Trust
will provide the Schedule K-1 information to nominees that fail to provide the
Trust with the information statement described below and the nominees will be
required to forward this information to the beneficial owners of the
certificates. Generally, holders must timely file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all the inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing specific information on the nominee, the beneficial
owners and the certificates so held. The information includes (1) the name,
address and taxpayer identification number of the nominee and (2) as to each
beneficial owner
o the name, address and identification number of such person,
o whether such person is a United States person, a tax-exempt entity or
a foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing, and
o particular information on certificates that were held, bought or sold
on behalf of the person throughout the year.
In addition, brokers and financial institutions that hold certificates through a
nominee are required to furnish directly to the Trust information as to
themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any information
statement to the Trust. The information referred to above for any calendar year
must be furnished to the Trust on or before the following January 31. Nominees,
brokers and financial institutions that fail to provide the Trust with the
information described above may be subject to penalties.
The company ordinarily will be designated as the tax matters partner for
each Trust in the related Trust Agreement and, as the tax matters partner, will
be responsible for representing the Certificate Owners in some specific disputes
with the IRS. The Code provides for administrative examination of a partnership
as if the partnership were a separate and distinct taxpayer. Generally, the
statute of limitations for partnership items does not expire before the later of
three years after the date on which the partnership information return is filed
or the last day for filing the return for the applicable year, determined
without regard to extensions. Any adverse determination following an audit of
the return of the Trust by the appropriate taxing authorities could result in an
adjustment of the returns of the Certificate Owners, and, under some
circumstances, a Certificate Owner may be precluded from separately litigating a
proposed adjustment to the items of the Trust. An adjustment could also result
in an audit of a Certificate Owner's returns and adjustments of items not
related to the income and losses of the Trust.
A special audit system exists for qualifying large partnerships that have
elected to apply a simplified flow-through reporting system under Sections 771
through 777 of the Code. Unless otherwise specified in the applicable Prospectus
Supplement, a Trust will not elect to apply the simplified flow-through
reporting system.
TAXATION OF TAX EXEMPT OWNERS. Certificate Owners that are tax-exempt will
be subject to the tax on unrelated business taxable income (also known as UBTI),
if the trust has issued other securities that are debt, or treated as debt, for
federal income tax purposes.
TAXATION OF CERTAIN FOREIGN CERTIFICATE OWNERS. As used below, the term
"Non-United States Owner" means a Certificate Owner that is not a United States
person, as defined under "Tax Consequences to Note Owners--Foreign Investors in
Notes," above.
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of federal withholding taxes
with respect to Non-United States Owners because there is no clear authority
dealing with that issue under facts substantially similar to those described in
this Prospectus. Although it is not expected that the Trust would be engaged in
a trade or business in the United States for these purposes, the Trust will
withhold as if it were so engaged in order to protect the Trust from possible
adverse consequences of a failure to withhold. The Trust expects to withhold on
the portion of its taxable income that is allocable to Non-United States Owners
pursuant to Section 1446 of the Code, as if the income were effectively
connected to a U.S. trade or business, at a rate of 35% for Non-United States
Owners that are taxable as corporations and 39.6% for all other Non-United
States Owners.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures.
Each Non-United States Owner might be required to file a U.S. individual or
corporate income tax return on its share of the Trust's income including, in the
case of a corporation, a return in respect of the branch profits tax. Assuming
the Trust is not engaged in a U.S. trade or business, a Non-United States Owner
would be entitled to a refund with respect to all or a portion of taxes withheld
by the Trust if, in particular, the Owner's allocable share of interest from the
Trust constituted "portfolio interest" under the Code.
The interest, however, may not constitute "portfolio interest" if, among
other reasons, the underlying obligation is not in registered form or if the
interest is determined without regard to the income of the Trust, in the later
case, the interest being properly characterized as a guaranteed payment under
Section 707(c) of the Code. If this were the case, Non-United States Owners
would be subject to a United States federal income and withholding tax at a rate
of 30 percent on the Trust's gross income, without any deductions or other
allowances for costs and expenses incurred in producing the income, unless
reduced or eliminated pursuant to an applicable treaty. In this case, a
Non-United States Owner would only be entitled to a refund for that portion of
the taxes, if any, in excess of the taxes that should have been withheld with
respect to the interest.
BACKUP WITHHOLDING. Distributions made on the certificates and proceeds
from the sale of the certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificate Owner fails to comply with particular
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code and, if necessary, demonstrates such status
(this rate, called the backup withholding rate, will be reduced to 30.5%
effective August 7, 2001, and further reduced gradually to 28% by the year
2006). Any amounts so withheld would be refunded by the IRS or allowable as a
credit against the Certificate Owner's federal income tax.
GRANTOR TRUSTS
CHARACTERIZATION. In the case of a grantor trust, Federal Tax Counsel will
deliver its opinion that the Trust will not be classified as an association
taxable as a corporation and that the Trust will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code. In this case,
beneficial owners of certificates (referred to in this Prospectus as "grantor
trust certificateholders") will be treated for federal income tax purposes as
owners of a portion of the Trust's assets as described below. The certificates
issued by a Trust that is treated as a grantor trust are referred to in this
Prospectus as "grantor trust certificates".
TAXATION OF GRANTOR TRUST CERTIFICATEHOLDERS. Subject to the discussion
below under "Stripped Certificates" and "Subordinated Certificates," each
grantor trust certificateholder will be treated as the owner of a pro rata
undivided interest in the Primary Assets and other assets of the Trust.
Accordingly, and subject to the discussion below of the recharacterization of
the Servicing Fee, each grantor trust certificateholder must include in income
its pro rata share of the interest and other income from the Primary Assets,
including any interest, original issue discount, market discount, prepayment
fees, assumption fees, and late payment charges with respect to the assets, and,
subject to limitations discussed below, may deduct its pro rata share of the
fees and other deductible expenses paid by the Trust, at the same time and to
the same extent as these items would be included or deducted by the grantor
trust certificateholder if the grantor trust certificateholder held directly a
pro rata interest in the assets of the Trust and received and paid directly the
amounts received and paid by the Trust. Any amounts received by a grantor trust
certificateholder in lieu of amounts due with respect to any Primary Asset
because of a default or delinquency in payment will be treated for federal
income tax purposes as having the same character as the payments they replace.
Each grantor trust certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the servicer,
provided that these amounts are reasonable compensation for services rendered to
the Trust. Grantor trust certificateholders that are individuals, estates or
trusts will be entitled to deduct their share of expenses only to the extent
these expenses plus all other miscellaneous itemized deductions exceed two
percent of the grantor trust certificateholder's adjusted gross income, and will
be allowed no deduction for these expenses in determining their liabilities for
alternative minimum tax. In addition, Section 68 of the Code provides that the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a prescribed threshold amount
will be reduced by the lesser of (1) 3% of the excess of adjusted gross income
over the specified threshold amount or (2) 80% of the amount of itemized
deductions otherwise allowable for the applicable taxable year. In the case of a
partnership that has 100 or more partners and elects to be treated as an
"electing large partnership," 70% of the partnership's miscellaneous itemized
deductions will be disallowed, although the remaining deductions will generally
be allowed at the partnership level and will not be subject to the 2% floor that
would otherwise be applicable to individual partners.
The servicing compensation to be received by the servicer may be questioned
by the IRS as exceeding a reasonable fee for the services being performed in
exchange for the servicing compensation, and a portion of the servicing
compensation could be recharacterized as an ownership interest retained by the
servicer or other party in a portion of the interest payments to be made with
respect to the Trust's assets. In this event, a certificate might be treated as
a Stripped Certificate subject to the stripped bond rules of Section 1286 of the
Code and the original issue discount provisions rather than to the market
discount and premium rules. See the discussion below under "--Stripped
Certificates". Except as discussed below under "Stripped Certificates" or
"--Subordinated Certificates," this discussion assumes that the servicing fees
paid to the servicer do not exceed reasonable servicing compensation.
A purchaser of a grantor trust certificate will be treated as purchasing an
interest in each Primary Asset in the Trust at a price determined by allocating
the purchase price paid for the certificate among all Primary Assets in
proportion to their fair market values at the time of the purchase of the
certificate. To the extent that the portion of the purchase price of a grantor
trust certificate allocated to a Primary Asset is less than or greater than the
portion of the stated redemption price at maturity of the Primary Asset, the
interest in the Primary Asset will have been acquired at a discount or premium.
See "--Market Discount" and "--Premium," below.
The treatment of any discount on a Primary Asset will depend on whether the
discount represents original issue discount or market discount. Except as
indicated otherwise in the applicable Prospectus Supplement, it is not expected
that any Primary Asset (other than a Primary Asset that is a Treasury Strip,
Private Label Custody Strip, REFCO Strip or other instrument evidencing
ownership of specific interest and/or principal of a particular bond) will have
original issue discount (except as discussed below under "Stripped Certificates"
or "Subordinated Certificates"). For the rules governing original issue
discount, see "Trusts Which Are Not Treated as Grantor Trusts--Tax Consequences
to Note Owners--Original Issue Discount" above. However, in the case of Primary
Assets that constitute short-term Government Securities the rules set out above
dealing with short-term obligations (see "Trusts Which Are Not Treated as
Grantor Trusts--Tax Consequences to Note Owners-- Short-Term Notes" above) are
applied with reference to acquisition discount rather than original issue
discount, if the obligations constitute "short-term Government obligations"
within the meaning of Section 1271(a)(3)(B) of the Code. Further, if 20 percent
or more of the grantor trust certificateholders are Short-Term Accruers, all
holders of grantor trust certificates may be required to accrue acquisition
discount or original issue discount, as the case may be, with respect to
short-term obligations held by the Trust in the same manner as a Short-Term
Accruer would accrue such discount. See "Trusts Which Are Not Treated As Grantor
Trusts--Tax Consequences to Note Owners-- Short-Term Notes" above.
The information provided to grantor trust certificateholders will not
include information necessary to compute the amount of discount or premium, if
any, at which an interest in each Primary Asset is acquired.
MARKET DISCOUNT. A grantor trust certificateholder that acquires an
undivided interest in Primary Assets may be subject to the market discount rules
of Sections 1276 through 1278 to the extent an undivided interest in a Primary
Asset is considered to have been purchased at a "market discount". For a
discussion of the market discount rules under the Code, see "Trusts Which Are
Not Treated as Grantor Trusts --Tax Consequences to Note Owners--Market
Discount" above. As discussed above, to the extent a Primary Asset is a Treasury
Strip, Private Label Custody Strip, REFCO Strip or other instrument evidencing
ownership of specific interest and/or principal of a particular bond, it will be
subject to the rules relating to original issue discount (in lieu of the rules
relating to market discount). See " Tax Consequences to Note Owners--Original
Issue Discount" above.
PREMIUM. To the extent a grantor trust certificateholder is considered to
have purchased an undivided interest in a Primary Asset for an amount that is
greater than the stated redemption price at maturity of the interest, the
grantor trust certificateholder will be considered to have purchased the
interest in the Primary Asset with "amortizable bond premium" equal in amount to
the excess. For a discussion of the rules applicable to amortizable bond
premium, see "Trusts Which Are Not Treated as Grantor Trusts --Tax Consequences
to Note Owners--Premium" above.
STRIPPED CERTIFICATES. Some classes of certificates may be subject to the
stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates." In general, a
Stripped Certificate will be subject to the stripped bond rules where there has
been a separation of ownership of the right to receive some or all of the
principal payments on a Primary Asset from ownership of the right to receive
some or all of the related interest payments. In general, where a separation has
occurred, under the stripped bond rules of Section 1286 of the Code, the holder
of a right to receive a principal or interest payment on the bond is required to
accrue into income, on a constant yield basis under rules governing original
issue discount (see "Trusts Which Are Not Treated As Grantor Trusts--Tax
Consequences to Note Owners--Original Issue Discount"), the difference between
the holder's initial purchase price for the right to receive and the principal
or interest payment to be received with respect to that right.
Certificates will constitute Stripped Certificates and will be subject to
these rules under various circumstances, including the following:
o if any servicing compensation is deemed to exceed a reasonable amount
(see "Taxation of Grantor Trust Certificateholders," above);
o if the company or any other party retains a retained yield with
respect to the Primary Assets held by the Trust;
o if two or more classes of certificates are issued representing the
right to non-pro rata percentages of the interest or principal
payments on the Trust's assets; or
o if certificates are issued which represent the right to interest-only
payments or principal-only payments.
The tax treatment of the Stripped Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the trustee intends to treat each Stripped Certificate as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Stripped Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with the constant yield method
that takes into account the compounding of interest and this accrual of income
may be in advance of the receipt of any cash attributable to that income. See
"Trusts Which Are Not Treated As Grantor Trusts--Tax Consequences to Note
Owners--Original Issue Discount" above. For purposes of applying the original
issue discount provisions of the Code, the issue price of a Stripped Certificate
will be the purchase price paid by each holder of the Stripped Certificate and
the stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Stripped Certificate whether or not
denominated as interest. The amount of original issue discount with respect to a
Stripped Certificate may be treated as zero under the original issue discount de
minimis rules described above.
SUBORDINATED CERTIFICATES. In the event the Trust issues two classes of
grantor trust certificates that are identical except that one class is a
subordinate class, with a relatively high certificate pass-through rate, and the
other is a senior class, with a relatively low certificate pass-through rate
(referred to in this Prospectus as the "Subordinate Certificates" and "Senior
Certificates", respectively), the grantor trust certificateholders in the
aggregate will be deemed to have acquired the following assets: (1) the
principal portion of each Primary Asset plus a portion of the interest due on
each Primary Asset (the "Trust Stripped Bond"), and (2) a portion of the
interest due on each Primary Asset equal to the difference between the
certificate pass-through rate on the Subordinate Certificates and the
certificate pass-through rate on the Senior Certificates, if any, which
difference is then multiplied by the Subordinate Class Percentage (the "Trust
Stripped Coupon"). The "Subordinate Class Percentage" equals the initial
aggregate principal amount of the Subordinate Certificates divided by the sum of
the initial aggregate principal amount of the Subordinate Certificates and the
Senior Certificates. The "Senior Class Percentage" equals the initial aggregate
principal amount of the Senior Certificates divided by the sum of the initial
aggregate principal amount of the Subordinate Certificates and the Senior
Certificates.
The Senior Certificateholders in the aggregate will own the Senior Class
Percentage of the Trust Stripped Bond and accordingly each Senior
Certificateholder will be treated as owning its pro rata share of such asset.
The Senior Certificateholders will not own any portion of the Trust Stripped
Coupon. The Subordinate Certificateholders in the aggregate own both the
Subordinate Class Percentage of the Trust Stripped Bond plus 100% of the Trust
Stripped Coupon, if any, and accordingly each Subordinate Certificateholder will
be treated as owning its pro rata share in both assets. The Trust Stripped Bond
will be treated as a "stripped bond" and the Trust Stripped Coupon will be
treated as "stripped coupons" within the meaning of Section 1286 of the Code.
Although not entirely clear, the interest income on the Subordinate
Certificates and the portion of the Servicing Fee allocable to such certificates
that does not constitute excess servicing will be treated by the Trust as
qualified stated interest, assuming the interest with respect to the Primary
Assets would otherwise qualify as qualified stated interest. Accordingly, except
to the extent modified below, the income of the Subordinate Certificates will be
reported in the same manner as described generally above for holders of Senior
Certificates.
If the Subordinate Certificateholders receive distribution of less than
their share of the Trust's receipts of principal or interest (the "Shortfall
Amount") because of the subordination of the Subordinate Certificates, holders
of Subordinate Certificates would probably be treated for federal income tax
purposes as if they had
o received as distributions their full share of receipts;
o paid over to the Senior Certificateholders an amount equal to the
Shortfall Amount; and
o retained the right to reimbursement of the relevant amounts to the
extent these amounts are otherwise available as a result of
collections on the Primary Assets or amounts available from a reserve
account or other form of credit enhancement, if any.
Under this analysis,
o Subordinate Certificateholders would be required to accrue as current
income any interest income, original issue discount, or (to the extent
paid on assets of the Trust) accrued market discount of the Trust that
was a component of the Shortfall Amount, even though that amount was
in fact paid to the Senior Certificateholders;
o a loss would only be allowed to the Subordinate Certificateholders
when their right to receive reimbursement of the Shortfall Amount
became worthless (i.e., when it becomes clear that amount will not be
available from any source to reimburse the loss); and
o reimbursement of the Shortfall Amount prior to a claim of
worthlessness would not be taxable income to Subordinate
Certificateholders because the amount was previously included in
income.
Those results should not significantly affect the inclusion of income for
Subordinate Certificateholders on the accrual method of accounting, but could
accelerate inclusion of income to Subordinate Certificateholders on the cash
method of accounting by, in effect, placing them on the accrual method.
Moreover, the character and timing of loss deductions are unclear. Subordinate
Certificateholders are strongly urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any losses sustained
with respect to the Subordinate Certificates including any loss resulting from
the failure to recover previously accrued interest or discount income.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The Treasury
Regulations relating to original issue discount permit a grantor trust
certificateholder to elect to accrue all interest, discount, including de
minimis market or original issue discount, reduced by any premium, in income as
interest, based on a constant yield method. If an election were to be made with
respect to an interest in a Primary Asset with market discount, the Certificate
Owner would be deemed to have made an election to include in income currently
market discount with respect to all other debt instruments having market
discount that the grantor trust certificateholder acquires during the year of
the election or afterward. See"--Market Discount" above. Similarly, a grantor
trust certificateholder that makes this election for an interest in a Primary
Asset that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that the grantor trust certificateholder owns at the beginning of
the first taxable year to which the election applies or acquires afterward. See
"--Premium" above. The election to accrue interest, discount and premium on a
constant yield method with respect to a grantor trust certificate is
irrevocable.
PREPAYMENTS. The Taxpayer Relief Act of 1997 (the "1997 Act") contains a
provision requiring original issue discount on any pool of debt instruments the
yield on which may be affected by reason of prepayments be calculated taking
into account the Prepayment Assumption and requiring the discount to be taken
into income on the basis of a constant yield to assumed maturity taking account
of actual prepayments. The legislative history to the 1986 Act states that
similar rules apply with respect to market discount and amortizable bond premium
on debt instruments.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
grantor trust certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount realized, exclusive of
amounts attributable to accrued and unpaid interest, which will be treated as
ordinary income, allocable to the Primary Asset and the owner's adjusted basis
in the grantor trust certificate. The adjusted basis generally will equal the
seller's cost for the grantor trust certificate, increased by the original issue
discount and any market discount included in the seller's gross income with
respect to the grantor trust certificate, and reduced, but not below zero, by
any premium amortized by the seller and by principal payments on the grantor
trust certificate previously received by the seller. The gain or loss will,
except as discussed below, be capital gain or loss to an owner for which the
Primary Assets represented by a grantor trust certificate are "capital assets"
within the meaning of Section 1221. A capital gain or loss will be long-term or
short-term depending on whether or not the grantor trust certificate has been
owned for the long-term capital gain holding period, currently more than one
year.
Notwithstanding the foregoing, any gain realized on the sale or exchange of
a grantor trust certificate will be ordinary income to the extent of the
seller's interest in accrued market discount on Primary Assets not previously
taken into income. See "--Market Discount," above. Further, grantor trust
certificates will be "evidences of indebtedness" within the meaning of Section
582(c)(1), so that gain or loss recognized from the sale of a grantor trust
certificate by a bank or thrift institution to which such section applied will
be treated as ordinary gain or loss.
FOREIGN INVESTORS IN GRANTOR TRUST CERTIFICATES. A holder of grantor trust
certificate who is not a "United States person" (as defined above at "Trusts
Which Are Not Treated As Grantor Trusts--Tax Consequences to Note
Owners--Foreign Investors in Notes") and is not subject to federal income tax as
a result of any direct or indirect connection to the United States other than
its ownership of a grantor trust certificate generally will not be subject to
United States income or withholding tax in respect of payments of interest or
original issue discount on its grantor trust certificate to the extent
attributable to debt obligations held by the Trust that were originated after
July 18, 1984, provided that the grantor trust certificateholder complies to the
extent necessary with certain certification requirements which generally relate
to the identity of the beneficial owner and the status of the beneficial owner
as a person that is not a United States person. Interest or original issue
discount on a grantor trust certificate attributable to debt obligations held by
the Trust that were originated prior to July 19, 1984 will be subject to a 30%
withholding tax (unless such tax is reduced or eliminated by an applicable tax
treaty). All holders of grantor trust certificates should consult their tax
advisors regarding the tax documentation and certifications that must be
provided to secure any applicable exemptions from United States withholding
taxes.
Any capital gain realized on the sale or other taxable disposition of a
grantor trust certificate by a Foreign Person (as defined above at "Trusts Which
Are Not Treated As Grantor Trusts--Tax Consequences to Note Owners--Foreign
Investors in Notes") generally will be exempt from United States federal income
and withholding tax, provided that (i) such gain is not effectively connected
with the conduct of a trade or business in the United States by the Foreign
Person and (ii) in the case of an individual Foreign Person, the Foreign Person
is not present in the United States for 183 days or more in the taxable year.
If the interest, gain or income with respect to a grantor trust certificate
held by a Foreign Person is effectively connected with the conduct of a trade or
business in the United States by the Foreign Person (although exempt from the
withholding tax previously discussed if the holder provides an appropriate
statement establishing that such income is so effectively connected), the holder
generally will be subject to United States federal income tax on the interest,
gain or income at regular federal income tax rates. In addition, if the Foreign
Person is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its "effectively connected earnings and profits," within the meaning
of the Code, for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty (as modified by the
branch profits tax rules).
BACKUP WITHHOLDING. Distributions made on the grantor trust certificates
and proceeds from the sale of the grantor trust certificates will be subject to
a "backup" withholding tax of 31% if, in general, the grantor trust
certificateholder fails to comply with particular identification procedures,
unless the holder is an exempt recipient under applicable provisions of the Code
and, if necessary, demonstrates such status (this rate, called the backup
withholding rate, will be reduced to 30.5% effective August 7, 2001, and further
reduced gradually to 28% by the year 2006). Any amounts so withheld would be
refunded by the IRS or allowable as a credit against the grantor trust
certificateholder's federal income tax.
STATE AND LOCAL TAX CONSIDERATIONS
The discussion above does not address the tax consequences of purchase,
ownership or disposition of certificates or notes under any state or local tax
laws. We recommend that investors consult their own tax advisors regarding state
and local tax consequences.
* * *
THE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL INFORMATION ONLY
AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTE OWNER'S OR CERTIFICATE OWNER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS OF NOTES OR CERTIFICATES SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
GENERAL
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of ERISA should consider the fiduciary standards
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
in the context of the plan's particular circumstances before authorizing an
investment of a portion of such plan's assets in the Securities. Accordingly,
pursuant to Section 404 of ERISA, such fiduciary should consider among other
factors (i) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries; (ii) whether the investment satisfies the
applicable diversification requirements; (iii) whether the investment is in
accordance with the documents and instruments governing the plan; and (iv)
whether the investment is prudent, considering the nature of the investment.
Fiduciaries of plans also should consider ERISA's prohibition on improper
delegation of control over, or responsibility for, plan assets.
In addition, employee benefit plans or other retirement arrangements
subject to ERISA, as well as individual retirement accounts, certain types of
Keogh plans not subject to ERISA but subject to Section 4975 of the Code, or any
entity (including insurance company separate or general accounts) whose
underlying assets include plan assets by reason of such plans, arrangements or
accounts investing in the entity (each, a "Plan") are prohibited from engaging
in a broad range of transactions involving Plan assets and persons having
certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 of ERISA and excise taxes and/or other
penalties are imposed upon such persons under ERISA and/or Section 4975 of the
Code unless an exemption applies. The company, underwriter of the Securities,
the servicer, the trustee, the indenture trustee and certain of their affiliates
might be considered "parties in interest" or "disqualified persons" with respect
to a Plan. If so, the acquisition, holding or disposition of Securities by or on
behalf of such Plan could be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and the Code unless a statutory,
regulatory or administrative exception or exemption is available.
ERISA CONSIDERATIONS RELATING TO CERTIFICATES
Plan Assets. In 29 C.R.F ss.2510.3-101 (the "Plan Asset Regulations"), the
U.S. Department of Labor ("DOL") has defined what constitutes "plan assets" for
purposes of ERISA and Section 4975 of the Code. The Plan Asset Regulations
provide that if a Plan makes an investment in an "equity interest" in an entity,
an undivided portion of the assets of the entity will be considered the assets
of such Plan unless certain exceptions set forth in such Regulations apply. The
Certificates will be deemed an equity interest for purposes of the Plan Asset
Regulations, and the company can give no assurance that the Certificates will
qualify for any of the exceptions under the Plan Asset Regulations. As a result,
(i) a Plan may be deemed to have acquired an interest in the assets of the Trust
and not merely an interest in the Certificates, (ii) the fiduciary investment
standards of ERISA could apply to such assets and (iii) transactions occurring
in the course of managing, operating and servicing the Trust and its assets
might constitute prohibited transactions, unless a statutory, regulatory or
administrative exemption applies.
UNDERWRITER EXEMPTION
GENERAL DISCUSSION. The DOL has granted to Deutsche Banc Alex. Brown Inc.
an individual exemption, Prohibited Transaction Exemption 94-84, and to Deutsche
Morgan Grenfell/C.J. Lawrence Inc., similar approval (FAN 97-03E), which were
both amended by Prohibited Transaction Exemption 97-34 ("PTE 97-34") and further
recently amended pursuant to Prohibited Transaction Exemption 2000-58 ("PTE
2000-58") (collectively, the "Exemption") which is applicable to Certificates
which meet its requirements whenever Deutsche Banc Alex. Brown Inc. or its
affiliate is the sole underwriter, manager or co-manager of an underwriting
syndicate or is the selling or placement agent. The Exemption generally exempts
certain transactions from the application of certain of the prohibited
transaction provisions of ERISA and the Code provided that the conditions set
forth in the Exemption are satisfied. These transactions include the servicing,
managing and operation of investment trusts holding fixed (generally
non-revolving pools) of enumerated categories of assets which include the
Receivables and the purchase, sale and holding of Certificates which represent
beneficial ownership interests in the assets of such trusts.
GENERAL CONDITIONS OF EXEMPTION. The Exemption sets forth general
conditions which must be satisfied for a transaction involving the purchase,
sale and holding of the Certificates to be eligible for exemptive relief
thereunder. First, the acquisition of Certificates by Plans must be on terms
that are at least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party. Second, the assets held by the Trust must
be secured. Third, unless the Certificates are issued in "designated
transactions" (as described below) and are backed by fully-secured Receivables,
they may not be subordinated. Fourth, the Certificates at the time of
acquisition by the Plan must be rated in one of the three (or in the case of
designated transactions, four) highest generic rating categories by Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody's
Investors Services, Inc. or Fitch, Inc. (each, a "Rating Agency"). Fifth, the
trustee and the indenture trustee generally cannot be affiliates of any member
of the "Restricted Group" which consists of any (i) underwriter as defined in
the Exemption, (ii) the company, (iii) the servicer, (iv) the counterparty of
any "interest swap" (as described below) held as an asset of the Trust and (v)
any obligor with respect to Receivables constituting more than 5% of the
aggregate unamortized principal balance of the Receivables held in the Trust as
of the date of initial issuance of the Certificates. Sixth, the sum of all
payments made to, and retained by, such underwriters must represent not more
than reasonable compensation for underwriting the Certificates; the sum of all
payments made to, and retained by, the company pursuant to the assignment of the
Receivables to the related Trust must represent not more than the fair market
value of such Receivables; and the sum of all payments made to, and retained by,
the servicer must represent not more than reasonable compensation for such
person's services under the Agreement and reimbursement of such person's
reasonable expenses in connection therewith. Seventh, (i) the investment pool
must consist only of assets of the type enumerated in the Exemption and which
have been included in other investment pools; (ii) Certificates evidencing
interests in such other investment pools must have been rated in one of the
three (or in the case of designated transactions, four) highest generic rating
categories by one of the Rating Agencies for at least one year prior to a Plan's
acquisition of Certificates; and (iii) Certificates evidencing interests in such
other investment pools must have been purchased by investors other than Plans
for at least one year prior to a Plan's acquisition of Certificates. Finally,
the investing Plan must be an accredited investor as defined in Rule 501(a)(1)
of Regulation D of the Commission under the Securities Act of 1933, as amended.
The company assumes that only Plans which are accredited investors under the
federal securities laws will be permitted to purchase the Certificates.
RECENT AMENDMENTS TO EXEMPTION. PTE 2000-58 (the "Amendment") recently
amended the Exemption to make the acquisition of Certificates by Plans in an
initial offering or in a secondary market transaction, the holding or transfer
of Certificates and the servicing, management and operation of the Trust and its
assets on or after November 13, 2000 eligible for exemptive relief to a broader
range of Certificates. Prior to such amendment, the Exemption generally
permitted Plans to purchase only unsubordinated Certificates rated within the
highest three generic rating categories backed by secured collateral. Such
Certificates had to be issued by a Trust which was a grantor trust, or a FASIT
whose corpus could not include certain types of assets such as interest-rate
swaps.
TYPES OF TRUSTS. The Amendment has expanded the types of permitted Trusts
to include owner-trusts, as well as grantor trusts and FASITs. Owner-trusts are
subject to certain restrictions in their governing documents to ensure that
their assets may not be reached by the creditors of the company in the event of
bankruptcy or other insolvency and must provide certain legal opinions.
DESIGNATED TRANSACTIONS. In the case where the Certificates are backed by
Trust assets such as the Receivables which are secured motor vehicle
receivables, credit instruments or obligations that bear interest or are
purchased a discount as described and defined in the Exemption as designated
transactions ("Designated Transactions"), the Amendment permits the Certificates
issued by the Trust in such transactions to be rated in one of the highest four
generic rating categories by a Rating Agency and/or to be subordinated. The
Receivables are the type of assets which qualify for Designated Transaction
treatment unless otherwise specified in the Prospectus Supplement.
INSURANCE COMPANY GENERAL ACCOUNTS. In the event that Certificates do not
meet the requirements of the Exemption solely because they are Subordinate
Certificates or fail to meet a minimum rating requirement under the Exemption,
certain Plans may be eligible to purchase Certificates pursuant to Section III
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60") which permits
insurance company general accounts as defined in PTCE 95-60 to purchase such
Certificates if they otherwise meet all of the other requirements of the
Exemption.
PERMITTED ASSETS. The Amendment permits an interest-rate swap to be an
asset of a Trust which issues Certificates acquired by Plans in an initial
offering or in the secondary market on or after November 13, 2000 and clarifies
the requirements regarding yield supplement agreements. An interest-rate swap
(or if purchased by or on behalf of the Trust) an interest-rate cap contract
(collectively, a "Swap" or "Swap Agreement") is a permitted Trust asset if it:
(a) is an "eligible Swap;" (b) is with an "eligible counterparty;" (c) is
purchased by a "qualified plan investor;" (d) meets certain additional specific
conditions which depend on whether the Swap is a "ratings dependent Swap" or a
"non-ratings dependent Swap" and (e) permits the Trust to make termination
payments to the Swap (other than currently scheduled payments) solely from
excess spread or amounts otherwise payable to the servicer or company.
An "eligible Swap" is one which: (a) is denominated in U.S. dollars; (b)
pursuant to which the Trust pays or receives, on or immediately prior to the
respective payment or distribution date for the class of Certificates to which
the Swap relates, a fixed rate of interest or a floating rate of interest based
on a publicly available index (e.g., LIBOR or the U.S. Federal Reserve's Cost of
Funds Index (COFI)), with the Trust receiving such payments on at least a
quarterly basis and obligated to make separate payments no more frequently than
the counterparty, with all simultaneous payments being netted ("Allowable
Interest Rate"); (c) has a notional amount that does not exceed either: (i) the
principal balance of the class of Certificates to which the Swap relates, or
(ii) the portion of the principal balance of such class represented by
obligations ("Allowable Notional Amount"); (d) is not leveraged (i.e., payments
are based on the applicable notional amount, the day count fractions, the fixed
or floating rates permitted above, and the difference between the products
thereof, calculated on a one-to-one ratio and not on a multiplier of such
difference) ("Leveraged"); (e) has a final termination date that is either the
earlier of the date on which the issuer terminates or the related class of
Certificates are fully repaid and (f) does not incorporate any provision which
could cause a unilateral alteration in the interest rate requirements described
above or the prohibition against leveraging.
An "eligible counterparty" means a bank or other financial institution
which has a rating at the date of issuance of the Certificates, which is in one
of the three highest long-term credit rating categories or one of the two
highest short-term credit rating categories, utilized by at least one of the
Rating Agencies rating the Certificates; provided that, if a counterparty is
relying on its short-term rating to establish eligibility hereunder, such
counterparty must either have a long-term rating in one of the three highest
long-term rating categories or not have a long-term rating from the applicable
Rating Agency.
A "qualified plan investor" is a Plan or Plans where the decision to buy
such class of Certificates is made on behalf of the Plan by an independent
fiduciary qualified to understand the Swap transaction and the effect the Swap
would have on the rating of the Certificates and such fiduciary is either (a) a
"qualified professional asset manager" ("QPAM") under Prohibited Transaction
Class Exemption 84-14 ("PTCE 84-14") (see below), (b) an "in-house asset
manager" under Prohibited Transaction Class Exemption 96-23 ("PTCE 96-23") (see
below) or (c) has total assets (both Plan and non-Plan) under management of at
least $100 million at the time the Certificates are acquired by the Plan.
In "ratings dependent Swaps" (where the rating of a class of Certificates
is dependent on the terms and conditions of the Swap), the Swap Agreement must
provide that if the credit rating of the counterparty is withdrawn or reduced by
any Rating Agency below a level specified by the Rating Agency, the servicer
must, within the period specified under the Swap Agreement: (a) obtain a
replacement Swap Agreement with an eligible counterparty which is acceptable to
the Rating Agency and the terms of which are substantially the same as the
current Swap Agreement (at which time the earlier Swap Agreement must
terminate); or (b) cause the Swap counterparty to establish any
collateralization or other arrangement satisfactory to the Rating Agency such
that the then current rating by the Rating Agency of the particular class of
Certificates will not be withdrawn or reduced (and the terms of the Swap
Agreement must specifically obligate the counterparty to perform these duties
for any class of Certificates with a term of more than one year). In the event
that the servicer fails to meet these obligations, Plan certificateholders must
be notified in the immediately following periodic report which is provided to
certificateholders but in no event later than the end of the second month
beginning after the date of such failure. Sixty days after the receipt of such
report, the exemptive relief provided under the Exemption will prospectively
cease to be applicable to any class of Certificates held by a Plan which
involves such ratings dependent Swap.
"Non-ratings dependent Swaps" (those where the rating of the Certificates
does not depend on the terms and conditions of the Swap) are subject to the
following conditions. If the credit rating of the counterparty is withdrawn or
reduced below the lowest level permitted above, the servicer will, within a
specified period after such rating withdrawal or reduction: (a) obtain a
replacement Swap Agreement with an eligible counterparty, the terms of which are
substantially the same as the current Swap Agreement (at which time the earlier
Swap Agreement must terminate); (b) cause the counterparty to post collateral
with the Trust in an amount equal to all payments owed by the counterparty if
the Swap transaction were terminated; or (c) terminate the Swap Agreement in
accordance with its terms.
An "eligible yield supplement agreement" is any yield supplement agreement
or similar arrangement (or if purchased by or on behalf of the Trust) an
interest rate cap contract to supplement the interest rates otherwise payable on
obligations held by the Trust ("EYS Agreement"). If the EYS Agreement has a
notional principal amount and/or is written on an International Swaps and
Derivatives Association, Inc. (ISDA) form, the EYS Agreement may only be held as
an asset of the Trust with respect to Certificates purchased by Plans on or
after April 7, 1998 if it meets the following conditions: (a) it is denominated
in U.S. dollars; (b) it pays an Allowable Interest Rate; (c) it is not
Leveraged; (d) it does not allow any of these three preceding requirements to be
unilaterally altered without the consent of the trustee; (e) it is entered into
between the Trust and an eligible counterparty and (f) it has an Allowable
Notional Amount.
PRE-FUNDING ACCOUNTS. The Exemption was amended by PTE 97-34 to extend
exemptive relief to Certificates issued in transactions using pre-funding
accounts whereby a portion of the Receivables backing the Certificates are
transferred to the Trust within a specified period following the Closing Date
("DOL Pre-Funding Period") (see below) instead of requiring that all such
Receivables be either identified or transferred on or before the Closing Date.
The relief is effective for transactions occurring on or after May 23, 1997
provided that the following conditions are met. First, the ratio of the amount
allocated to the Pre-Funding Account to the total principal amount of the
Certificates being offered ("Pre-Funding Limit") must not exceed twenty-five
percent (25%). Second, all Receivables transferred after the Closing Date
(referred to here as "Additional Receivables") must meet the same terms and
conditions for eligibility as the original Receivables used to create the Trust,
which terms and conditions have been approved by the Rating Agency. Third, the
transfer of such Additional Receivables to the Trust during the DOL Pre-Funding
Period must not result in the Certificates receiving a lower credit rating from
the Rating Agency upon termination of the DOL Pre-Funding Period than the rating
that was obtained at the time of the initial issuance of the Certificates by the
Trust. Fourth, solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate") for all of
the Receivables in the Trust at the end of the DOL Pre-Funding Period must not
be more than 100 basis points lower than the average interest rate for the
Receivables which were transferred to the Trust on the Closing Date. Fifth,
either: (i) the characteristics of the Additional Receivables must be monitored
by an insurer or other credit support provider which is independent of the
company; or (ii) an independent accountant retained by the company must provide
the company with a letter (with copies provided to the Rating Agency, the
underwriter and the trustee) stating whether or not the characteristics of the
Additional Receivables conform to the characteristics described in the
Prospectus, Prospectus Supplement, Private Placement Memorandum ("Offering
Documents") and/or the Agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were applicable to the
Receivables which were transferred as of the Closing Date. Sixth, the DOL
Pre-Funding Period must end no later than three months or 90 days after the
Closing Date or earlier, in certain circumstances, if the amount on deposit in
the Pre-Funding Account is reduced below the minimum level specified in the
Agreement or an event of default occurs under the Agreement. Seventh, amounts
transferred to any Pre-Funding Account and/or Capitalized Interest Account used
in connection with the pre-funding may be invested only in investments which are
permitted by the Rating Agency and (i) are direct obligations of, or obligations
fully guaranteed as to timely payment of principal and interest by, the United
States or any agency or instrumentality thereof (provided that such obligations
are backed by the full faith and credit of the United States); or (ii) have been
rated (or the obligor has been rated) in one of the three highest generic rating
categories by the Rating Agency ("Acceptable Investments"). Eighth, certain
disclosure requirements must be met.
LIMITATIONS ON SCOPE OF THE EXEMPTION. If the general conditions of the
Exemption are satisfied, the Exemption may provide an exemption from the
restrictions imposed by ERISA and the Code in connection with the initial
acquisition, transfer or holding, and the acquisition or disposition in the
secondary market, of the Certificates by Plans. However, no exemption is
provided from the restrictions of ERISA for the acquisition or holding of a
Certificates on behalf of an "Excluded Plan" by any person who is a fiduciary
with respect to the assets of such Excluded Plan. For those purposes, an
Excluded Plan is a Plan sponsored by any member of the Restricted Group.
Exemptive relief may also be provided for the acquisition, holding and
disposition of Certificates by Plans if the fiduciary or its affiliate is the
obligor with respect to 5% or less of the fair market value of the Receivables
in the Trust provided that: (i) the Plan is not an Excluded Plan, (ii) each
Plan's investment in each class of Certificates does not exceed 25% of the
outstanding Certificates in the class, (iii) after the Plan's acquisition of the
Certificates, no more than 25% of the assets over which the fiduciary has
investment authority are invested in Certificates of a trust containing assets
which are sold or serviced by the same entity and (iv) in the case of initial
issuance (but not secondary market transactions), at least 50% of each class of
Certificates and at least 50% of the aggregate interests in the Trust are
acquired by persons independent of the Restricted Group.
ERISA CONSIDERATIONS RELATING TO NOTES
Under the Plan Asset Regulations, the assets of the Trust would be treated
as "plan assets" of a Plan for the purposes of ERISA and the Code only if the
Plan acquires an "equity interest" in the Trust and none of the exceptions
contained in the Plan Asset Regulations is applicable. An equity interest is
defined under the Plan Asset Regulations as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. Assuming that the Notes are treated as indebtedness
without substantial equity features for purposes of the Plan Asset Regulations,
then such Notes will be eligible for purchase by Plans. However, without regard
to whether the Notes are treated as an "equity interest" for such purposes, the
acquisition or holding of Notes by or on behalf of a Plan could be considered to
give rise to a prohibited transaction if the Trust or any of its affiliates is
or becomes a party in interest or disqualified person with respect to such Plan,
or in the event that a Note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. There can be no assurance that
the Trust or any of its affiliates will not be or become a party in interest or
a disqualified person with respect to a Plan that acquires Notes.
The Amendment to the Exemption permits Trust which are grantor trusts,
owner-trusts, or FASITs to issue Notes, as well as Certificates, provided a
legal opinion is received to the effect that the noteholders have a perfected
security interest in the Trust's assets. The exemptive relief provided under the
Exemption for any prohibited transactions which could be caused as a result of
the operation, management or servicing of the Trust and its assets would not be
necessary with respect to Notes with no substantial equity features which are
issued as obligations of the Trust. However, effective for the acquisition,
holding or transfer of Notes between a Plan and a party in interest which occurs
on or after November 13, 2000, the Exemption would provide prohibited
transaction exemptive relief, provided that the same conditions of the Exemption
described above relating to Certificates are met with respect to the Notes. The
same limitations of such exemptive relief relating to acquisitions of
Certificates by fiduciaries with respect to Excluded Plans would also be
applicable to the Notes as described herein in "LIMITATIONS ON SCOPE OF THE
EXEMPTION."
In the event that the Exemption is not applicable to the Notes, one or more
other prohibited transactions exemptions may be available to Plans purchasing or
transferring the Notes depending in part upon the type of Plan fiduciary making
the decision to acquire the Notes and the circumstances under which such
decision is made. These exemptions include, but are not limited to, Prohibited
Transaction Class Exemption 90-1 (regarding investments by insurance company
pooled separate accounts), Prohibited Transaction Class Exemption 91-38
(regarding investments by bank collective investments funds), PTCE 84-14
(regarding transactions effected by "qualified professional asset managers"),
PTCE 95-60 (regarding investments by insurance company general accounts) and
PTCE 96-23 (regarding transactions effected by "in-house asset managers")
(collectively, the "Investor-Based Exemptions"). However, even if the conditions
specified in these Investor-Based Exemptions are met, the scope of the relief
provided under such Exemptions might or might not cover all acts which might be
construed as prohibited transactions.
EACH PROSPECTUS SUPPLEMENT WILL CONTAIN INFORMATION CONCERNING
CONSIDERATIONS RELATING TO ERISA AND THE CODE THAT ARE APPLICABLE TO THE RELATED
SECURITIES. BEFORE PURCHASING SECURITIES IN RELIANCE ON THE EXEMPTION, THE
INVESTOR-BASED EMEMPTIONS OR ANY OTHER EXEMPTION, A FIDUCIARY OF A PLAN SHOULD
ITSELF CONFIRM THAT REQUIREMENTS SET FORTH IN SUCH EXEMPTION WOULD BE SATISFIED.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
SECURITIES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH RESPECT
TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE OF THE
ACQUISITION AND OWNERSHIP OF SUCH SECURITIES.
Governmental plans and church plans as defined in ERISA are not subject to
ERISA or Code Section 4975, although they may elect to be qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of the
Code and would then be subject to the prohibited transaction rules set forth in
Section 503 of the Code. In addition, governmental plans may be subject to
federal, state and local laws which are to a material extent similar to the
provisions of ERISA or a Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of an
investment in Securities under applicable fiduciary or other investment
standards and the need for the availability of any exemptive relief under any
Similar Law.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the notes, if any, of a given series and an underwriting agreement
with respect to the certificates of the series (collectively, the "Underwriting
Agreements"), the company will agree to cause the related Trust to sell to the
underwriters named in the Underwriting Agreement and in the related prospectus
supplement, and each of these underwriters will severally agree to purchase, the
principal amount of each class of notes and certificates, as the case may be, of
the related series set forth in the related Underwriting Agreement and in the
related prospectus supplement.
In the Underwriting Agreements with respect to any given series of
securities, the several underwriters will agree, subject to the terms and
conditions set forth in the related Underwriting Agreement, to purchase all of
the notes and certificates, as the case may be, described in the related
Underwriting Agreement that are offered by this prospectus and by the related
prospectus supplement if any of the notes and certificates, as the case may be,
are purchased.
Each prospectus supplement will either (1) set forth the price at which
each class of notes and certificates, as the case may be, being offered by the
related prospectus supplement will be offered to the public and any concessions
that may be offered to particular dealers participating in the offering of the
notes and certificates, as the case may be, or (2) specify that the related
notes and certificates, as the case may be, are to be resold by the underwriters
in negotiated transactions at varying prices to be determined at the time of
sale. After the initial public offering of any notes and certificates, as the
case may be, public offering prices and concessions may be changed.
Pursuant to the Underwriting Agreement, the entities specified in the
related prospectus supplement will indemnify the related Underwriters against
specific civil liabilities, including liabilities under the Securities Act.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Eligible Investments acquired from the underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
series of securities, the closing of the sale of any class of securities will be
conditioned on the closing of the sale of all other classes under the related
Underwriting Agreement.
The place and time of delivery for the notes and certificates, as the case
may be, in respect of which this prospectus is delivered will be set forth in
the related prospectus supplement.
If and to the extent required by applicable law or regulation, this
prospectus and the prospectus supplement will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the offered securities in which the Underwriter
acts as principal. The Underwriter may also act as agent in these transactions.
Sales will be made at negotiated prices determined at the time of sale.
LEGAL MATTERS
Some legal matters relating to the securities of any series will be passed
upon by the law firms specified in the related prospectus supplement. Some
related federal income tax and other matters will be passed upon for the Trust
and the company, by the law firms specified in the related prospectus
supplement.
PROSPECTUS SUPPLEMENT
The prospectus supplement relating to a series of securities to be offered
under this prospectus will, among other things, set forth with respect to each
class of securities:
o the interest rate and authorized denominations, as applicable, of each
class of securities;
o specific information concerning the Primary Assets and the related
seller and servicer, as applicable;
o the terms of any Credit or Cash Flow Enhancement applicable to any
class or classes of securities;
o information concerning any other assets in the related Trust;
o the expected date or dates on which the principal amount, if any, of
each class of securities will be paid to holders of the securities;
o the extent to which any class within a series is subordinated to any
other class of the same series; and
o additional information with respect to the plan of distribution of the
securities.
REPORTS TO SECURITYHOLDERS
With respect to each series of securities, the servicer of the related
Primary Assets will prepare for distribution to the related Securityholders
monthly and annual reports concerning the securities and the related Trust. See
"Certain Information Regarding the Securities--Statements to Securityholders."
AVAILABLE INFORMATION
The company, as originator of the Trusts, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-3
(together with all amendments and exhibits to the Registration Statement, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities being offered by this
prospectus. This prospectus does not contain all of the information set forth in
the Registration Statement, some parts of which have been omitted in accordance
with the rules and regulations of the Commission. In addition, company is
subject to the informational requirements of the securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance with the Exchange Act
files reports and other information with the Commission. The Registration
Statement, reports and other information are available for inspection without
charge at the public reference facilities of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of this information can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov.
Upon receipt of a request by an investor who has received an electronic
prospectus supplement and prospectus from the Underwriter or a request by the
investor's representative within the period during which there is an obligation
to deliver a prospectus supplement and Prospectus, the Underwriter will promptly
deliver, or cause to be delivered, without charge, to the investor a paper copy
of the prospectus supplement and prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the company on behalf of the Trust referred to in
the accompanying prospectus supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the securities offered by the
Trust shall be deemed to be incorporated by reference in this prospectus and to
be a part of this prospectus from the dates of filing of the documents. Any
statement contained in this prospectus or in a document incorporated or deemed
to be incorporated by reference in this prospectus shall be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus, or in the accompanying prospectus
supplement, or in any subsequently filed document that also is or is deemed to
be incorporated by reference in this prospectus modifies or supersedes the
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
The company on behalf of any Trust will provide without charge to each
person to whom a copy of this prospectus is delivered, on the written or oral
request of the person, a copy of any or all of the documents incorporated in
this prospectus by reference, except the exhibits to these documents. Requests
for copies should be directed to: Secretary, ACE Securities Corp., 6525 Morrison
Boulevard, Suite 318, Charlotte, North Carolina 28211, telephone, (704)365-0569.
INDEX OF TERMS
PAGE
1997 Act.....................................................................71
Actuarial Receivables........................................................10
Advances.....................................................................41
Cede..........................................................................1
Certificate Distribution Account.............................................37
Certificate Owners...........................................................53
Certificate Pool Factor......................................................22
Code.........................................................................53
Collection Account...........................................................36
Collection Period............................................................40
Definitive certificates......................................................33
Definitive notes.............................................................33
Definitive Securities........................................................33
Depository...................................................................23
Distribution Date............................................................30
DTC...........................................................................1
Eligible Deposit Account.....................................................37
Eligible Institution.........................................................37
Eligible Investment..........................................................38
Eligible Investments.........................................................37
Events of Default............................................................25
Exchange Act.................................................................81
Fannie Mae...................................................................15
Farm Credit Act..............................................................19
FCA..........................................................................19
FCBs.........................................................................18
Federal Tax Counsel..........................................................53
FFCB.........................................................................15
FFEL.........................................................................17
FHLB.........................................................................15
FHLMC Act....................................................................16
Final Scheduled Maturity Date................................................40
Financed Vehicles.............................................................8
FIRREA.......................................................................17
Fiscal Agent.................................................................15
Freddie Mac..................................................................15
FTC Rule.....................................................................52
Funding Corporation..........................................................19
Government Securities........................................................13
grantor trust certificateholders.............................................67
grantor trust certificates...................................................67
GSE Issuer...................................................................15
GSEs.........................................................................13
GSEs Bonds...................................................................13
Indenture....................................................................23
Indirect Participants........................................................31
Interest Component...........................................................21
Investment Earnings..........................................................37
IRS..........................................................................53
MBS..........................................................................16
Multiple Variable Rate Note..................................................58
Non-United States Owner......................................................66
Note Distribution Account....................................................37
Note Owners..................................................................53
Note Pool Factor.............................................................22
Participants.................................................................31
Payahead Account.............................................................37
Payaheads....................................................................40
Pooling and Servicing Agreement...............................................8
Precomputed Advance..........................................................40
Precomputed Receivables......................................................10
Pre-Funded Amount............................................................38
Pre-Funding Account..........................................................38
Pre-Funding Period...........................................................38
Prepayment Assumption........................................................54
Presumed Single Qualified Floating Rate......................................57
Presumed Single Variable Rate................................................57
Primary Assets...............................................................11
Principal Component..........................................................21
Private Label Custody Receipt Securities.....................................19
Private Label Custody Strips.................................................19
Receivables..................................................................10
REFCO........................................................................19
REFCO Strip..................................................................21
Registration Statement.......................................................81
Related Documents............................................................27
Repurchase Amount............................................................36
Reserve Account..............................................................43
RTC..........................................................................17
Rule of 78s Receivables......................................................10
Rules........................................................................31
Sale and Servicing Agreement..................................................8
Sallie Mae...................................................................15
Schedule of Receivables......................................................35
Securities Act...............................................................81
Security Owners..............................................................31
Senior Certificates..........................................................69
Senior Class Percentage......................................................70
Servicer Default.............................................................44
Servicing Fee................................................................41
Servicing Fee Rate...........................................................41
Shortfall Amount.............................................................70
Short-Term Note..............................................................60
Simple Interest Advance......................................................41
Simple Interest Receivables..................................................10
Single Variable Rate Note....................................................57
Stripped Certificates........................................................69
Subordinate Certificates.....................................................69
Subordinate Class Percentage.................................................69
System.......................................................................18
Systemwide Debt Securities...................................................19
TEFRA........................................................................20
Transfer and Servicing Agreements............................................35
Treasury Bonds...............................................................13
Treasury Strips..............................................................13
Trust.........................................................................8
Trust Accounts...............................................................37
Trust Agreement...............................................................8
Trust Stripped Bond..........................................................69
Trust Stripped Coupon........................................................69
TVA..........................................................................15
TVA Act......................................................................18
UCC..........................................................................31
Underlying Issuer............................................................12
Underlying Servicer..........................................................11
Underlying Trust Agreement...................................................11
Underlying Trustee...........................................................12
Underwriting Agreements......................................................79
United States person.........................................................60
Variable Rate Note...........................................................56
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in some limited circumstances, the globally offered securities (the
"Global securities") will be available only in book-entry form. Unless otherwise
specified in the related prospectus supplement, investors in the Global
securities may hold Global securities through any of The Depository Trust
company ("DTC"), Clearstream, Luxembourg or Euroclear. Unless otherwise
specified in the related prospectus supplement, Global securities will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Unless otherwise specified in the related prospectus supplement,
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global securities
through Clearstream, Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream, Luxembourg or Euroclear
and DTC Participants holding securities will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream, Luxembourg and Euroclear, in this capacity, and as DTC
Participants.
Non-U.S. holders of Global securities will be subject to U.S. withholding
taxes unless the holders meet particular requirements and deliver appropriate
U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global securities will be held in book-entry form by The Depository
Trust Company ("DTC") in the name of Cede & Co. ("Cede") as nominee of DTC.
Securityholders' interests in the Global securities will be represented through
financial institutions acting on their behalf as direct and indirect
Participants in DTC. As a result, Clearstream, Luxembourg and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold these positions in accounts as DTC
Participants.
Securityholders electing to hold their Global securities through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Securityholder securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Securityholders electing to hold their Global securities through
Clearstream, Luxembourg or Euroclear accounts will follow the settlement
procedures applicable to conventional eurobonds, except that there will be no
temporary global security and no "lock-up" or restricted period. Global
securities will be credited to the securities custody accounts on the settlement
date against payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
TRADING BETWEEN CLEARSTREAM, LUXEMBOURG AND/OR EUROCLEAR PARTICIPANTS.
Secondary market trading between Clearstream, Luxembourg Participants or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CLEARSTREAM, LUXEMBOURG OR EUROCLEAR
PURCHASER. When Global securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Clearstream,
Luxembourg Participant or a Euroclear Participant, the purchaser will send
instructions to Clearstream, Luxembourg or Euroclear through a Clearstream,
Luxembourg Participant or Euroclear Participant at least one business day prior
to settlement. Clearstream, Luxembourg or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global securities against
payment. Payment will include interest accrued on the Global securities from and
including the last coupon payment date to and excluding the settlement date.
Payment will then be made by the respective Depositary to the DTC Participant's
account against delivery of the Global securities. After settlement has been
completed, the Global securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Clearstream, Luxembourg Participant's or Euroclear Participant's account.
The Global securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global securities
will accrue from, the value date, which would be the preceding day when
settlement occurred in New York. If settlement is not completed on the intended
value date (i.e., the trade fails), the Clearstream, Luxembourg or Euroclear
cash debit will be valued instead as of the actual settlement date.
Clearstream, Luxembourg Participants and Euroclear Participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global securities are credited
to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg Participants or Euroclear
Participants can elect not to pre-position funds and allow that credit line to
be drawn upon the finance settlement. Under this procedure, Clearstream,
Luxembourg Participants or Euroclear Participants purchasing Global securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Global securities were credited to their accounts. However, interest on
the Global securities would accrue from the value date. Therefore, in many cases
the investment income on the Global securities earned during that one-day period
may substantially reduce or offset the amount of the overdraft charges, although
this result will depend on each Clearstream, Luxembourg Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global securities to
the respective Depositary for the benefit of Clearstream, Luxembourg
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participant a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
TRADING BETWEEN CLEARSTREAM, LUXEMBOURG OR EUROCLEAR SELLER AND DTC
PURCHASER. Due to time zone differences in their favor, Clearstream, Luxembourg
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Global securities are to be transferred by the
respective clearing system, through the respective Depositary, to a DTC
Participant. The seller will send instructions to Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg Participant or Euroclear Participant
at least one business day prior to settlement. In these cases, Clearstream,
Luxembourg or Euroclear will instruct the respective Depositary, as appropriate,
to deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global securities from and including the
last coupon payment date to and excluding the settlement date. The payment will
then be reflected in the account of the Clearstream, Luxembourg Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Clearstream, Luxembourg Participant's or Euroclear Participant's account would
be back-valued to the value date, which would be the preceding day, when
settlement occurred in New York. Should the Clearstream, Luxembourg Participant
or Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debit in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft charges
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Clearstream, Luxembourg Participant's or Euroclear Participant's account would
instead be valued as of the actual settlement date. Finally, day traders that
use Clearstream, Luxembourg or Euroclear and that purchase Global securities
from DTC Participants for delivery to Clearstream, Luxembourg Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Clearstream, Luxembourg or Euroclear for one day,
until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg or Euroclear accounts, in accordance with the
clearing system's customary procedures;
(b) borrowing the Global securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
securities sufficient time to be reflected in their Clearstream,
Luxembourg or Euroclear account in order to settle the sale side of
the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Clearstream,
Luxembourg Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global securities holding securities through
Clearstream, Luxembourg or Euroclear, or through DTC 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 or to 31%
backup withholding (this rate, called the backup withholding rate, will be
reduced to 30.5% effective August 7, 2001, and further reduced gradually to 28%
by the year 2006), unless (1) 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 the beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (2) the beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8BEN). Beneficial owners of
securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding. If the information shown on
Form W-8 BEN changes, a new Form W-8 must be filed within 30 days of the change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
W-8ECI). 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 W-8ECI (Certificate of Foreign Person's Claim for
Exemption from Withholding 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 W-8BEN). Non-U.S. Persons that are beneficial owners of securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate, depending on the treaty terms, by filing Form
W-8BEN (including Part II thereof). If the treaty provides only for a reduced
rate, the beneficial owner may still be entitled to complete exemption from
withholding under item (1) above.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain complete
exemption from the withholding tax by filing Form W-9 (Request for Taxpayer
Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial owner of a
Global Security files by submitting the appropriate form to the person through
whom it holds, the clearing agency, in the case of persons holding directly on
the books of the clearing agency. Form W-8BEN and Form W-8ECI are generally
effective for three calendar years from the close of the calendar year in which
it is collected.
The term "U.S. Person" means (1) a citizen or resident of the United
States, (2) a corporation or partnership (or other entity properly classified as
a corporation or partnership for U.S. Federal income tax purposes) organized in
or under the laws of the United States or any state or the District of Columbia,
(3) an estate the income of which is includible in gross income for United
States tax purposes, regardless of its source, or (4) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in regulations, trusts in existence on August
20, 1996 and treated as United States persons prior to that date that elect to
continue to be so treated also will be considered U.S. Persons. Treasury
regulations provide certain presumptions regarding the entity classification and
foreign or U.S. status of a holder that a payor generally must apply in the
absence of appropriate documentation from the holder, and provide detailed
documentation and procedures for holders claiming withholding tax exemptions
through intermediaries. Prospective investors are urged to consult their tax
advisors regarding the effect of these regulations on their ability to claim and
the means for claiming exemptions from or reduced rates of U.S. withholding
taxes.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global securities.
Investors are advised to consult their own tax advisers for specific tax advice
concerning their holding and disposing of the Global securities.
===================================================== =
No dealer, salesperson or other person is
authorized to give any information or to represent
anything not contained in this prospectus. You
must not rely on any unauthorized information or
representations. This prospectus is an offer to
sell only the notes offered hereby, but only under
circumstances and in jurisdictions where it is
lawful to do so. The information contained in this
prospectus is current only as of its date.
------------
ACE Securities Corp.
Seller
Wells Fargo Bank, N.A.
Servicer
------------
Through and including September , 2001 (the 90th day after the date of
this prospectus) all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
=====================================================
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ACE RV AND MARINE TRUST 2001-RV1
$311,153,000
ASSET BACKED NOTES
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PROSPECTUS SUPPLEMENT
____________
Deutsche Banc Alex. Brown
June , 2001
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