Filed Pursuant to Rule 424(b)(5)
Registration No. 333-37550
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 15, 2000)
HARLEY-DAVIDSON MOTORCYCLE TRUST 2001-1
ISSUER
$221,000,000 4.65% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$126,700,000 5.27% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$18,300,000 5.29% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS B
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
DEPOSITOR
HARLEY-DAVIDSON CREDIT CORP.
SELLER AND SERVICER
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-13 IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 9 OF THE PROSPECTUS.
The notes will represent obligations of the Harley-Davidson Motorcycle
Trust 2001-1 only, and will not represent obligations of or interests in
Harley-Davidson Financial Services, Inc., Harley-Davidson Credit Corp.,
Harley-Davidson Customer Funding Corp., Harley-Davidson, Inc. or any of their
respective affiliates. This prospectus supplement may be used to offer and sell
the notes only if accompanied by the prospectus.
The notes are contract backed notes issued by the trust. The assets
underlying the notes are fixed-rate, simple interest, conditional sales
contracts relating to the purchase of new or used motorcycles.
-------------------------
THE TRUST WILL ISSUE THE FOLLOWING CLASSES OF NOTES:
HARLEY-DAVIDSON HARLEY-DAVIDSON HARLEY-DAVIDSON
MOTORCYCLE CONTRACT MOTORCYCLE CONTRACT MOTORCYCLE CONTRACT
BACKED CLASS A-1 NOTES BACKED CLASS A-2 NOTES BACKED CLASS B NOTES TOTAL
---------------------- ---------------------- -------------------- -----
Principal Amount........... $221,000,000 $126,700,000 $18,300,000 $366,000,000
Interest Rate.............. 4.65% 5.27% 5.29%
First Payment Date......... May 15, 2001 May 15, 2001 May 15, 2001
Final Scheduled Payment Date
September 2005 January 2009 January 2009
Price to Public............ 99.99474% 99.99817% 99.99507% $365,985,155
Underwriting Discount Per
Note.................... 0.210% 0.270% 0.600% $915,990
Proceeds to Issuer......... 99.78474% 99.72817% 99.39507% $365,069,165
Credit Enhancement:
o Reserve fund with an initial deposit of $2,564,124.53.
o Subordination of the Class B notes to the Class A notes as
described in this prospectus supplement.
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 ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SALOMON SMITH BARNEY FIRST UNION SECURITIES, INC.
Prospectus Supplement dated April 18, 2001
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Prospectus Supplement Summary................................................................................S-1
Risk Factors................................................................................................S-13
The Trust...................................................................................................S-17
The Seller and Servicer.....................................................................................S-19
Use of Proceeds.............................................................................................S-19
The Contracts...............................................................................................S-19
Yield and Prepayment Considerations.........................................................................S-29
The Depositor...............................................................................................S-29
Description of the Notes....................................................................................S-29
General................................................................................................S-30
Interest...............................................................................................S-30
Principal..............................................................................................S-31
Optional Redemption....................................................................................S-31
Mandatory Redemption Following the Funding Period......................................................S-31
Voting Rights..........................................................................................S-32
Notices................................................................................................S-32
Certain Information Regarding the Notes.....................................................................S-32
The Accounts...........................................................................................S-32
Determination of Outstanding Principal Balances........................................................S-35
Payments and Distributions on the Notes................................................................S-36
Material Federal Income Tax Consequences....................................................................S-39
ERISA Considerations........................................................................................S-40
Legal Proceedings...........................................................................................S-40
Underwriting................................................................................................S-41
Ratings of the Notes........................................................................................S-43
Legal Matters...............................................................................................S-43
Experts.....................................................................................................S-43
Reports to Noteholders......................................................................................S-43
Global Clearance, Settlement and Tax Documentation Procedures...............................................S-45
Glossary of Terms...........................................................................................S-50
Report of Independent Accountants...........................................................................S-55
Harley-Davidson Motorcycle Trust 2001-1 Balance Sheet as of April 18, 2001..................................S-56
Notes to Balance Sheet......................................................................................S-56
i
READING THE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate documents
that offer varying levels of detail:
o prospectus -- provides general information, some of which may not
apply to the notes; and
o prospectus supplement -- provides specific information relating to
the terms of the notes.
To the extent that any statements in this prospectus supplement differ
from or modify statements in the prospectus, you should rely on the information
in this prospectus supplement. References to "we", "our" and "us" refer to
Harley-Davidson Customer Funding Corp.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The Table of Contents of this prospectus supplement
provides pages on which these captions are located.
You can find a glossary of the principal capitalized terms used in this
prospectus supplement beginning on page S-50 of this prospectus supplement.
If you have received a copy of this prospectus supplement and the
accompanying prospectus in an electronic format, and if the legal prospectus
delivery period has not expired, you may obtain a paper copy of this prospectus
supplement and the accompanying prospectus from Harley-Davidson Credit Corp. or
any of the underwriters by asking any of them for it.
ii
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this prospectus
supplement and does not contain all the information that you need to consider in
making an investment decision. To understand all of the terms of the offering of
the notes, you should read this entire prospectus supplement and the
accompanying prospectus before making an investment decision. In addition, you
may wish to read the documents governing the transfers and servicing of the
contracts, the formation of the trusts and the issuance of the securities. Those
documents have been filed as exhibits to the registration statement.
There are material risks associated with an investment in the
securities. See "RISK FACTORS" in this prospectus supplement and in the
accompanying prospectus for a discussion of factors you should consider before
investing in the securities.
The Issuer or the Trust........... Harley-Davidson Motorcycle Trust 2001-1.
Seller and Servicer .............. Harley-Davidson Credit Corp., a 100% owned
subsidiary of Harley-Davidson Financial
Services, Inc.
Trust Depositor................... Harley-Davidson Customer Funding Corp., a
wholly owned, limited-purpose subsidiary
of Harley-Davidson Credit Corp.
Trustee........................... Wilmington Trust Company, a Delaware
banking corporation.
Indenture Trustee................. BNY Midwest Trust Company, an Illinois
banking corporation. The indenture
trustee will also act as paying agent
under the indenture and the trust
agreement.
Closing Date...................... On or about April 26, 2001.
Terms of the Notes................ The principal terms of the notes will be
described below:
AGGREGATE PRINCIPAL
CLASS AMOUNT INTEREST RATE
----- ------------------- -------------
Class A-1 notes $221,000,000 4.65%
Class A-2 notes $126,700,000 5.27%
Class B notes $18,300,000 5.29%
The notes represent indebtedness of the
trust secured by assets of the trust.
Each class of notes will be issued in
minimum denominations of $1,000 and will
be available in book entry form only.
S-1
Payment Dates..................... The trust will pay interest and principal
on the notes on the 15th day of each month
or if that day is not a business day, the
next business day. The first payment date
is May 15, 2001.
Record Dates...................... The day immediately preceding the payment
date.
Interest.......................... INTEREST PERIODS:
Interest on the notes will accrue in the
following manner:
DAY COUNT
FROM (INCLUDING) TO (EXCLUDING) CONVENTION
---------------- -------------- ----------
15th day of prior month 15th day of current month 30/360
The first interest period will begin on
and include the closing date and end on
and include May 14, 2001.
PAYMENT OF INTEREST:
On each payment date the trust will pay
interest on the notes which will be made
from available collections and other
amounts.
Interest payments on the Class A-1 notes
and Class A-2 notes will have the same
priority. Interest payments on the Class B
notes will be subordinated to interest
payments on the Class A notes. The trust
will make interest payments on the Class B
notes after paying interest on the Class
A-1 notes and Class A-2 notes.
See "CERTAIN INFORMATION REGARDING THE
NOTES--PAYMENTS AND DISTRIBUTIONS ON THE
NOTES" and "DESCRIPTION OF THE
NOTES--INTEREST" for a discussion of the
determination of the amounts available to
pay interest.
S-2
Principal......................... On each payment date, the trust will pay
principal on the notes which will be made
from available collections and other
amounts.
Principal payments on the Class A notes
will be senior in priority to principal
payments on the Class B notes. Principal
payments on each payment date will
generally be allocated 95.00% to the Class
A notes and 5.00% to the Class B notes.
However, any shortfall in the amount of
funds available for principal payments on
any payment date will reduce the principal
payment on the Class B notes (up to the
full amount of the payment) before the
principal payment on the Class A notes
will be reduced. Principal payments on the
Class A notes will be paid sequentially,
so that no principal will be paid on the
Class A-2 notes until the Class A-1 notes
have been paid in full.
See "CERTAIN INFORMATION REGARDING THE
NOTES--PAYMENTS AND DISTRIBUTIONS ON THE
NOTES" and "DESCRIPTION OF THE
NOTES--PRINCIPAL" for a discussion of the
determination of amounts available to pay
principal.
Final Scheduled
Payment Dates..................... The principal of the notes of each class
is due and payable on the dates shown on
the cover of this prospectus supplement.
If the notes have not already been paid in
full prior to their respective final
scheduled payment dates, we will be
obligated to pay the outstanding principal
amount of the notes in full on such dates.
Certain circumstances could cause
principal to be paid earlier or later, or
in reduced amounts. See "DESCRIPTION OF
THE NOTES--OPTIONAL REDEMPTION,"
"DESCRIPTION OF THE NOTES--MANDATORY
REDEMPTION FOLLOWING THE FUNDING PERIOD"
in this prospectus supplement and
"DESCRIPTION OF THE NOTES AND THE
INDENTURE--THE INDENTURE--EVENTS OF
DEFAULT; RIGHTS UPON EVENT OF DEFAULT" in
the prospectus.
Optional Redemption............... The seller may cause the depositor to
redeem the notes in full if the aggregate
outstanding principal balance of the
contracts owned by the trust declines to
less than 10% of the sum of:
o the aggregate outstanding
principal balance of the
contracts owned by the trust as
of the closing date; and
o the initial amount on deposit in
the pre-funding account.
S-3
The redemption price will be equal to the
unpaid principal amount of the notes plus
accrued interest thereon. See "DESCRIPTION
OF THE NOTES--OPTIONAL REDEMPTION."
Mandatory Redemption.............. The notes will be prepaid in part, without
premium, on the payment date on or
immediately following the last day of the
funding period in the event that any
amount remains on deposit in the
pre-funding account. The aggregate
principal amount of notes to be prepaid
will be an amount equal to the amount then
on deposit in the pre-funding account
allocated pro rata among the notes;
PROVIDED that if the amount remaining on
deposit in the pre-funding account is less
than $150,000, such amount will be
allocated solely to the Class A-1
noteholders.
The Contracts and Other
Assets of the Trust............... The property of the trust will be a pool
of fixed-rate, simple interest conditional
sales contracts relating to motorcycles
manufactured by Harley-Davidson, Inc. and
Buell Motorcycle Company, a wholly-owned
subsidiary of Harley-Davidson, Inc. The
contracts were originated by the seller
indirectly through Harley-Davidson
motorcycle dealers. Included in the
trust's assets are security interests in
the Harley-Davidson and Buell motorcycles
securing the contracts and proceeds, if
any, from certain insurance policies with
respect to such motorcycles.
The Contracts..................... Our main source of funds for making
payments on the notes will be collections
on the contracts. The contracts sold to
the trust will be selected from contracts
in the depositor's portfolio based on the
criteria specified in the transfer and
sale agreement. The contracts arise and
will arise from loans to obligors located
in the 50 states of the United States, the
District of Columbia and the U.S.
Territories.
On the closing date, pursuant to the sale
and servicing agreement, the depositor
will sell, and the trust will purchase,
initial contracts with the characteristics
set forth below as of the close of
business on April 11, 2001, the initial
cutoff date.
S-4
Following the closing date, pursuant to
the sale and servicing agreement, the
depositor will be obligated, subject only
to the availability thereof, to sell, and
the trust will be obligated to purchase,
subject to the satisfaction of certain
conditions set forth therein, subsequent
contracts. Following the transfer of
subsequent contracts to the trust, the
aggregate characteristics of the entire
pool of contracts may vary from those of
the initial contracts as to the
characteristics set forth below.
The last scheduled payment on the initial
contract with the latest maturity will
occur in September 2008.
No contract (including any subsequent
contract sold to the trust after the
closing date) will have a scheduled
maturity later than December 2008.
However, an obligor can generally prepay
its contract at any time without penalty.
COMPOSITION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
Aggregate Principal Balance...................................$256,412,453.39
Number of Contracts....................................................19,688
Average Principal Balance..........................................$13,023.79
Weighted Average Annual Percentage Rate................................13.20%
(Range)..................................................6.50% to 23.99%
Weighted Average Original Term (in months)..............................74.08
(Range).........................................................12 to 84
Weighted Average Calculated
Remaining Term (in months).........................................72.22
(Range)..........................................................3 to 84
GEOGRAPHIC CONCENTRATION
(AS OF THE INITIAL CUTOFF DATE)
PRINCIPAL BALANCE
STATE CONCENTRATION
----- -----------------
California 12.06%
Florida 8.92%
Texas 8.53%
No other state represented more than 5% of
the aggregate principal balance of the
contracts as of the initial cutoff date.
S-5
Reserve Fund...................... On the closing date, the depositor will
establish a trust account in the name of
the indenture trustee which we refer to as
the "RESERVE FUND." The reserve fund
provides you with limited protection in
the event collections from obligors on the
contracts are insufficient to make payment
on the notes. We cannot assure you,
however, that this protection will be
adequate to prevent shortfalls in amounts
available to make payments on the notes.
The initial balance of the reserve fund
will be $2,564,124.53 (1.00% of the
aggregate principal balance of the
contracts as of the initial cut off date).
On any date on which subsequent contracts
are transferred to the trust, an
additional amount equal to 1.00% of the
principal balance of those subsequent
contracts will be deposited into the
reserve fund. The amount required to be on
deposit in the reserve fund on each
payment date will equal the greater of (a)
2.00% of the principal balance of the
contracts in the trust as of the last day
of the immediately preceding calendar
month (6.00% in the event a trigger event
occurs) or (b) 1.00% of the aggregate of
the initial note balances. In no event
shall the amount required to be on deposit
in the reserve fund exceed the aggregate
outstanding principal balance of the
notes.
If the amount on deposit in the reserve
fund on any payment date is less than the
required amount, the trust will use the
funds available to it after payment of the
servicing fee and the fee payable to the
indenture trustee, reimbursement of
servicer advances and payment of interest
and principal on the notes to make a
deposit into the reserve fund. Amounts on
deposit in the reserve fund on any payment
date in excess of the required amount will
be paid to the depositor.
If on any payment date the funds available
to the trust to pay principal and interest
on the notes are insufficient to make
payments on the notes, the trust will use
funds in the reserve fund to cover any
shortfalls.
If on the final scheduled payment date of
any class of notes, the principal balance
of that class has not been paid in full,
the trust will use funds in the reserve
fund to pay those notes in full.
S-6
Pre-Funding Account............... On the closing date, the trust depositor
will fund an account called the
pre-funding account by depositing
$109,587,546.61 which will secure our
obligations to purchase subsequent
contracts from the seller and sell those
contracts to the trust. The amount in the
pre-funding account will be reduced by the
amount used to purchase subsequent
contracts from the seller. The trust
depositor expects that the pre-funded
amount will be reduced to less than
$150,000 by the payment date occurring in
July 2001. Any pre-funded amount remaining
at the end of this funding period will be
paid to the noteholders as described in
"DESCRIPTION OF THE NOTES--MANDATORY
REDEMPTION FOLLOWING THE FUNDING PERIOD."
Interest Reserve
Account........................... On the closing date, the trust depositor
will fund an account called the interest
reserve account by depositing $584,254.66
which will provide additional funds to
account for the fact that the monthly
investment earnings on amounts in the
pre-funding account (until such amounts
have been used to purchase subsequent
contracts) are expected to be less than
the weighted average of the interest
payments on the notes, as well as the
amount necessary to pay the indenture
trustee's fee. In addition to the initial
deposit, all investment earnings with
respect to the pre-funding account will be
deposited into the interest reserve
account.
The interest reserve account is not
intended to provide any protection against
losses on the contracts in the trust.
After the funding period, money remaining
in the interest reserve account will be
paid to the trust depositor.
Ratings........................... On the closing date, the notes must have
received ratings from Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Companies, and/or Moody's
Investors Service, Inc. as set forth
below:
STANDARD &
POOR'S MOODY'S
---------- -------
Class A-1 AAA Aaa
Class A-2 AAA Aaa
Class B A A2
S-7
A rating is not a recommendation to buy,
sell or hold securities. There can be no
assurance that the ratings will not be
lowered or withdrawn at any time by either
of the rating agencies. See "RATINGS OF
THE NOTES."
Advances.......................... The servicer is obligated to advance each
month an amount equal to accrued and
unpaid interest on the contracts which was
30 days or greater delinquent with respect
to the related due period, but only to the
extent that the servicer believes that the
amount of such advance will be recoverable
from collections on the contracts. The
servicer will be entitled to reimbursement
of its outstanding advances on any payment
date by means of a first priority
withdrawal of certain funds then held in
the collection account. See "DESCRIPTION
OF THE TRANSFER AND SERVICING
AGREEMENTS--SERVICING--ADVANCES" in the
prospectus.
Mandatory Repurchase by the
Depositor......................... Under the sale and servicing agreement,
we have agreed, in the event of a breach
of certain representations and warranties
made by us which materially and adversely
affects the trust's interest in any
contract and which has not been cured, to
repurchase such contract within two
business days prior to the first
determination date after the servicer, the
trustee, the indenture trustee or we
become aware of such breach. See
"DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--REPRESENTATIONS AND WARRANTIES
MADE BY THE SELLER AND THE DEPOSITOR" in
the prospectus.
Servicing Fees.................... The servicer will be entitled to receive
a monthly servicing fee equal to 1/12th of
1% of the principal balance of the
contracts as of the first day of the prior
calendar month. The servicer will also be
entitled to receive any extension fees or
late payment penalty fees paid by
obligors. The servicing fees will be paid
to the servicer prior to any payments to
the noteholders. See "CERTAIN INFORMATION
REGARDING THE NOTES--PAYMENTS AND
DISTRIBUTIONS ON THE NOTES--SERVICING
COMPENSATION AND REIMBURSEMENT OF SERVICER
ADVANCES."
S-8
Priority of Payments.............. PRIOR TO ACCELERATION OF THE NOTES:
On each payment date prior to the
acceleration of the notes, the trust will
apply collections on the contracts
received during the prior calendar month,
servicer advances and funds transferred
from the reserve fund to make the
following payments in the following order
of priority:
o to the noteholders, the amount
of any mandatory redemption;
o reimbursement of servicer
advances;
o servicing fee;
o indenture trustee's fee;
o interest on the Class A notes,
PRO RATA;
o interest on the Class B notes;
o principal on the Class A notes
and the Class B notes, in the
priority set forth in
"PRINCIPAL" above;
o to the reserve fund, the
amount, if any, needed to fund
the reserve fund to the
required amount; and
o any remaining amounts to the
depositor as certificateholder
under the trust agreement.
S-9
AFTER ACCELERATION OF THE NOTES:
After an event of default due to a breach
of a material covenant or agreement by the
trust and acceleration of the notes, all
distributions available to the noteholders
will be made in the following priority:
- interest on the Class A notes;
- interest on the Class B notes;
- principal on the Class A notes,
PRO RATA, until paid in full;
and
- principal on the Class B notes,
until paid in full.
After an event of default due to a payment
default or certain insolvency events and
acceleration of the notes, all
distributions available to the noteholders
will be made in the following priority:
- interest on the Class A notes;
- principal on the Class A notes,
PRO RATA, until paid in full;
- interest on the Class B notes;
and
- principal on the Class B notes,
until paid in full.
Credit Enhancement................ The credit enhancement for the notes is as follows:
Class A notes: - subordination
of the Class B
notes
- reserve fund
- excess spread
Class B notes: - reserve fund
- excess spread
S-10
Material Federal Income Tax
Consequences...................... Winston & Strawn, as federal tax counsel
to the trust, has delivered its opinion
that the notes will be characterized as
debt for federal income tax purposes, and
the trust will not be characterized as an
association (or publicly traded
partnership) taxable as a corporation. The
purpose of obtaining the opinion of tax
counsel is to provide investors with
greater assurance regarding the character
of the notes for federal income tax
purposes and that the issuer of the notes
will not be subject to federal income tax
at the entity level. However, an opinion
of tax counsel is not binding on the
Internal Revenue Service and there is no
assurance that the Internal Revenue
Service will not disagree with the opinion
of tax counsel. By purchasing a note, you
will agree to treat your note as debt for
federal, state and local income tax
purposes. As a result, payments received
by you will generally be treated as either
interest or principal and you will not be
considered an owner of an equity interest
in the trust.
The foregoing is a very general summary of
material federal income tax matters. These
general statements are subject to the
qualifications, clarifications,
assumptions and expanded discussion set
forth in the accompanying prospectus and
in this prospectus supplement under the
heading "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES."
ERISA Considerations.............. The notes are generally eligible for
purchase by employee benefit plans and
individual retirement accounts and similar
arrangements, and by persons investing on
behalf of or with plan assets of such
plans, accounts and arrangements, subject
those considerations and exceptions
discussed under "ERISA CONSIDERATIONS" in
the accompanying prospectus and this
prospectus supplement.
You should refer to "ERISA CONSIDERATIONS"
in the accompanying prospectus and this
prospectus supplement. If you are a
benefit plan fiduciary considering a
purchase of the notes you should, among
other things, consult with your counsel in
determining whether all required
conditions have been satisfied.
S-11
Marketing Address and
Telephone Numbers of
Principal Executive
Offices........................... The mailing address of the seller is 150
South Wacker Drive, Chicago, Illinois
60606, telephone (312) 368-9501. The
mailing address of the depositor is 4150
Technology Way, Carson City, Nevada 89706,
telephone (775) 886-3200. The principal
office of the trust is in care of
Wilmington Trust Company, Rodney Square
North, 1100 North Market Street,
Wilmington, Delaware 19890, telephone
(302) 651-1000.
S-12
RISK FACTORS
The following risk factors and the risk factors in the accompanying
prospectus describe the principal risk factors relating to an investment in the
notes.
You should carefully consider the following risks before you invest in
the securities. You should also carefully consider the risk factors beginning on
page 9 of the accompanying prospectus.
SOME CLASSES OF SECURITIES WILL BE ENTITLED TO INTEREST OR PRINCIPAL PAYMENTS
BEFORE OTHER CLASSES
The trust will pay interest, principal or both on some classes of notes
prior to paying interest, principal or both on other classes of notes. The
subordination of some classes to others means that the subordinated classes are
more likely to suffer the consequences of delinquent payments and defaults on
the contracts than the classes having prior payment rights. See "CERTAIN
INFORMATION REGARDING THE NOTES--PAYMENTS AND DISTRIBUTIONS ON THE NOTES" in
this prospectus supplement.
Moreover, the more senior classes of notes could lose the credit
enhancement provided by the more subordinate classes and the reserve fund if
delinquencies and defaults on contracts increase and the collections on
contracts and amounts in the reserve fund are insufficient to pay the more
senior classes of notes.
ADVERSE EVENTS IN THREE HIGH CONCENTRATION STATES MAY CAUSE INCREASED DEFAULTS
AND DELINQUENCIES
If adverse events or economic conditions were particularly severe in a
geographic region where there is a substantial concentration of obligors, the
amount of delinquent payments and defaults on the contracts may increase. As a
result, the overall timing and amount of collections on the contracts may differ
from what you expect, and you may experience delays or reductions in payments.
The following are the approximate percentages of the initial contract
pool principal balance whose obligors are located in the following states:
- 12.06% in California,
- 8.92% in Florida, and
- 8.53% in Texas.
The remaining states accounted for 70.49% of the initial aggregate principal
balance of the contracts, and none of these remaining states accounted for more
than 5% of the aggregate principal balance of the contracts. For a discussion of
the breakdown of the contracts by state, see "THE CONTRACTS" in this prospectus
supplement.
S-13
Although we do not know of any matters likely to increase the rate of
delinquencies or defaults in these states, adverse events specific to a
geographic region would include natural disasters and regional economic
downturns. For example, a substantial downturn in the financial services
industry, which is highly concentrated in the states of New York and New Jersey,
or in the oil and gas industry, which is concentrated in the state of Texas
could reduce the income of obligors in those states and ultimately reduce the
related obligor's ability to make timely payments on their contracts. In
addition, the following economic conditions may affect payments:
- unemployment,
- interest rates,
- inflation rates, and
- consumer perceptions of the economy.
THE SECURITIES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS
The securities may not be a suitable investment for any investor that
requires a regular or predictable schedule of principal payments. We suggest
that only investors who, either alone or with their financial, tax and legal
advisors, have the expertise to analyze the prepayment, reinvestment and default
risks, the tax consequences of an investment and the interaction of these
factors consider purchasing the notes.
PREPAYMENTS, POTENTIAL LOSSES AND CHANGE IN ORDER OF PRIORITY OF PAYMENTS MAY
OCCUR FOLLOWING ACCELERATION OF THE NOTES
If the maturity dates of the notes are accelerated following an event
of default resulting from a payment default or the insolvency of the trust, the
trust will make no further distributions of interest in respect of the
subordinated classes of notes until the more senior classes of notes are paid in
full.
If the maturity dates of the notes are accelerated following an event
of default due to a payment default or certain insolvency events, the indenture
trustee with the consent of the holders of all outstanding notes may sell the
trust assets. In such event, the trust may not have sufficient funds to pay all
of the securities in full.
In addition, if the maturity dates of the notes are accelerated
following an event of default and the indenture trustee determines that the
trust assets will not be sufficient on an ongoing basis to make all payments on
the notes as the payments would have become due if the maturity dates of the
notes had not been accelerated, the indenture trustee with the consent of the
holders of at least 66-2/3% of the Class A notes outstanding (or, if there are
no Class A notes outstanding, the Class B notes) may sell the trust assets for
an amount less than the aggregate outstanding principal amount of the notes. In
such event, the trust may not have sufficient funds to pay all of the notes in
full.
S-14
If you receive your principal earlier than expected, you may not be
able to reinvest the prepaid amount at a rate of return that is equal to or
greater than the rate of return on your securities. If the trust is required to
sell its assets in the circumstances described above, the amount received from
the sale may not be sufficient to pay all amounts owed to you.
BECAUSE THE NOTES ARE IN BOOK-ENTRY FORM, YOUR RIGHTS CAN ONLY BE EXERCISED
INDIRECTLY
Because the notes will be issued in book-entry form, you will be
required to hold your interest in the notes through The Depository Trust Company
in the United States, or Clearstream, Luxembourg, or the Euroclear System in
Europe. Transfers of interests in the notes must therefore be made in accordance
with the usual rules and operating procedures of those systems. So long as the
notes are in book-entry form, you will not be entitled to receive a physical
note representing your interest. The notes will remain in book-entry form except
in the limited circumstances described under the caption "INFORMATION REGARDING
THE SECURITIES--BOOK-ENTRY REGISTRATION" in the accompanying prospectus. Unless
and until the notes in this prospectus supplement cease to be held in book-entry
form, the indenture trustee will not recognize you as a "NOTEHOLDER," as such
term is used in the indenture. As a result, you will only be able to exercise
the rights of noteholders indirectly through DTC, if in the United States, and
its participating organizations, or Clearstream and Euroclear, in Europe, and
their participating organizations. Holding the notes in book-entry form could
also limit your ability to pledge your notes to persons or entities that do not
participate in DTC, Clearstream or Euroclear and to take other actions that
require a physical note representing the notes.
Interest and principal on the notes will be paid by the trust to DTC as
the holder of record of the notes while they are held in book-entry form. DTC
will credit payments received from the trust to the accounts of its participants
which, in turn, will credit those amounts to noteholders either directly or
indirectly through indirect participants. This process may delay your receipt of
principal and interest payments from the trust.
THE HOLDERS OF THE CLASS B NOTES WILL HAVE LIMITED CONTROL WITH RESPECT TO
CERTAIN TRUST ACTIONS WHICH COULD CONFLICT WITH THE INTERESTS OF THE HOLDERS OF
THE CLASS A NOTES
Because the trust has pledged the property of the trust to the
indenture trustee to secure payment on the notes, the indenture trustee, acting
at the direction of the holders of a specified percentage of the outstanding
principal amount of the Class A notes, has the power to direct the trust to take
certain actions in connection with the property of the trust until the Class A
notes have been paid in full. Furthermore, the holders of a majority of the
Class A notes, or the indenture trustee acting on behalf of the holders of Class
A notes, under certain circumstances, has the right to terminate the servicer as
the servicer of the contracts without consideration of the effect such
termination would have on the holders of Class B notes. The holders of the Class
B notes will not have the ability to remove the servicer until the Class A notes
have been paid in full. In addition, the holders of not less than a majority in
outstanding principal amount of the Class A notes will have the right to waive
certain events of default with respect to the servicer, without consideration of
the effect such waiver would have on the holders of Class B notes. See
S-15
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--SERVICING--SERVICER
DEFAULT" and "--RIGHTS UPON SERVICER DEFAULT" in the prospectus and "DESCRIPTION
OF THE NOTES--VOTING RIGHTS" in this prospectus supplement.
CHARACTERISTICS OF THE POOL OF CONTRACTS MAY CHANGE DUE TO PRE-FUNDING
There will be no required characteristics of the contracts transferred
to the trust during the pre-funding period, except for the criteria described in
"THE CONTRACTS" in this prospectus supplement. Additional contracts may be
originated at a later date using credit criteria different from those that were
applied to the initial contacts and may be of a different credit quality and
seasoning. In addition, following the transfer of subsequent contracts to the
trust, the characteristics of the entire pool of contracts, including the
composition of the contracts, the distribution by annual percentage rate,
payment frequency, average maturity, current contract value and geographic
distribution, may vary from those of the initial contracts. Since the weighted
average life of the notes will be influenced by the rate at which the principal
balances of the contracts are paid, some of these variations will affect the
weighted average life of the notes. However, the requirements set forth in "THE
CONTRACTS" above are intended to minimize the effect of the addition of
subsequent contracts on the weighted average life of the notes.
PREPAYMENTS OF PRINCIPAL ON THE NOTES COULD RESULT FROM PRE-FUNDING
If the principal amount of eligible contracts purchased or directly
originated by the seller indirectly through Harley Davidson or Buell motorcycle
dealers during the trust's pre-funding period, plus other pre-existing eligible
contracts, is less than the amount deposited in the trust's pre-funding account,
we will not have sufficient contracts to sell to the trust during the
pre-funding period. This would result in a prepayment of principal in an
aggregate amount equal to the amount remaining in the pre-funding account at the
end of the pre-funding period to the noteholders in the same sequence and
proportions that would apply in a normal principal distribution unless the
amount remaining on deposit is less than $150,000. Any prepayment will shorten
the weighted average life of the affected notes. The amount of the notes that
will be prepaid is not known at this time, but the greater the prepayment, the
shorter the weighted average life of the notes.
S-16
THE TRUST
GENERAL
The trust is a business trust formed under the laws of the State of
Delaware pursuant to the trust agreement between the depositor and the trustee
for the transactions described herein. After its formation, the trust will
engage in only a limited set of activities. The trust's activities are limited
to:
- acquiring, holding and managing the contracts and the other
assets of the trust and proceeds therefrom;
- issuing the notes and a certificate;
- making payments on the notes and a certificate; and
- engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing purposes or that are
incidental to or connected with the foregoing purposes.
Under a transfer and sale agreement between the seller and the
depositor, the seller will sell all of the contracts and the related property to
the depositor.
Under a sale and servicing agreement among the trust, the depositor,
the servicer, the trustee and the indenture trustee, the depositor will transfer
all of the contracts and related property to the trust.
The property of the trust will consist of:
- the contracts and the right to receive all scheduled payments
and prepayments received on the contracts on or after the
cut-off date, but excluding any scheduled payments due on or
after, but received prior to, the cut-off date;
- security interests in the financed motorcycles securing the
contracts and any related property;
- rights with respect to any repossessed financed motorcycles;
- the rights to proceeds from claims on theft, physical damage,
credit life and disability insurance policies covering the
financed motorcycles or the obligors;
- certain rebates of premiums and other amounts relating to
insurance policies, extended service contracts or other repair
agreements and other items financed under the contracts;
S-17
- the depositor's rights against the seller under the transfer
and sale agreement pursuant to which the seller sold the pool
of contracts to the depositor;
- the right to receive payments from the depositor for the
repurchase of contracts which do not meet specified
representations made by depositor in the sale and servicing
agreement;
- the trust's rights against the servicer under the sale and
servicing agreement;
- amounts held in the collection account, the note distribution
account and the reserve fund to be established and maintained
under the sale and servicing agreement; and
- all proceeds of the foregoing.
The trust will issue a certificate to the depositor representing the
entire beneficial ownership interest in the trust.
The trust's principal offices will be in Wilmington, Delaware, in care
of Wilmington Trust Company, as trustee, at the address listed below under "THE
TRUSTEE AND THE INDENTURE TRUSTEE."
CAPITALIZATION
In addition to the notes, the trust will issue a certificate having no
principal balance, which will be entitled to receive certain distributions of
excess cash flow and releases from the reserve fund from time to time as set
forth under "CERTAIN INFORMATION REGARDING THE NOTES--PAYMENTS AND DISTRIBUTIONS
ON THE NOTES." Initially, the certificate will be retained by the trust
depositor.
The following table illustrates the capitalization of the trust as of
the cut-off date, as if the issuance and sale of the notes had taken place, on
such date:
Class A-1 notes.......................................$221,000,000
Class A-2 notes.......................................$126,700,000
Class B notes..........................................$18,300,000
Certificate.....................................................$0
Cash....................................................... $1,000
------------
Total............................................$366,001,000
============
THE INDENTURE AND THE ADMINISTRATION AGREEMENT
Under an indenture between the trust and the indenture trustee, the
indenture trustee will pledge the trust assets to secure the payment of the
notes.
S-18
Under an administration agreement among the trust, the indenture
trustee and Harley-Davidson Credit Corp., as administrator, the administrator
will agree to perform certain of the trust's administrative functions under the
indenture.
THE TRUSTEE AND THE INDENTURE TRUSTEE
Wilmington Trust Company will be the trustee under the trust agreement.
The trustee is a Delaware banking corporation and its principal offices are
located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890.
BNY Midwest Trust Company will be the indenture trustee under the
indenture. The indenture trustee is an Illinois banking corporation and its
principal offices are located at 2 North LaSalle Street, Suite 1020, Chicago,
Illinois 60602.
The servicer will separately pay the fees of the trustee in connection
with its duties under the trust agreement. The indenture trustee's fees will be
paid prior to any payments to the noteholders. Each of the trustee and the
indenture trustee will also be entitled to indemnification by the servicer for,
and will be held harmless against, any loss, liability, fee, disbursement or
expense incurred by it not resulting from its own willful misfeasance, bad faith
or negligence. The servicer will also indemnify the trustee and the indenture
trustee for specified taxes that may be asserted in connection with the
transaction.
THE SELLER AND SERVICER
Harley-Davidson Credit Corp. will act as seller and servicer of the
contracts and will receive compensation and fees for such services. Information
regarding the seller and the servicer is set forth under the captions "THE
SELLER AND SERVICER" in the accompanying prospectus.
USE OF PROCEEDS
The depositor will use the net proceeds received from the sale of the
notes (i) for the purchase of the initial contracts and related assets from the
seller and (ii) the remainder for the funding of the pre-funding account. The
seller will use the net proceeds from the depositor's purchase of the initial
contracts, as well as subsequent contracts, to fund a new portfolio of
motorcycle conditional sales contracts.
THE CONTRACTS
The contracts are (or will be, in the case of subsequent contracts)
fixed-rate simple interest conditional sales contracts relating to motorcycles
manufactured by Harley-Davidson, Inc. or Buell Motorcycle Company, a
wholly-owned subsidiary of Harley-Davidson, Inc. The contracts were originated
by the seller indirectly through Harley-Davidson motorcycle dealers and acquired
by the depositor in the ordinary course of the depositor's business. Each
contract has (or will have) a fixed annual percentage rate and provides for, if
timely made, payments of
S-19
principal and interest which fully amortize the loan on a simple interest
basis over its term. The contracts have or will have the following
characteristics:
- the last scheduled payment of each initial contract is due no
later than September 2008, and with respect to the contracts as a
whole (including any subsequent contracts conveyed to the trust
after the closing date), the last scheduled payment will be due no
later than December 2008;
- the first scheduled payment date of contracts representing
approximately 99.12% of the aggregate principal balance of the
initial contracts as of the initial cutoff date is due no later
than May 2001;
- the first scheduled payment date of contracts representing
approximately 0.88% of the aggregate principal balance of the
initial contracts as of the initial cutoff date is due no later
than January 2002;
- approximately 70.94% of the principal balance of the initial
contracts as of the initial cutoff date is attributable to loans
to purchase motorcycles which were new and approximately 29.06% is
attributable to loans to purchase motorcycles which were used at
the time the related contract was originated;
- all initial contracts have a contractual rate of interest of at
least 6.50% per annum and not more than 23.99% per annum and the
weighted average contractual rate of interest of the initial
contracts as of the initial cutoff date is approximately 13.20%
per annum (see Table 1 below);
- the initial contracts have remaining maturities as of the initial
cutoff date of at least 3 months but not more than 84 months and
original maturities of at least 12 months but not more than 84
months;
- the initial contracts have a weighted average term to scheduled
maturity, as of origination, of approximately 74.08 months, and a
weighted average term to scheduled maturity as of the initial
cutoff date of approximately 72.22 months (see Tables 2 and 3
below);
- the average principal balance per initial contract as of the
initial cutoff date was approximately $13,023.79 and the principal
balances on the initial contracts as of the initial cutoff date
ranged from $506.39 to $32,462.89 (see Table 4 below);
- the contracts arise (or will arise) from loans to obligors located
in 50 states, the District of Columbia and the U.S. Territories
and with respect to the initial contracts, constitute the
following approximate amounts expressed as a percentage of the
aggregate principal balance of the initial contracts as of the
initial cutoff date: 12.06% in California, 8.92% in Florida and
8.53% in Texas (see Table 5 below). No other state represented
more than 5.00% by aggregate principal balance of the initial
contracts.
Except for certain criteria specified in the preceding paragraph, there
will be no required characteristics of the subsequent contracts. Therefore,
following the transfer of the subsequent contracts to the trust, the aggregate
characteristics of the entire pool of the contracts, including the composition
of the contracts, the distribution by weighted average annual percentage rate of
S-20
the contracts, the distribution by calculated remaining term of the contracts,
the distribution by original term to maturity of the contracts, the distribution
by current balance of the contracts, and the geographic distribution of the
contracts, described in the following tables, may vary from those of the initial
contracts as of the initial cutoff date.
TABLE 1
DISTRIBUTION BY APR OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
RATE CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
---- --------- ------------ ----------------- ----------
6.500 to 7.000% 114 0.58% $742,703.07 0.29%
7.001 to 8.000% 331 1.68 3,576,065.90 1.39
8.001 to 9.000% 478 2.43 7,062,376.65 2.75
9.001 to 10.000% 1,466 7.45 21,035,096.44 8.20
10.001 to 11.000% 1,731 8.79 23,560,705.36 9.19
11.001 to 12.000% 3,061 15.55 41,547,495.45 16.20
12.001 to 13.000% 3,147 15.98 41,554,161.60 16.21
13.001 to 14.000% 3,561 18.09 45,929,865.89 17.91
14.001 to 15.000% 2,217 11.26 27,883,897.14 10.87
15.001 to 16.000% 1,158 5.88 14,570,592.84 5.68
16.001 to 17.000% 618 3.14 7,266,565.78 2.83
17.001 to 18.000% 689 3.50 8,336,083.07 3.25
18.001 to 19.000% 118 0.60 1,654,968.39 0.65
19.001 to 20.000% 444 2.26 5,113,266.54 1.99
20.001 to 21.000% 182 0.92 2,262,601.19 0.88
21.001 to 22.000% 363 1.84 4,217,892.30 1.64
22.001 to 23.000% 8 0.04 84,192.73 0.03
23.001 to 23.990% 2 0.01 13,923.05 0.01
- ---- --------- ----
TOTALS: 19,688 100.00% $256,412,453.39 100.00%
====== ======= =============== =======
(1) Percentages may not add to 100.00% because of rounding.
S-21
TABLE 2
DISTRIBUTION BY CALCULATED REMAINING TERM
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
CALCULATED PERCENT OF
REMAINING NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF
TERM (MONTHS) CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE POOL BALANCE (1)
------------- --------- -------------- ----------------- ----------------
3 to 12 65 0.33% $168,790.22 0.07%
13 to 24 236 1.20 1,360,076.75 0.53
25 to 36 530 2.69 4,460,721.55 1.74
37 to 48 865 4.39 7,792,094.01 3.04
49 to 60 2,533 12.87 26,806,745.55 10.45
61 to 72 9,698 49.26 116,258,819.24 45.34
73 to 84 5,761 29.26 99,565,206.07 38.83
------ ------- --------------- -------
TOTALS: 19,688 100.00% $256,412,453.39 100.00%
====== ======= =============== =======
(1) Percentages may not add to 100.00% because of rounding.
TABLE 3
DISTRIBUTION BY CALCULATED ORIGINAL
TERM TO MATURITY OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
CALCULATED PERCENT OF
ORIGINAL NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
TERM (MONTHS) CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
------------- --------- -------------- ----------------- ---------------
0 to 12 7 0.04% $49,673.59 0.02%
13 to 24 167 0.85 1,061,438.35 0.41
25 to 36 460 2.34 3,994,432.06 1.56
37 to 48 769 3.91 7,048,329.63 2.75
49 to 60 2,416 12.27 25,533,455.71 9.96
61 to 72 10,007 50.83 118,021,035.17 46.03
73 to 84 5,862 29.77 100,704,088.88 39.27
------ ------- --------------- -------
TOTALS: 19,688 100.00% $256,412,453.39 100.00%
====== ======= =============== =======
(1) Percentages may not add to 100.00% because of rounding.
S-22
TABLE 4
DISTRIBUTION BY CURRENT BALANCE OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
NUMBER OF PERCENT OF NUMBER TOTAL OUTSTANDING PERCENT OF POOL
CURRENT BALANCE CONTRACTS OF CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
--------------- --------- ----------------- ----------------- ---------------
$ 506.39 to 1,000.00 7 0.04% $4,893.54 0.00%
$ 1,000.01 to 2,000.00 46 0.23 75,033.51 0.03
$ 2,000.01 to 3,000.00 106 0.54 268,712.64 0.10
$ 3,000.01 to 4,000.00 264 1.34 948,355.57 0.37
$ 4,000.01 to 5,000.00 612 3.11 2,777,001.64 1.08
$ 5,000.01 to 6,000.00 681 3.46 3,783,203.95 1.48
$ 6,000.01 to 7,000.00 1,053 5.35 6,842,249.12 2.67
$ 7,000.01 to 8,000.00 1,239 6.29 9,308,131.30 3.63
$ 8,000.01 to 9,000.00 1,227 6.23 10,464,215.16 4.08
$ 9,000.01 to 10,000.00 1,384 7.03 13,203,882.38 5.15
$10,000.01 to 11,000.00 1,067 5.42 11,170,731.40 4.36
$11,000.01 to 12,000.00 960 4.88 11,034,353.78 4.30
$12,000.01 to 13,000.00 963 4.89 12,057,751.54 4.70
$13,000.01 to 14,000.00 1,065 5.41 14,398,020.55 5.62
$14,000.01 to 15,000.00 1,221 6.20 17,739,060.40 6.92
$15,000.01 to 16,000.00 1,423 7.23 22,070,086.71 8.61
$16,000.01 to 17,000.00 1,405 7.14 23,200,989.46 9.05
$17,000.01 to 18,000.00 1,451 7.37 25,397,758.87 9.91
$18,000.01 to 19,000.00 1,103 5.60 20,380,725.74 7.95
$19,000.01 to 20,000.00 795 4.04 15,496,648.23 6.04
$20,000.01 to 21,000.00 559 2.84 11,443,791.46 4.46
$21,000.01 to 22,000.00 383 1.95 8,229,580.18 3.21
$22,000.01 to 23,000.00 279 1.42 6,264,352.67 2.44
$23,000.01 to 24,000.00 157 0.80 3,683,066.27 1.44
$24,000.01 to 25,000.00 92 0.47 2,256,253.97 0.88
$25,000.01 to 26,000.00 66 0.34 1,679,755.97 0.66
$26,000.01 to 27,000.00 31 0.16 818,519.56 0.32
$27,000.01 to 28,000.00 20 0.10 550,367.58 0.21
$28,000.01 to 29,000.00 11 0.06 313,291.84 0.12
$29,000.01 to 30,000.00 5 0.03 146,637.88 0.06
$30,000.01 to 31,000.00 6 0.03 182,261.31 0.07
$31,000.01 to 32,000.00 5 0.03 158,206.64 0.06
$32,000.01 to 32,462.89 2 0.01 64,562.57 0.03
------ ------- --------------- -------
TOTALS: 19,688 100.00% $256,412,453.39 100.00%
====== ======= =============== =======
(1) Percentages may not add to 100.00% because of rounding.
S-23
TABLE 5
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
STATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- --------- ------------- ----------------- ---------------
ALABAMA 292 1.48% $3,771,295.28 1.47%
ALASKA 49 0.25 689,314.26 0.27
ARIZONA 547 2.78 7,874,258.93 3.07
ARKANSAS 114 0.58 1,406,971.94 0.55
CALIFORNIA 2,300 11.68 30,914,716.28 12.06
COLORADO 366 1.86 5,078,428.05 1.98
CONNECTICUT 336 1.71 4,333,909.34 1.69
DELAWARE 98 0.50 1,226,362.48 0.48
DISTRICT OF COLUMBIA 7 0.04 71,130.93 0.03
FLORIDA 1,675 8.51 22,877,971.46 8.92
GEORGIA 678 3.44 9,646,647.69 3.76
HAWAII 117 0.59 1,429,048.58 0.56
IDAHO 100 0.51 1,139,727.03 0.44
ILLINOIS 654 3.32 8,147,353.23 3.18
INDIANA 509 2.59 6,619,698.79 2.58
IOWA 151 0.77 1,719,650.59 0.67
KANSAS 122 0.62 1,433,016.06 0.56
KENTUCKY 213 1.08 2,705,752.74 1.06
LOUISIANA 226 1.15 2,812,036.65 1.10
MAINE 51 0.26 680,400.88 0.27
MARYLAND 430 2.18 5,543,980.13 2.16
MASSACHUSETTS 376 1.91 4,515,955.72 1.76
MICHIGAN 472 2.40 6,464,773.29 2.52
MINNESOTA 258 1.31 3,355,204.93 1.31
MISSISSIPPI 59 0.30 815,654.75 0.32
MISSOURI 294 1.49 3,660,416.94 1.43
MONTANA 57 0.29 730,029.50 0.28
NEBRASKA 64 0.33 756,896.76 0.30
NEVADA 253 1.29 3,664,041.25 1.43
NEW HAMPSHIRE 111 0.56 1,338,622.81 0.52
NEW JERSEY 669 3.40 7,941,885.50 3.10
NEW MEXICO 249 1.26 3,310,094.31 1.29
NEW YORK 726 3.69 8,559,255.89 3.34
NORTH CAROLINA 755 3.83 9,895,776.76 3.86
NORTH DAKOTA 7 0.04 73,262.21 0.03
OHIO 787 4.00 9,412,968.82 3.67
OKLAHOMA 145 0.74 1,895,219.51 0.74
OREGON 314 1.59 3,910,024.38 1.52
PENNSYLVANIA 1,055 5.36 12,247,123.63 4.78
S-24
RHODE ISLAND 44 0.22 486,362.25 0.19
SOUTH CAROLINA 275 1.40 3,824,742.62 1.49
SOUTH DAKOTA 49 0.25 637,070.14 0.25
TENNESSEE 425 2.16 5,690,067.96 2.22
TEXAS 1,571 7.98 21,884,712.40 8.53
UTAH 74 0.38 984,898.36 0.38
VERMONT 35 0.18 442,323.86 0.17
VIRGINIA 497 2.52 6,517,727.31 2.54
WASHINGTON 526 2.67 7,173,296.88 2.80
WEST VIRGINIA 155 0.79 1,914,762.34 0.75
WISCONSIN 269 1.37 3,169,222.63 1.24
WYOMING 44 0.22 509,731.66 0.20
OTHER (2) 38 0.19 508,656.70 0.20
------ ------- --------------- -------
TOTALS: 19,688 100.00% $256,412,453.39 100.00%
====== ======= =============== =======
(1) Percentages may not add to 100.00% because of rounding.
(2) Includes U.S. Territories and military bases.
S-25
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
The following tables set forth the delinquency experience and loan loss
and repossession experience of the seller's portfolio of conditional sales
contracts for motorcycles. These figures include data in respect of contracts
which the seller has previously sold with respect to prior securitizations and
for which the seller acts as servicer.
DELINQUENCY EXPERIENCE(1)/
(DOLLARS IN THOUSANDS)
AT DECEMBER 31,
--------------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
Number Number Number
of of of
Contracts Amount Contracts Amount Contracts Amount
--------- ------ --------- ------ --------- ------
Portfolio.................. 117,884 $1,185,300.1 91,556 $914,545.5 67,137 $651,248.7
Period of Delinquency(2)/
30-59 Days....... 4,334 $42,325.0 2,868 $28,307.9 1,970 $17,768.1
60-89 Days....... 1,395 13,517.4 983 9,424.3 745 6,153.9
90 Days or more.. 518 5,255.6 371 3,569.9 304 2,591.0
----- --------- ----- --------- ----- ---------
Total Delinquencies........ 6,247 $61,098.0 4,222 $41,302.1 3,019 $26,513.0
===== ========= ===== ========= ===== =========
Total Delinquencies as a
Percent of Total Portfolio. 5.30% 5.15% 4.61% 4.52% 4.50% 4.07%
-----------------------------------------------------
1997 1996
---- ----
Number Number
of of
Contracts Amount Contracts Amount
--------- ------ --------- ------
Portfolio.................. 45,258 $434,890.7 32,574 $303,682.4
Period of Delinquency(2)/
30-59 Days....... 1,264 11,454.6 904 $8,002.9
60-89 Days....... 559 5,112.1 374 3,170.7
90 Days or more.. 269 2,196.5 213 1,880.6
----- --------- ----- ---------
Total Delinquencies........ 2,092 $18,763.2 1,491 $13,054.2
===== ========= ===== =========
Total Delinquencies as a
Percent of Total Portfolio. 4.62% 4.31% 4.58% 4.30%
At March 31,
-------------------------------------------------------
2001 2000
---- ----
Number Number
of of
Contracts Amount Contracts Amount
--------- ------ --------- ------
Portfolio.................... 126,289 $1,277,505.8 98,306 $981,709.4
Period of Delinquency(2)/
30-59 Days............... 3,437 $33,884.3 2,343 $22,973.6
60-89 Days.............. 970 9,433.8 587 5,541.9
90 Days or more.......... 375 3,856.3 235 2,363.5
----- --------- ----- ---------
Total Delinquencies.......... 4,782 $47,174.3 3,165 $30,879.0
===== ========= ===== =========
Total Delinquencies as a
Percent of Total Portfolio... 3.79% 3.69% 3.22% 3.15%
------------------
(1) Excludes delinquent contracts already in repossession, which
contracts the servicer does not consider outstanding.
(2) The period of delinquency is based on the number of days
payment are contractually past due (assuming 30-day months).
Consequently, a contract due on the first day of a month is
not 30 days delinquent until the first day of the next month.
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LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
Year Ended
December 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Principal Balance of All Contracts
Serviced(1)/.................... $1,190,184.2 $918,481.6 $653,836.0 $436,771.0 $304,730.9
Contract Liquidations(2)/........... 1.75% 1.59% 1.54% 1.42% 0.74%
Net Losses:
Dollars(3)/..................... $8,707.8 $5,875.0 $5,245.3 $3,781.1 $1,639.5
Percentage(4)/.................. 0.73% 0.64% 0.80% 0.87% 0.54%
Three Months Ended March 31,
---------------------------------------------------------------
2001 2000
---- ----
Principal Balance of All Contracts
Serviced(1)/.................. $1,282,007.12 $985,715.0
Contract Liquidations(2)/............ 2.40% 1.95%
Net Losses:
Dollars(3)/...................... $3,637.2 $1,995.5
Percentage(4)/................... 1.13% 0.81%
------------------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being
serviced as of period end, calculated on an annualized basis.
(3) The calculation of net loss includes actual charge-offs,
deficiency balances remaining after liquidation of repossessed
vehicles and expenses of repossession and liquidation, net of
recoveries.
(4) As a percentage of the principal amount of contracts being
serviced as of period end, calculated on an annualized basis.
THE DATA PRESENTED IN THE FOREGOING TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY
AND THERE IS NO ASSURANCE THAT THE DELINQUENCY, LOAN LOSS OR REPOSSESSION
EXPERIENCE OF THE CONTRACTS WILL BE SIMILAR TO THAT SET FORTH ABOVe.
TWELVE MONTHS ENDED DECEMBER 31, 2000 VERSUS TWELVE MONTHS ENDED
DECEMBER 31, 1999.
The amounts classified as delinquent as a percentage of the portfolio
increased from 4.52% to 5.15%. The number of liquidations as a percentage of the
portfolio increased from 1.59% to 1.75%. Net losses as a percentage of the
outstanding principal amount of the contracts increased from 0.64% to 0.73%.
Consistent with trends in the financial services industry, the increases are
attributable to a softening of the economy in 2000. The number of contracts in
the portfolio increased from 91,556 to 117,884 due to an increase in
Harley-Davidson motorcycle production.
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TWELVE MONTHS ENDED DECEMBER 31, 1999 VERSUS TWELVE MONTHS ENDED
DECEMBER 31, 1998.
The amounts classified as delinquent as a percentage of the portfolio
increased from 4.07% to 4.52%. The number of liquidations as a percentage of the
portfolio increased from 1.54% to 1.59%. The increases are attributable to the
growth and seasoning of the Delta loan program. Net losses as a percentage of
the outstanding principal amount of the contracts decreased from 0.80% to 0.64%.
The decrease is attributable to more stringent collection procedures implemented
by the servicer. The number of contracts in the portfolio increased from 67,137
to 91,556 due to an increase in Harley-Davidson motorcycle production and HDFS's
market share penetration of units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1998 VERSUS TWELVE MONTHS ENDED
DECEMBER 31, 1997.
The amounts classified as delinquent as a percentage of the portfolio
decreased from 4.31% to 4.07%. The decrease is attributable to the seasoning of
the portfolio. The number of liquidations as a percentage of the portfolio
increased from 1.42% to 1.54%. The increase is attributable to the growth and
seasoning of the Delta loan program. Net losses as a percentage of the
outstanding principal amount of the contracts decreased from 0.87% to 0.80%. The
decrease is attributable to more stringent collection procedures implemented by
the servicer. The number of contracts in the portfolio increased from 45,258 to
67,137 due to an increase in Harley-Davidson motorcycle production and HDFS's
market share penetration of units financed.
TWELVE MONTHS ENDED DECEMBER 31, 1997 VERSUS TWELVE MONTHS ENDED
DECEMBER 31, 1996.
The amounts classified as delinquent as a percentage of the portfolio
increased from 4.30% to 4.31% and the number of liquidations as a percentage of
the portfolio increased from 0.74% to 1.42%. The increases are attributable to
the growth and seasoning of the Delta loan program. Net losses as a percentage
of the outstanding principal amount of the contracts increased from 0.54% to
0.87%. The increase is attributable to a lower collectors to account ratio due
to the launch of HDFS's credit card operation. The number of contracts in the
portfolio increased from 32,574 to 45,258 due to an increase in Harley-Davidson
motorcycle production and HDFS's market share penetration of units financed.
THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31, 2000.
The amounts classified as delinquent as a percentage of the portfolio
increased from 3.15% to 3.69% and the number of liquidations as a percentage of
the portfolio increased from 1.95% to 2.40%. Net losses as a percentage of the
outstanding principal amount of the contracts increased from 0.81% to 1.13%.
Consistent with trends in the financial services industry, the increases are
attributable to a softening of the economy in 2000 and 2001. The number of
contracts in the portfolio increased from 98,306 to 126,289 due to an increase
in Harley-Davidson motorcycle production and HDFS's market share penetration of
units financed.
S-28
YIELD AND PREPAYMENT CONSIDERATIONS
By their terms, the contracts may be prepaid, in whole or in part, at
any time. Each contract also contains a provision which permits the seller to
require full prepayment in the event of a sale of the related motorcycle
securing a contract. In addition, repurchases of the contracts from the trust by
the depositor, and concurrently from the depositor by the seller, could occur in
the event of a breach of certain representation and warranties with respect to
the contracts. Repurchases of contracts from the trust by the depositor, and
concurrently from the depositor by the seller, could also occur if the depositor
exercises its limited option to repurchase the contracts from the trust when the
aggregate outstanding principal balances of the contracts owned by the trust has
declined to less than 10% of the sum of:
o the aggregate outstanding principal balance of the
contracts owned by the trust as of the closing date; and
o the initial amount on deposit in the pre-funding account.
Any prepayments and repurchases of contracts will reduce the average
life of the notes and the interest received by the noteholders over the life of
the notes (for this purpose the term "PREPAYMENT" includes liquidations due to
default, as well as receipt of proceeds from credit life, credit disability and
casualty insurance policies). In addition, funds remaining in the pre-funding
account at the end of the funding period will be used to prepay outstanding
principal of the notes and as a result, the interest received by noteholders
over the life of the notes will be reduced.
THE DEPOSITOR
The depositor is a special purpose corporation formed in the State of
Nevada. All of the common stock of the depositor is owned by the seller. All of
the officers and directors of the depositor are employed by the seller, except
that at least two directors of the depositor are required to be independent of
the depositor. The depositor's business is limited to purchasing the contracts
and related assets (and other similar retail motorcycle installment conditional
sales contracts) from the seller, acting as the general partner of the trust and
other similar trusts and performing the obligations described in the sale and
servicing agreement and the transfer and sale agreement (as well as similar
agreements entered into in connection with the formation of similar trusts).
DESCRIPTION OF THE NOTES
This section supplements the information in the accompanying
prospectus under the caption "DESCRIPTION OF THE NOTES AND INDENTURE".
However, as these statements are only summaries, you should read the sale and
servicing agreement and indenture, forms of which have been filed as exhibits
to the registration statement of which the accompanying prospectus forms a
part. The information in this section and in the accompanying prospectus
under the caption "DESCRIPTION OF THE NOTES AND INDENTURE" describes the
material terms of the notes, the indenture and the applicable transfer and
servicing agreements, including the sale and servicing agreement. A copy of
the indenture and the sale and servicing agreement are available to you upon
request
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to the depositor and will be filed with the Securities and Exchange
Commission following the issuance of the securities.
GENERAL
The notes will be issued pursuant to the terms of the
indenture between the trust and the indenture trustee.
The trust will issue three classes of notes, consisting of two classes
of senior notes, designated as the
o Class A-1 notes and
o Class A-2 notes.
We refer to these notes as the "CLASS A NOTES." The trust will also
issue one class of subordinate notes, designated as the Class B notes.
The notes will be delivered in book-entry form only and will be issued
in minimum denominations of $1,000.
INTEREST
Each class of notes will bear interest at the fixed rate per annum for
that class shown on the cover page of this prospectus supplement.
The trust will pay interest on the notes on each payment date with
Available Amounts and amounts withdrawn from the reserve fund as set forth under
"CERTAIN INFORMATION REGARDING THE NOTES--PAYMENTS AND DISTRIBUTIONS ON THE
NOTES--DISTRIBUTIONS" below.
Interest will be payable to you monthly on the 15th day of each month
or, if that date is not a business day, on the next succeeding business day and
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months for the interest period from and including the 15th day of the prior
month (or from and including the closing date, in the case of the initial
payment date) to but excluding the 15th day of the next month.
After the acceleration of the notes following an event of default
resulting from a payment default or certain insolvency events, the trust will
not make interest payments on the Class B notes until the Class A notes have
been paid in full.
Interest payments on the Class A notes will have the same priority.
Interest payments on the Class B notes will be subordinated to interest on the
Class A notes. If on any payment date the trust has insufficient funds to make a
full payment of interest on the Class A notes, the holders of the Class A notes
will receive their pro rata share of the amount available for interest on the
Class A notes.
S-30
If on any payment date, the trust does not have sufficient funds, to
make a full payment of interest on any class of notes, the amount of the
shortfall will be carried forward, and together with interest on the shortfall
amount at the applicable interest rate for that class, added to the amount of
interest the affected class of noteholders will be entitled to receive on the
next payment date.
PRINCIPAL
On each payment date, principal on the notes will be payable in an
amount equal to the amount by which (1) the sum of the aggregate principal
balances of the notes as of the close of business on the prior payment date
exceeds (2) the aggregate principal balance of the contracts as of the end of
the prior calendar month, excluding certain non-collectible or defaulted
contracts and contracts to be repurchased by the depositor or purchased by the
servicer due to certain breaches. The trust will pay principal on the notes on
each payment date with Available Amounts and amounts withdrawn from the reserve
fund as set forth under "CERTAIN INFORMATION REGARDING THE NOTES--PAYMENTS AND
DISTRIBUTIONS ON THE NOTES--DISTRIBUTIONS" below.
Principal of each class of notes is due and payable on the scheduled
final payment date for that class shown on the cover page of this prospectus
supplement.
OPTIONAL REDEMPTION
The notes may be redeemed in full on any payment date if the aggregate
outstanding principal balance of the contracts owned by the trust declines to
less than 10% of the sum of:
o the aggregate outstanding principal balance of the contracts
owned by the trust as of the closing date; and
o the initial amount on deposit in the pre-funding account.
The redemption price will equal the unpaid principal amount of the notes plus
accrued interest thereon.
MANDATORY REDEMPTION FOLLOWING THE FUNDING PERIOD
Noteholders will be prepaid in part, without premium, on the payment
date on or immediately following the last day of the funding period if any
amount remains on deposit in the pre-funding account after subsequent contracts
are transferred to the trust. The aggregate principal amount of notes to be
prepaid will be an amount equal to the amount then on deposit in the pre-funding
account allocated pro rata. If the amount on deposit in the pre-funding account
is less than $150,000, only the Class A-1 noteholders will be prepaid.
VOTING RIGHTS
This prospectus supplement and the accompanying prospectus specify
certain circumstances under which the consent, approval, direction or request of
the holders of a
S-31
specified percentage of the outstanding principal amount of the notes must be
obtained, given or made, or under which such holders are permitted to take an
action or give a notice. While the Class A notes are outstanding, only the
holders of the Class A notes will have those rights, not the holders of all
of the notes or the Class B notes.
NOTICES
You will be notified in writing by the indenture trustee of any event
of default, servicer default or termination of, or appointment of a successor
to, the servicer promptly upon a responsible officer obtaining actual knowledge
of these events. If notes are issued other than in book-entry form, those
notices will be mailed to the addresses of noteholders as they appear in the
register maintained by the indenture trustee prior to mailing. Those notices
will be deemed to have been given on the date of that publication or mailing.
CERTAIN INFORMATION REGARDING THE NOTES
THE ACCOUNTS
THE COLLECTION ACCOUNT
The indenture trustee will establish an account referred to as the
collection account in accordance with the sale and servicing agreement. The
servicer will cause all collections made on or in respect of the contracts
during a due period to be deposited in or credited to the collection account.
The servicer is required to deposit, without deposit into any intervening
account, into the collection account as promptly as possible, but in any case
not later than the second business day following the receipt thereof, all
amounts received on or in respect of the contracts. The servicer is required to
use its best efforts to cause an obligor to make all payments on the contracts
directly to one or more lockbox banks, acting as agent for the trust pursuant to
a lockbox agreement. Funds in the collection account will be invested in certain
eligible investments. All income or other gain from such investments will be
promptly deposited in, and any loss resulting from such investments shall be
charged to, the collection account.
THE PRE-FUNDING ACCOUNT
The indenture trustee will establish a trust account referred to as the
pre-funding account in accordance with the sale and servicing agreement. During
the funding period, the pre-funding account will be maintained by the indenture
trustee for your benefit to secure the depositor's obligations under the sale
and servicing agreement to purchase and transfer subsequent contracts to the
trust. On the closing date, the depositor will deposit $109,587,546.61 into the
pre-funding account. During the funding period, amounts on deposit in the
pre-funding account will be reduced by the amount thereof that the depositor
uses to purchase subsequent contracts from the seller and contemporaneously
transfers to the trust. The depositor expects that the pre-funded amount will be
reduced to less than $150,000 by the payment date occurring in July 2001. Any
pre-funded amount remaining at the end of the funding period will be payable to
the noteholders. See "DESCRIPTION OF THE NOTES--MANDATORY REDEMPTION FOLLOWING
THE FUNDING PERIOD".
S-32
THE RESERVE FUND
The servicer will establish pursuant to the sale and servicing
agreement the reserve fund which will be a segregated account in the name of the
indenture trustee. The reserve fund will be created with an initial deposit by
the depositor on the closing date of an amount equal to $2,564,124.53, which is
less than the amount that is required to be on deposit in the reserve fund. The
reserve fund will thereafter be funded as described below under "PAYMENTS AND
DISTRIBUTIONS ON THE NOTES--DISTRIBUTIONS".
Amounts held from time to time in the reserve fund will be held for the
benefit of noteholders and may be invested in investments acceptable to the
rating agencies rating the notes as being consistent with the ratings of the
notes at the direction of the servicer. Investment income on those investments
will be paid to the depositor, upon the direction of the servicer, to the extent
that funds on deposit in the reserve fund on any payment date exceed the amount
that is required to be on deposit in the reserve fund. If the amount on deposit
in the reserve fund on any payment date exceeds the amount that is required to
be on deposit in the reserve fund on that payment date, the indenture trustee
will withdraw that excess and pay it to the depositor. Upon any distribution to
the depositor of those excess amounts, the noteholders will not have any rights
in, or claims to, those amounts.
The servicer may, from time to time after the date of this prospectus
supplement, request each rating agency rating the notes to approve a formula for
determining the amount that is required to be on deposit in the reserve fund on
each payment date that is different from that described below. If each rating
agency delivers a letter to the indenture trustee and the trustee to the effect
that the use of any new formula will not result in a qualification, reduction or
withdrawal of its then-current rating of any class of the notes, then the amount
that is required to be on deposit in the reserve fund will be determined in
accordance with the new formula. The sale and servicing agreement will
accordingly be amended, without the consent of any noteholder, to reflect the
new calculation.
If Available Amounts for any payment date, after paying the servicing
fee, reimbursing the servicer for servicer advances and paying the indenture
trustee's fee, are insufficient to pay principal and interest on the notes, the
indenture trustee will withdraw funds from the reserve fund for distribution to
the noteholders to cover any shortfalls. If on the final scheduled payment date
of any class of notes, the principal amount of that class has not been paid in
full, the indenture trustee will withdraw funds from the reserve fund to pay
those notes in full.
None of the noteholders, the indenture trustee, the trustee or the
seller will be required to refund any amounts properly distributed or paid to
them, whether or not there are sufficient funds on any subsequent payment date
to make full distributions to the noteholders.
S-33
CALCULATION OF RESERVE FUND REQUIRED AMOUNT
On the closing date, the depositor will deposit a total of
$2,564,124.53 into the reserve fund. On any date on which subsequent contracts
are transferred to the trust, an additional amount equal to 1.00% of the
principal balance of those subsequent contracts will be deposited into the
reserve fund. With respect to any payment date, the reserve fund required amount
will equal the greater of (a) 2.00% of the principal balance of the contracts in
the trust as of the last day of the immediately preceding due period; PROVIDED,
HOWEVER, that if certain trigger events occur, the reserve fund required amount
will be equal to 6.00% of the principal balance of the contracts in the trust as
of the last day of the immediately preceding due period and (b) 1.00% of the
aggregate of the initial note balances; PROVIDED, HOWEVER, in no event shall the
reserve fund required amount be greater than the aggregate outstanding principal
balance of the notes. As of any payment date, the amount of funds actually on
deposit in the reserve fund initial deposit may, in certain circumstances, be
less than the reserve fund required amount.
A "RESERVE FUND TRIGGER EVENT" will have been deemed to occur with
respect to any payment date if (i) the Average Delinquency Ratio for such
payment date is equal to or greater than (a) 2.50% for any payment date which
occurs within the period from the closing date to, and inclusive of, the first
anniversary of the closing date, (b) 3.00% for any payment date which occurs
within the period from the day after the first anniversary of the closing date
to, and inclusive of, the second anniversary of the closing date, or (c) 3.50%
for any payment date which occurs within the period from the day after the
second anniversary of the closing date to, and inclusive of, the third
anniversary of the closing date or (d) 4.00% for any payment date following the
third anniversary of the closing date; (ii) the Average Loss Ratio for such
payment date is equal to or greater than (a) 3.00% for any payment date which
occurs within the period from the closing date to, and inclusive of, the second
anniversary of the closing date, or (b) 2.75% for any payment date following the
second anniversary of the closing date; or (iii) the Cumulative Loss Ratio for
such payment date is equal to or greater than (a) 1.25% for any payment date
which occurs within the period from the closing date to, and inclusive of, the
first anniversary of the closing date, (b) 1.75% for any payment date which
occurs within the period from the day after the first anniversary of the closing
date to, and inclusive of, the second anniversary of the closing date, (c) 2.25%
for any payment date which occurs within the period from the day after the
second anniversary of the closing date to, and inclusive of, the third
anniversary of the closing date, or (d) 2.50% for any payment date following the
third anniversary of the closing date.
A reserve fund trigger event will be deemed to have terminated with
respect to a payment date if no reserve fund trigger event shall exist with
respect to three consecutive payment dates (inclusive of the respective payment
date).
INTEREST RESERVE ACCOUNT
The depositor will establish, and fund with an initial deposit on the
closing date, the interest reserve account, for the purpose of providing
additional funds for payment to the trust of
S-34
carrying charges to pay certain distributions on payment dates that occur
during (and on the first payment date following the end of) the funding
period. In addition to the initial deposit, all investment earnings with
respect to the pre-funded account are to be deposited into the interest
reserve account and, pursuant to the sale and servicing agreement, the
depositor is obligated to pay to the trust, on each payment date described
above, amounts in respect of carrying charges from such account.
The interest reserve account will be established to account for the
fact that a portion of the proceeds obtained from the sale of the notes will be
initially deposited in the pre-funding account rather than invested in
contracts, and the monthly investment earnings on amounts in the pre-funding
account (until such amounts have been used to purchase subsequent contracts) are
expected to be less than the weighted average of the interest rates of the
respective classes of notes with respect to the corresponding portion of the
principal balances of respective classes of notes, as well as the amount
necessary to pay the indenture trustee's fee. The interest reserve account is
not intended to provide any protection against losses on the contracts in the
trust. After the funding period, money in the interest reserve account will be
released to the depositor.
THE DISTRIBUTION ACCOUNT
The indenture trustee will establish and maintain with itself the
distribution account, in the name of the indenture trustee on behalf of the
noteholders, in which amounts released from the collection account for
distribution to noteholders will be deposited and from which all distributions
to noteholders will be made.
DETERMINATION OF OUTSTANDING PRINCIPAL BALANCES
Prior to each payment date, the servicer will calculate a seven-digit
decimal factor which represents:
o the unpaid principal amount of the Class A-1 notes, after giving
effect to payments to be made on such payment date, as a fraction
of the initial outstanding principal amount of the Class A-1
notes;
o the unpaid principal amount of the Class A-2 notes, after giving
effect to payments to be made on such payment date, as a fraction
of the initial outstanding principal amount of the Class A-2
notes; and
o the unpaid principal amount of the Class B notes, after giving
effect to payments to be made on such payment date, as a fraction
of the initial outstanding principal amount of the Class B notes.
If the servicer were to perform such calculations on the closing date,
the resulting decimal factor for each of the notes would be 1.0000000.
Thereafter, these decimal factors will decline in correspondence with reductions
in the outstanding principal amount of the notes. Your portion of the aggregate
outstanding principal amount of notes will be the product of:
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o the original denomination of the class of notes you own; and
o the decimal factor relating to the class of notes at the time of
determination (calculated as described above).
You will receive reports on or about each payment date concerning
payments received on the contracts, the aggregate outstanding principal balance
of the contracts owned by the trust, the decimal factors described above and
various other items of information. In addition, noteholders of record during
any calendar year will be furnished information for tax reporting purposes not
later than the latest date permitted by law. See "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS--SERVICING--STATEMENTS TO SECURITYHOLDERS" in the
accompanying prospectus.
PAYMENTS AND DISTRIBUTIONS ON THE NOTES
AVAILABLE AMOUNTS
The trust will pay principal and interest in respect of the notes on
each payment date from Available Amounts for the payment date, as well as
amounts permitted to be withdrawn from the reserve fund. See "CERTAIN
INFORMATION REGARDING THE NOTES--THE ACCOUNTS--THE RESERVE FUND". "AVAILABLE
AMOUNTS" for any payment date are generally the sum of:
o the following amounts on deposit in the collection account which the
trust received during the prior calendar month;
(1) all amounts allocable to scheduled principal or interest
payments on the contracts;
(2) prepayments of contracts; and
(3) proceeds of repossessed financed motorcycles and other
proceeds of defaulted contracts;
o the purchase price paid by the depositor in repurchasing contracts from
the trust on that payment date as a result of a breach of the
representations and warranties with respect to those contracts in the
sale and servicing agreement;
o servicer advances made by the servicer on that payment date in respect
of interest payments for the prior calendar month which were delinquent
by 30 or more days; and
o the amount paid by the depositor to purchase the contracts when the
aggregate outstanding principal balance of the contracts is reduced to
less than 10% of the sum of (i) aggregate principal balance of the
contracts owned by the trust as of the closing date and (ii) the
initial amount on deposit in the pre-funding account.
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The precise calculation of the funds available to the trust on each
payment date to make payments on the securities is set forth in the definition
of "AVAILABLE AMOUNTS" and the definitions of the defined terms contained in
that definition set forth in the Glossary. We refer you to those definitions.
SERVICING COMPENSATION AND REIMBURSEMENT OF SERVICER ADVANCES
On each payment date, the servicer will be entitled to receive:
o the servicing fee in an amount equal to the product of one twelfth
of one percent (1%) and the aggregate principal balance of the
contracts as of the last day of the second calendar month
preceding the month in which that payment date falls; and
o any investment income earned on amounts on deposit in the
collection account during the prior calendar month.
The servicer will also be entitled to retain any late payment fees, prepayment
charges, if any, and other similar fees and charges received during the prior
calendar month.
The servicer will reimburse itself for servicer advances out of:
o amounts received by the servicer from the obligors on account of
the related delinquent contract payments;
o the proceeds, net of expenses incurred by the servicer, of the
sale of the repossessed financed vehicles securing the related
delinquent contracts; and
o payments on other contracts when the servicer has determined that
an advance will not be recoverable from payments by the related
obligor.
DISTRIBUTIONS
On each payment date prior to the acceleration of the notes, the
servicer will direct the indenture trustee to apply the Available Amounts,
together with amounts withdrawn from the reserve fund, to the following payments
and distributions in the following order of priority:
(1) to the noteholders, the amount of any mandatory redemption, in
the manner described under "DESCRIPTION OF THE
NOTES--MANDATORY REDEMPTION FOLLOWING THE FUNDING PERIOD";
(2) reimbursement of servicer advances;
(3) payment of the servicing fee;
(4) payment of the indenture trustee's fee;
S-37
(5) all accrued and unpaid interest on the Class A notes,
including any accrued and unpaid interest on the Class A notes
payable on prior payment dates plus interest on that accrued
and unpaid interest to the Class A-1 notes and the Class A-2
notes, PRO RATA;
(6) all accrued and unpaid interest on the Class B notes,
including any accrued and unpaid interest on the Class B notes
payable on prior payment dates plus interest on that accrued
and unpaid interest;
(7) the Class A Note Principal Distributable Amount, FIRST, to the
Class A-1 notes until the Class A-1 notes have been paid in
full, and SECOND, to the Class A-2 notes until the Class A-2
notes have been paid in full;
(8) the Class B Note Principal Distributable Amount to the Class B
notes until the Class B notes have been paid in full;
(9) to the reserve fund, any amount necessary to increase the
amount on deposit in the reserve fund to the required amount;
and
(10) any remaining amounts to the depositor as certificateholder
under the trust agreement.
The trust is to make payments first from the Available Amounts, and
second, but only as to amounts described in clauses (5), (6), (7) and (8) above,
from amounts permitted to be withdrawn from the reserve fund as described under
"CERTAIN INFORMATION REGARDING THE NOTES--THE ACCOUNTS--RESERVE FUND" above.
On each payment date after an event of default due to a breach of a
material covenant or agreement by the trust and acceleration of the notes, all
distributions available to the noteholders will be made in the following
priority:
o all accrued and unpaid interest on the Class A notes, including
any accrued and unpaid interest on the Class A notes payable on
prior payment dates plus interest on that accrued and unpaid
interest, to the Class A-1 notes and the Class A-2 notes,
PRO RATA;
o all accrued and unpaid interest on the Class B notes, including
any accrued and unpaid interest on the Class B notes payable on
prior payment dates plus interest on that accrued and unpaid
interest;
o any amounts remaining to the Class A notes, pro rata, until the
Class A notes have been paid in full; and
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o any amounts remaining to the Class B notes until the Class B
notes have been paid in full.
On each payment date after an event of default due to a payment
default or certain insolvency events and acceleration of the notes, all
distributions available to the noteholders will be made in the following
priority:
o all accrued and unpaid interest on the Class A notes, including
any accrued and unpaid interest on the Class A notes payable on
prior payment dates plus interest on that accrued and unpaid
interest, PRO RATA;
o any amounts remaining to the Class A notes, PRO RATA, until the
Class A notes have been paid in full;
o all accrued and unpaid interest on the Class B notes, including
any accrued and unpaid interest on the Class B notes payable on
prior payment dates plus interest on that accrued and unpaid
interest; and
o any amounts remaining to the Class B notes until the Class B
notes have been paid in full.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TREATMENT OF TRUST
Winston & Strawn, as federal tax counsel to the trust, has delivered
its opinion that the trust will not be an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion is based on the assumptions and qualifications described in the
accompanying prospectus under the caption "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--OWNER TRUSTS".
TREATMENT OF INVESTORS IN NOTES
Each purchaser of the notes agrees to treat the notes as debt for
federal income tax purposes. An investor will be taxed on the amount of payments
of interest on a note as ordinary interest income at the time it accrues or is
received in accordance with the investor's regular method of accounting. An
investor who disposes of a note will recognize taxable gain or loss equal to the
difference between the amount realized and the investor's adjusted tax basis in
the note. Any gain or loss will be a capital gain or loss assuming the notes
constitute capital assets in the hands of the owner. Special rules apply to
investors who purchase notes at a discount or a premium. The foregoing general
description of the treatment of investors in notes is subject to the further
explanation, assumptions and qualifications set forth in the accompanying
prospectus.
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ERISA CONSIDERATIONS
The notes may be purchased by an employee benefit plan, an individual
retirement account or a similar arrangement (a "PLAN") subject to ERISA or
Section 4975 of the Internal Revenue Code of 1986, as amended (the "CODE"). A
fiduciary of a Plan must determine that the purchase of a note is consistent
with its fiduciary duties under ERISA and does not result in a nonexempt
prohibited transaction as defined in Section 406 of ERISA or Section 4975 of the
Code. For additional information regarding treatment of the notes under ERISA,
see "ERISA CONSIDERATIONS" in the accompanying prospectus.
The notes may not be purchased with the assets of a Plan if the
depositor, the servicer, the indenture trustee, the trustee or any of their
affiliates:
1 is a "FIDUCIARY" as defined in Section 3(21) of ERISA or
Section 4975(e)(3) of the Code with respect to those Plan
assets; or
2. is an employer maintaining or contributing to the Plan.
LEGAL PROCEEDINGS
None of the depositor, the servicer, the seller, or the trust are
parties to any legal proceeding which could have a material adverse impact on
your interest in the securities or in the trust's assets.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement among the depositor, the seller and the underwriters, the depositor
has agreed to sell to each of the underwriters named below and each of those
underwriters has severally agreed to purchase the following respective initial
principal amounts of notes at the respective public offering prices less the
respective underwriting discounts shown on the cover page of this prospectus
supplement:
INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITER CLASS A-1 NOTES CLASS A-2 NOTES CLASS B NOTES
----------- --------------- --------------- -------------
Salomon Smith Barney Inc.............. $110,500,000 $63,350,000 $9,150,000
First Union Securities, Inc........... $110,500,000 $63,350,000 $9,150,000
------------ ----------- ----------
Total............................ $221,000,000 $126,700,000 $18,300,000
============ ============ ===========
In the underwriting agreement, the underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the notes being
offered, if any of the notes are purchased. The underwriters have advised the
depositor that they propose initially to offer the notes to the public at the
respective public offering prices shown on the cover page of this prospectus
supplement, and to certain dealers at that price, less a concession not in
excess of the amount noted in the table below. The underwriters may allow and
the dealers may reallow to other dealers a discount not in excess of the amount
noted in the table below.
SELLING CONCESSION REALLOWANCE
CLASS NOT TO EXCEED NOT TO EXCEED
- ----- ------------- -------------
Class A-1 notes....................................... 0.126% 0.075%
Class A-2 notes....................................... 0.162% 0.100%
Class B notes......................................... 0.360% 0.215%
After the initial public offering of the securities, the offering
prices and other selling terms may be varied by the underwriters.
Until the distribution of the notes is completed, rules of the SEC may
limit the ability of the underwriters and certain selling group members to bid
for and purchase the notes. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of the
notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the notes.
If the underwriters create a short position in the notes in connection
with this offering (i.e., they sell more notes than the aggregate initial
principal amount set forth on the cover page of this prospectus supplement), the
underwriters may reduce that short position by purchasing
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notes in the open market. In general, purchases of a security for the purpose
of stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchases.
Neither the seller, the trust depositor, the trust nor any of the
underwriters makes any representation or prediction as to the direction or
magnitude of any effect that any of the transactions described above might have
on the price of the notes. In addition, neither the seller, the trust depositor,
the trust nor any of the underwriters makes any representation that the
underwriters will engage in such transactions or that such transactions, if
commenced, will not be discontinued without notice.
There is currently no secondary market for the notes and you should not
assume that one will develop. The underwriters currently expect, but are not
obligated to make a market in the notes. You should not assume that any such
market will develop, or if one does develop, that it will continue or provide
sufficient liquidity.
The underwriters have represented and agreed that:
(i) they have not offered or sold and, prior to the expiration of
the period of six months from the closing date, will not offer
or sell any notes to persons in the United Kingdom, except to
persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in
an offer to the public in the United Kingdom within the
meaning of the Public Offers of Notes Regulation 1995;
(ii) they have complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the notes in, from or
otherwise involving the United Kingdom; and
(iii) they have only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in
connection with the issue of the notes to a person who is of a
kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995, or
is a person to whom such document may otherwise lawfully be
issued or passed on.
The underwriting agreement provides that the seller and the depositor
will indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or contribute to
payments the underwriters may be required to make in respect thereof.
In the ordinary course of their respective businesses, the underwriters
and their respective affiliates have engaged and may in the future engage in
investment banking or commercial banking transactions with Harley-Davidson,
Inc., Harley-Davidson Credit Corp., Harley-Davidson Financial Services, Inc. or
any of their respective affiliates.
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RATINGS OF THE NOTES
It is a condition of issuance that each of the Class A-1 notes and
Class A-2 notes be rated "AAA" by Standard & Poor's Rating Services and "Aaa" by
Moody's Investors Service, Inc. and the Class B notes be rated at least "A" by
Standard & Poor's Rating Services and "A2" by Moody's Investors Service, Inc.
There is no assurance that any such rating will continue for any period
of time or that it will not be revised or withdrawn entirely by the assigning
rating agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such rating may have an adverse effect on the market price of the
notes. A security rating is not a recommendation to buy, sell or hold the notes.
LEGAL MATTERS
Certain legal matters with respect to the notes, including certain
federal income tax matters, will be passed upon for the seller, servicer,
depositor and the trust by Winston & Strawn, Chicago, Illinois. Certain legal
matters for the underwriters will be passed upon by Brown & Wood LLP, New York,
New York.
EXPERTS
The balance sheet of Harley-Davidson Motorcycle Trust 2001-1 at April
18, 2001, appearing in this prospectus supplement has been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference herein, and is included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
REPORTS TO NOTEHOLDERS
Unless and until the notes are issued in physical form, monthly and
annual unaudited reports containing information concerning the contracts will be
prepared by the servicer, and sent on behalf of the trust only to Cede & Co., as
nominee of DTC and registered holder of the notes. No financial reports will be
sent to you. See "INFORMATION REGARDING THE SECURITIES--BOOK-ENTRY REGISTRATION"
and "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--SERVICING--STATEMENTS
TO SECURITYHOLDERS" in the prospectus. Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. The servicer will file with the Securities and Exchange Commission
such periodic reports with respect to the trust as are required under the
Securities Exchange Act of 1934, as amended and the rules and regulations of the
SEC thereunder.
We filed a registration statement relating to the notes with the SEC.
This prospectus is part of the registration statement, but the registration
statement includes additional information.
The servicer will file with the SEC all required reports and other
information about the trust.
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You may read and copy any reports, statements or other information we
file at the SEC's reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at (800) SEC-0330 for further information on the operation
of the public reference rooms. Our filings with the SEC are also available to
the public on the SEC Internet site (http://www.sec.gov).
The SEC allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus supplement. Information that we file
later with the SEC will automatically update the information in this prospectus
supplement. In all cases, you should rely on the later information over
different information included in this prospectus supplement or the accompanying
prospectus. We incorporate by reference any future annual, monthly and special
SEC reports and proxy materials filed by or on behalf of the trust until we
terminate our offering of the notes.
As a recipient of this prospectus, you may request a copy of any
document we incorporate by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by writing
or calling us at:
Harley-Davidson Financial Services, Inc.
150 South Wacker, Suite 3100
Chicago, Illinois 60606
Attention: Treasurer
(telephone (312) 368-9501;
facsimile (312) 368-4372).
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Securities (the "GLOBAL SECURITIES") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through DTC
and, in the case of the Notes, Euroclear or Clearstream. The Global Securities
will be tradable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities
through Euroclear and Clearstream 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 Euroclear or Clearstream and DTC
participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective depositaries of Euroclear
and Clearstream (in such capacity) and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, Euroclear and
Clearstream will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold such positions in accounts as
DTC participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to similar issues on pass-through
certificates. Investors' securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Euroclear or
Clearstream 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 payments in same-day
funds.
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SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish 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 similar issues
of pass-through certificates in same-day funds.
TRADING BETWEEN EUROCLEAR AND/OR CLEARSTREAM PARTICIPANTS. Secondary
market trading between Euroclear participants or Clearstream participants will
be settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND EUROCLEAR OR CLEARSTREAM PURCHASER. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a Euroclear participant or a Clearstream participant, the
purchaser will send instructions to Euroclear or Clearstream through a Euroclear
participant or Clearstream participant at least one business day prior to
settlement. Euroclear or Clearstream 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 Euroclear
participant's or Clearstream 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 Euroclear or Clearstream cash debit will be valued instead as of the actual
settlement date.
Euroclear participants and Clearstream 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-positions
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Clearstream. Under
this approach, they may take on credit exposure to Euroclear or Clearstream
until the Global Securities are credited to their accounts one day later.
As an alternative, if Euroclear or Clearstream has extended a line of
credit to them, Euroclear participants or Clearstream participants can elect to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Euroclear participants or Clearstream
participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their
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accounts. However, interest on the Global Securities would accrue from the
value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend
on each Euroclear participant's or Clearstream 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 Euroclear participants or
Clearstream 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 EUROCLEAR OR CLEARSTREAM SELLER AND DTC PURCHASER. Due
to time zone differences in their favor, Euroclear participants and Clearstream
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 Euroclear or Clearstream through a Euroclear participant or
Clearstream participant at least one business day prior to settlement. In these
cases, Euroclear or Clearstream 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 Euroclear participant or
Clearstream participant the following day, and receipt of the cash proceeds in
the Euroclear participant's or Clearstream 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 Euroclear participant or Clearstream
participant have a line of credit with its respective clearing system and elect
to be in debit in anticipation or 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 Euroclear participant's or
Clearstream participant's account would instead be valued as of the actual
settlement date. Finally, day traders that use, Euroclear or Clearstream and
that purchase Global Securities from DTC participants for delivery to Euroclear
participants or Clearstream 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 Euroclear or Clearstream for one
day (until the purchase side of the day trade is
reflected in their Euroclear or Clearstream 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
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settlement, which would give the Global Securities
sufficient time to be reflected in their Euroclear or
Clearstream 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 Euroclear
participant or Clearstream participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Euroclear or Clearstream (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issued discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-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-8BEN changes, a
new Form W-8BEN must be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WILL 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
Securityholders 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 (Certificate of Foreign Status
of Beneficial Owner for United States Tax Withholding). Form W-8BEN may
be filed by the Securityholder or his agent.
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EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain
a complete exemption from the withholding tax by filing Form W-9
(Payer's Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURES. The holder of a
Global Security or in the case of a Form W-8BEN or a Form W-8ECI filer,
his agent, files by submitting the appropriate form to the person
through whom it holds (the clearing agency, in the case of persons
holding directly on the books of the clearing agency). Form W-8BEN and
Form W-8ECI are effective until the third succeeding calendar year from
the date the form is signed.
The term "U.S. PERSON" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia, (iii) an estate
the income of which is includible in gross income for United States tax
purposes, regardless of its source or (iv) a trust 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 the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons under the United States
Internal Revenue Code of 1986, as amended (the "CODE") and applicable Treasury
regulations thereunder prior to such date, that elect to continue to be treated
as United States persons under the Code or applicable Treasury regulations
thereunder also will be a U.S. Person. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to foreign
holders of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
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GLOSSARY OF TERMS
AGGREGATE PRINCIPAL BALANCE is the sum of the Principal Balance of each
outstanding contract and the amounts in the pre-funding account. At the time of
initial issuance of the notes and certificate, the initial aggregate principal
amount of the notes will equal the Aggregate Principal Balance plus the initial
deposit into the pre-funding account.
AGGREGATE PRINCIPAL BALANCE DECLINE means, with respect to any payment
date, the amount by which the Aggregate Principal Balance as of the payment date
immediately preceding that payment date (or as of the cutoff date in the case of
the first payment date) exceeds the Aggregate Principal Balance as of that
payment date.
AVAILABLE AMOUNTS means, with respect to any payment date, the sum of
the Available Interest and the Available Principal for such payment date.
AVAILABLE INTEREST means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
o all amounts allocable to scheduled interest payments on the contracts;
o the interest component of all prepayments of contracts;
o the interest component of all proceeds of repossessed financed
motorcycles and other proceeds of defaulted contracts;
o the interest component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result
of a breach of the representations and warranties with respect to those
contracts in the sale and servicing agreement;
o all amounts received in respect of carrying charges transferred from
the interest reserve account;
o all amounts received in respect of interest, dividends, gains, income
and earnings on investment of funds in the trust accounts;
o servicer advances made by the servicer on that payment date in respect
of interest payments for the prior calendar month which were delinquent
by 30 or more days; and
o the interest component of the amount paid by the seller to purchase the
contracts when the aggregate principal balance of the contracts is
reduced to less than 10% of the sum of (i) the aggregate outstanding
principal balance of the contracts as of the closing date and (ii) the
initial amount on deposit in the pre-funding account.
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AVAILABLE PRINCIPAL means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
o all amounts allocable to scheduled principal payments on the contracts;
o the principal component of all prepayments of contracts;
o the principal component of all proceeds of repossessed motorcycles and
other proceeds of defaulted contracts;
o the principal component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result
of a breach of the representations and warranties with respect to those
contracts in the sale and servicing agreement; and
o the principal component of the amount paid by the seller to purchase
the contracts when the aggregate principal balance of the contracts is
reduced to less than 10% of the sum of (i) the aggregate outstanding
principal balance of the contracts as of the closing date and (ii) the
initial amount on deposit in the pre-funding account.
AVERAGE DELINQUENCY RATIO with respect to any payment date, is equal to
the arithmetic average of the Delinquency Ratios for the payment date and the
two immediately preceding payment dates.
AVERAGE LOSS RATIO for any payment date is equal to the arithmetic
average of the Loss Ratios for such payment date and the two immediately
preceding payment dates. The "LOSS RATIO" for any payment date is equal to the
fraction (expressed as a percentage) derived by dividing (x) the Net Liquidation
Losses for all contracts that became Liquidated Contracts during the immediately
preceding month multiplied by 12 by (y) the outstanding Principal Balances of
all contracts as of the beginning of the related month.
CLASS A NOTE MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT means, on any
payment date, the Class A Note Percentage of the Principal Distributable Amount
for that payment date.
CLASS A NOTE PERCENTAGE is (i) 95.00%, for each payment date to but
excluding the payment date on which the Class A notes are paid in full; (ii) on
the payment date on which the Class A notes are paid in full, that percentage
which represents the fraction of the Principal Distributable Amount necessary to
reduce the principal amount of the Class A notes to zero; and (iii) 0.0%
thereafter.
CLASS A NOTE PRINCIPAL CARRYOVER SHORTFALL means, as of the close of
any payment date, the excess of the sum of the Class A Note Monthly Principal
Distributable Amount and any outstanding Class A Note Principal Carryover
Shortfall from the immediately preceding payment
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date over the amount in respect of principal that was actually paid to the
Class A Notes on that payment date.
CLASS A NOTE PRINCIPAL DISTRIBUTABLE AMOUNT means, on any payment date,
the sum of the Class A Note Monthly Principal Distributable Amount for that
payment date and any outstanding Class A Note Principal Carryover Shortfall for
the immediately preceding payment date; PROVIDED, HOWEVER, that the Class A Note
Principal Distributable Amount shall not exceed the outstanding principal amount
of the Class A notes. Notwithstanding the foregoing, the Class A Note Principal
Distributable Amount on the scheduled final payment date for the Class A notes
shall not be less than the amount that is necessary (after giving effect to
other amounts to be paid to the Class A notes on that payment date and allocable
to principal) to pay the Class A notes in full.
CLASS B NOTE MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT means, on any
payment date, the Class B Note Percentage of the Principal Distributable Amount
for that payment date.
CLASS B NOTE PERCENTAGE means (i) for each payment date to but
excluding the payment date on which the Class A notes are paid in full, 5.00%;
(ii) on the payment date on which the Class A notes are paid in full, that
percentage that equals 100% minus the Class A Note Percentage; and (iii) 100%
thereafter.
CLASS B NOTE PRINCIPAL CARRYOVER SHORTFALL means, as of the close of
any payment date, the excess of the sum of the Class B Note Monthly Principal
Distributable Amount and any outstanding Class B Note Principal Carryover
Shortfall from the immediately preceding payment date, over the amount in
respect of principal that was actually paid to the Class B notes on that payment
date.
CLASS B NOTE PRINCIPAL DISTRIBUTABLE AMOUNT means, on any payment date,
the sum of the Class B Note Monthly Principal Distributable Amount and any
outstanding Class B Note Principal Carryover Shortfall as of the close of the
immediately preceding payment date; PROVIDED, HOWEVER, that the Class B Note
Principal Distributable Amount shall not exceed the principal balance of the
Class B notes. Notwithstanding the foregoing, the Class B Note Principal
Distributable Amount on the scheduled final payment date for the Class B notes
shall not be less than the amount that is necessary (after giving effect to
other amounts to be paid to the Class B notes on that payment date and allocable
to principal) to pay the Class B notes in full.
CUMULATIVE LOSS RATIO for any payment date means the fraction
(expressed as a percentage) computed by the servicer by dividing (a) the
aggregate Net Liquidation Losses for all contracts since the cutoff date through
the end of the related month by (b) the sum of (i) the principal balance of the
contracts as of the cutoff date plus (b) the principal balance of any subsequent
contracts as of the related subsequent cutoff date.
DELINQUENCY AMOUNT as of any payment date means the principal balance
of all contracts that were delinquent 60 days or more as of the end of the
related month (including
S-52
contracts in respect of which the related motorcycles have been repossessed
and are still inventory).
DELINQUENCY RATIO for any payment date is equal to the fraction
(expressed as a percentage) derived by dividing (a) the Delinquency Amount
during the immediately preceding month by (b) the Principal Balance of the
contracts as of the beginning of the related month.
A LIQUIDATED CONTRACT means any defaulted contract as to which the
servicer has determined that all amounts which it expects to recover from or on
account of such contract have been recovered; PROVIDED that any defaulted
contract in respect of which the related motorcycle has been realized upon and
disposed of and the proceeds of such disposition have been realized shall be
deemed to be a Liquidated Contract; and PROVIDED FURTHER, a contract which has
been repossessed and has not been sold by the servicer for a period in excess of
90 days from such date of repossession or a contract which has been delinquent
more than 150 days shall be deemed to be a Liquidated Contract with a zero
balance.
NET LIQUIDATION LOSSES means, with respect to all Liquidated Contracts
on an aggregate basis, the amount, if any, by which (a) the outstanding
Principal Balance of all Liquidated Contracts plus accrued and unpaid interest
thereon at the annual interest rate stated in such Liquidated Contracts to the
date on which such Liquidated Contracts became Liquidated Contracts exceeds (b)
the Net Liquidation Proceeds for such Liquidated Contracts.
NET LIQUIDATION PROCEEDS means, as to any Liquidated Contract, the
proceeds realized on the sale or other disposition of the related motorcycle,
including proceeds realized on the repurchase of such motorcycle by the
originating dealer for breach of warranties, and the proceeds of any insurance
relating to such motorcycle, after payment of all expenses incurred thereby,
together, in all instances, with the expected or actual proceeds of any recourse
rights relating to such contract as well as any post disposition proceeds or
other amounts in respect of a Liquidated Contract received by the servicer.
PRINCIPAL BALANCE means, (a) with respect to any contract as of any
date, an amount equal to the unpaid principal balance of such contract as of the
opening of business on the cut-off date, reduced by all payments and other
amounts received by the servicer as of such date allocable to principal;
provided, however, that (i) if (x) a contract is repurchased by the depositor
because of a breach of a representation or warranty, or if (y) the depositor
gives notice of its intent to purchase the contracts in connection with an
optional termination of the trust, in each case the Principal Balance of such
contract or contracts shall be deemed to be zero for the prior calendar month in
which such event occurs and for each calendar month thereafter and (ii) from and
after the prior calendar month in which a contract becomes a defaulted contract,
the Principal Balance of such contract shall be deemed to be zero; and (b) where
the context requires, the aggregate Principal Balances described in clause (a)
for all such contracts.
PRINCIPAL DISTRIBUTABLE AMOUNT means, on any payment date, the
Aggregate Principal Balance Decline for that payment date.
S-53
UNITED STATES PERSONS means:
o A citizen or resident of the United States;
o A corporation or partnership organized in or under the laws of
the United States, any state thereof or the District of
Columbia;
o An estate the income of which is includible in gross income
for United States federal income tax purposes, regardless of
its source; or
o A trust, (a) with respect to which a court within the United
States is able to exercise primary supervision over its
administration, and one or more United States fiduciaries have
the authority to control all of its substantial decisions, or
(b) otherwise, the income of which is subject to U.S. federal
income tax regardless of its source.
S-54
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying balance sheet of Harley-Davidson
Motorcycle Trust 2001-1 as of April 18, 2001. This balance sheet is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Harley-Davidson Motorcycle
Trust 2001-1 at April 18, 2001, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
April 18, 2001
S-55
HARLEY-DAVIDSON MOTORCYCLE TRUST 2001-1
BALANCE SHEET AS OF APRIL 18, 2001
Assets--Cash............................................ $1,000
======
Liabilities............................................. $ 0
======
Beneficial Equity....................................... $1,000
======
NOTES TO THE BALANCE SHEET
Harley-Davidson Motorcycle Trust 2001-1 is a limited purpose business
trust established under the laws of the State of Delaware. It was formed on
April 12, 2001 under a trust agreement dated as of April 1, 2001 between the
depositor and the trustee. The activities of the trust are limited by the terms
of the trust agreement to acquiring, owning and managing loan contracts and
related assets, issuing and making payments on notes and certificates and other
related activities. Prior to and including April 18, 2001, the trust did not
conduct any activities.
The depositor will pay all fees and expenses related to the
organization and operations of the trust, other than withholding taxes, imposed
by the United States or any other domestic taxing authority. The depositor has
also agreed to indemnify the indenture trustee and trustee and certain other
persons involved in the sale of notes.
S-56
HARLEY-DAVIDSON MOTORCYCLE TRUSTS
HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES
HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED CERTIFICATES
(ISSUABLE IN SERIES)
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
AS DEPOSITOR
HARLEY-DAVIDSON CREDIT CORP.,
AS SELLER AND SERVICER
THE TRUSTS:
The depositor will form a new trust to issue each series of securities.
The trust will offer the securities under this prospectus and a prospectus
supplement which will be prepared separately for each series. Each trust will
own a pool of motorcycle retail installment contracts.
THE OFFERED SECURITIES:
o will consist of motorcycle contract backed securities sold
periodically in one or more series which may include one or more
classes of notes and/or one or more classes of certificates;
o will be paid only from the assets of the related trust;
o will be rated in one of the four highest rating categories by at
least one nationally recognized statistical rating organization;
o may have one or more forms of credit enhancement; and
o will be issued as part of a designated series that may include one
or more classes with payment rights that are senior or subordinate
to the rights of one or more of the other classes of securities.
-----------------
YOU SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE 9 OF THIS PROSPECTUS AND THE OTHER RISK FACTORS INCLUDED IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
The amounts, prices and terms of each offering of securities will be
determined at the time of sale and will be described in a prospectus supplement
that will be attached to this prospectus.
This prospectus may not be used to offer and sell any series of
securities unless accompanied by the prospectus supplement for that series.
Prospectus dated November 15, 2000
TABLE OF CONTENTS
PAGE
----
Important Notice About Information Presented in this Prospectus
and the Accompanying Prospectus Supplement..................................................................ii
Prospectus Summary.............................................................................................1
Risk Factors...................................................................................................9
Harley-Davidson Motorcycles...................................................................................18
Other Manufacturers...........................................................................................18
Harley-Davidson Financial Services, Inc.......................................................................18
The Seller and Servicer.......................................................................................19
The Depositor.................................................................................................21
The Trusts....................................................................................................21
Use of Proceeds...............................................................................................23
The Trustee...................................................................................................23
Weighted Average Lives of the Securities......................................................................24
Factors and Trading Information...............................................................................25
Description of the Notes and Indenture........................................................................26
Description of the Certificates...............................................................................34
Information Regarding the Securities..........................................................................37
Description of the Transfer and Servicing Agreements..........................................................49
Legal Aspects of the Contracts................................................................................64
Material Federal Income Tax Consequences......................................................................71
ERISA Considerations..........................................................................................94
Ratings of the Securities.....................................................................................98
Plan of Distribution..........................................................................................98
Legal Matters.................................................................................................98
Where You Can Find More Information...........................................................................99
i
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that offer varying levels of detail:
o this prospectus - which provides general information, some of
which may not apply to a particular series of securities including
your series, and
o the accompanying prospectus supplement - which provides a summary
of the specific terms of your series of securities.
We have included cross-references in this prospectus and the
accompanying prospectus supplement to captions in these materials where you can
find further discussions. The table of contents included in this prospectus and
the accompanying prospectus supplement provide the pages on which these captions
are located. References to "we", "our" and "us" refer to Harley-Davidson
Customer Funding Corp.
Whenever we use words like "intends," "anticipates" or "expects" or
similar words in this prospectus, we are making a forward-looking statement, or
a projection of what we think will happen in the future. Forward-looking
statements are inherently subject to a variety of circumstances, many of which
are beyond our control and could cause actual results to differ materially from
what we anticipate. Any forward-looking statements in this prospectus speak only
as of the date of this prospectus. We do not assume any responsibility to update
or review any forward-looking statement contained in this prospectus to reflect
any change in our expectation about the subject of that forward-looking
statement or to reflect any change in events, conditions or circumstances on
which we have based any forward-looking statement.
You should rely only on the information contained in this document,
including the information described under the heading "WHERE YOU CAN FIND MORE
INFORMATION" in the prospectus. We have not authorized anyone to provide you
with any different information or make any representation not contained in this
prospectus. If anyone makes such a representation to you, you should not rely on
it.
ii
PROSPECTUS SUMMARY
The following is only a summary of selected information from the
prospectus and provides a general overview of relevant terms of the securities.
It does not contain all the information that may be important to you. You should
read carefully this entire prospectus and the accompanying prospectus supplement
to understand all of the terms of the offering. In addition, you may wish to
read the documents governing the transfers and servicing of the contracts, the
formation of the trusts and the issuance of the securities. Those documents have
been filed as exhibits to the registration statement of which this prospectus is
a part.
There are material risks associated with an investment in the
securities. See "RISK FACTORS" in this prospectus and in the accompanying
prospectus supplement for a discussion of factors you should consider before
investing in the securities.
Trust............................... For each series of securities, the depositor will form either a grantor
trust or an owner trust. An "owner trust" will issue notes and
certificates and will be formed by a trust agreement between the
depositor and the trustee of the owner trust. A "grantor trust" will
issue only certificates and will be formed by a pooling and servicing
agreement among the depositor, the servicer and the trustee of the
grantor trust.
Depositor........................... Harley-Davidson Customer Funding Corp., a wholly-owned subsidiary of
Harley-Davidson Credit Corp. The depositor will deposit the contracts
into the trust.
Seller.............................. Harley-Davidson Credit Corp. will sell the contracts to the depositor for
deposit into the trust.
Originating Dealers................. Motorcycle dealers originate the contracts in accordance with the
underwriting standards set by Harley-Davidson Credit Corp. under
dealer agreements governing the assignment of the contracts to the
seller. The seller acquires the contracts from the originating dealers
in the ordinary course of its business pursuant to the dealer agreements.
Servicer............................ Harley-Davidson Credit Corp. will service the contracts unless otherwise
specified in your prospectus supplement.
Trustee............................. The trustee of the trust for your series of securities will be
identified in your prospectus supplement.
Indenture Trustee................... If the trust issues notes, the trustee for the indenture pursuant to which
the notes will be issued will be identified in your prospectus supplement.
Administrator....................... Harley-Davidson Credit Corp. will provide notices and
perform other administrative functions
of each trust.
The Securities...................... A series of securities may include:
o one or more of classes of notes which will be
issued pursuant to an indenture; and/or
o one or more classes of certificates, whether or
not a class of notes is issued as part of the
series.
Terms of the Securities............. Your prospectus supplement provides the particular terms of your class of
notes and/or certificates, including:
o the stated principal amount of each class of
notes and the stated certificate balance of
each class of certificates; and
o the interest rate, which may be fixed, variable,
adjustable or some combination of these
rates, or method of determining the interest
rate.
The terms of a class of notes may differ from those of other classes of
notes of the same series and the terms of a class of certificates may differ
from those of other classes of certificates of the same series in one
or more aspects, including:
o timing and priority of payments;
o seniority;
o allocations of losses;
o interest rate or formula for calculating the
interest rate;
o amount of interest or principal payments;
o whether interest or principal will be
payable to holders of the class if specified
events occur;
o the right to receive collections from designated portions
of the contracts owned by the trust;
o scheduled final payment date; and
o the ability of holders of a class of notes or certificates to direct
the indenture trustee or the
2
trustee to take specified remedies.
Trust Assets........................ The property of each trust will primarily be a pool of contracts
secured by new and used motorcycles and amounts due or collected under the
contracts on or after a cut-off date specified in your prospectus
supplement and will include related assets including:
o security interests in the financed motorcycles;
o proceeds from claims on insurance policies
covering the financed motorcycles or the
obligors;
o certain rebates of premiums and other
amounts relating to insurance policies and
other items financed under the contracts;
o the rights of the depositor in the
agreements identified in your prospectus
supplement;
o amounts deposited in bank accounts specified
in your prospectus supplement; and
o proceeds from liquidated assets, including repossessed
motorcycles.
The Contracts....................... All of the contracts will be retail installment contracts originated
directly by the seller or purchased by the seller from the originating
dealers or other entities that finance the retail purchase of new
and used motorcycles.
Your prospectus supplement provides information about:
o the initial aggregate principal balance of the
contracts transferred to the trust;
o the number of contracts;
o the average contract principal balance;
o the geographical distribution of the
contracts;
o the distribution of the contracts by annual
percentage rate;
o the remaining term of the contracts;
o the weighted average remaining term of the
3
contracts; and
o the weighted average annual percentage rate
on the contracts.
Mandatory Purchase or Replacement of a
Contract............................ The depositor will make representations and warranties
regarding the contracts when it transfers the contracts to the trust,
and the seller will make representations and warranties
regarding the contracts when it sells the contracts to the depositor. In the
event of an uncured breach of any of these representations that materially
and adversely affects the trust's or securityholders' interest in a
contract or the collectibility of a contract, the depositor will be
obligated to repurchase that contract from the trust and the seller will be
obligated to repurchase that contract from the depositor. See "DESCRIPTION
OF THE TRANSFER AND SERVICING AGREEMENTS--REPRESENTATIONS AND
WARRANTIES MADE BY THE SELLER AND THE DEPOSITOR" in this prospectus.
Credit And Cash Flow Enhancement.... The depositor may arrange for protection from losses to one or more
classes of the securities. Credit enhancement may include:
o a cash collateral account;
o a spread account;
o subordination of one or more other classes of
securities;
o one or more reserve funds;
o over-collateralization;
o letters of credit or other credit or
liquidity facilities;
o surety bonds;
o guaranteed investment contracts;
o repurchase obligations;
o yield supplement agreements;
4
o cash deposits;
o swap or other interest rate protection
agreements;
o third party payments or other support; or
o other arrangements which may become suitable in
light of credit enhancement practices or
developments in the future.
In addition, the depositor may develop and include in the trusts features
designed to ensure the timely payment of amounts owed to you. These cash
flow enhancement features may include any one or more of the following:
o yield supplement agreements;
o liquidity facilities;
o cash deposits;
o third party payments or other support; or
o other arrangements which may become suitable in
light of cash flow enhancement practices or
developments in the future.
Your prospectus supplement will describe the specific terms of any
credit or cash flow enhancement applicable to your securities.
Servicing; Servicing Fee............ The servicer will be responsible for servicing, managing and administering
the contracts and financed motorcycles, and maintaining custody
of, enforcing and making collections on the contracts.
The trust will pay the servicer a monthly fee equal to a percentage of
the principal balance of the contracts at the beginning of each month. The
fee will be payable out of amounts received on the contracts.
The servicer will also receive additional servicing compensation in
the form of investment earnings on certain bank accounts of the trust and
late fees, prepayment fees and other administrative fees and expenses or
similar charges received in respect of the contracts by the servicer during
that month. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--SERVICING--SERVICING COMPENSATION AND
5
PAYMENT OF EXPENSES" in this prospectus.
Advances............................ The servicer may be obligated to advance interest that is due but
unpaid by an obligor. The servicer will not be obligated to make an
advance if it determines that it will not be able to recover that advance
from an obligor. The trust will reimburse the servicer for the
advances the servicer has made from late collections on the contracts for
which it has made advances or from collections generally if the servicer
determines that an advance will not be recoverable from an obligor.
Your prospectus supplement will describe the nature of the servicer's
obligation to make advances to the trust and the reimbursement of those
advances.
You should refer to "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--SERVICING--ADVANCES" in this prospectus for more detailed
information on advances and reimbursement of advances.
Optional Purchase of
Contracts........................... Once the aggregate outstanding principal balance of the contracts is
less than 10% of the sum of (i) the aggregate outstanding principal
balance of the contracts owned by the trust as of the closing date and (ii)
the initial amount on deposit in the prefunding account, if any, the
seller, at its option, may repurchase all of the contracts held by the
trust. Upon such a purchase, the securities of that trust will be
prepaid in full. See "DESCRIPTION OF THE NOTES AND INDENTURE--OPTIONAL
PURCHASE OF CONTRACTS AND REDEMPTION OF NOTES" and "DESCRIPTION OF THE
CERTIFICATES--OPTIONAL PURCHASE OF CONTRACTS AND REDEMPTION OF
Certificates" in this prospectus.
TAX STATUS:
Grantor Trusts...................... If your prospectus supplement specifies that the related trust will
be treated as a "grantor trust," Winston & Strawn, as counsel to the
trust, will deliver an opinion that:
o the trust will be treated as a grantor trust for
federal income tax purposes and not as an "ASSOCIATION"
or "PUBLICLY-TRADED PARTNERSHIP" taxable as a
corporation; and
o each certificateholder will be treated as the owner of
a pro rata undivided interest in the income and
assets
6
of the trust.
Owner Trusts........................ If your prospectus supplement specifies that the related trust will
be treated as an "owner trust":
1. Winston & Strawn will deliver an opinion that:
o the notes will be characterized as debt for
federal income tax purposes; and
o the trust will not be characterized as an
"ASSOCIATION" or "PUBLICLY TRADED
PARTNERSHIP" taxable as a corporation;
2. by purchasing a note, you will agree to treat your note as debt
for federal, state and local income tax purposes; and
3. by purchasing a certificate, you will agree to treat the trust as
a partnership in which you are a partner for federal, state and
local income tax purposes.
You should refer to "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in this
prospectus and your prospectus supplement for more detailed
information on the application of federal income tax laws and consult
your tax advisor about the federal income tax consequences of purchasing,
owning and disposing of notes and/or certificates, and the tax consequences
in any state or other taxing jurisdiction.
FASITs.............................. If your prospectus supplement specifies that an election will be
made for the trust to be treated as a "financial asset securitization
investment trust," or FASIT, Winston & Strawn will deliver an opinion
that, assuming timely filing of a FASIT election and compliance with
the terms of the governing documents, the trust, or one or more
segregated pools of trust assets, will qualify as one or more FASITs.
ERISA Considerations................ Subject to the considerations described in "ERISA CONSIDERATIONS"
in this prospectus and your prospectus supplement, employee
benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended, may purchase:
o notes issued by an "owner trust"; and
o certificates of a class issued by a "grantor trust"
that are not subordinated to any other class.
7
Unless your prospectus supplement specifies otherwise, employee benefit
plans and individual retirement accounts may not purchase:
o subordinated classes of certificates issued by a
"grantor trust"; or
o certificates issued by an "owner trust".
You should refer to "ERISA CONSIDERATIONS" in this prospectus and
your prospectus supplement for more detailed information regarding the
ERISA eligibility of any class of securities.
8
RISK FACTORS
The following risk factors and the risk factors in your prospectus
supplement describe the principal risk factors relating to an investment in the
securities. You should carefully consider the following risk factors and the
additional risk factors described in the section captioned "RISK FACTORS" in
your prospectus supplement before you invest in any class of securities.
YOU MUST RELY ON THE TRUST'S ASSETS FOR REPAYMENT WHICH MAY NOT BE SUFFICIENT
TO MAKE FULL PAYMENTS ON YOUR SECURITIES
The securities represent interests solely in the trust or indebtedness
of the trust and will not be insured or guaranteed by the originating dealers,
the seller, the servicer, the depositor, or any of their respective affiliates,
or the related trustee or any other person or entity. The only source of payment
for your securities is payments received on the contracts held by the trust and
credit enhancement, if any, for your securities. The amount of credit
enhancement available to cover shortfalls in distributions of interest on and
principal of your securities may be limited. If the credit enhancement is
exhausted, you will be paid solely from payments on the contracts.
YOU MAY EXPERIENCE REDUCED RETURNS ON YOUR INVESTMENT DUE TO PREPAYMENTS ON
THE CONTRACTS, REPURCHASES OF THE CONTRACTS, LIQUIDATIONS OF DEFAULTED
CONTRACTS AND EARLY TERMINATION OF THE TRUST
A higher than anticipated level of prepayments of the contracts or
liquidations of defaulted contracts may cause a trust to pay principal on your
securities sooner than you expected. Also, a trust may pay principal on your
securities sooner than you expected if the depositor or the servicer repurchases
contracts from the trust. You may not be able to reinvest the principal paid to
you at yields that are equivalent to the yields on your securities; therefore,
the ultimate return you receive on your investment in the securities may be less
than the return you expected on the securities.
The contracts included in the trust may be prepaid, in full or in part,
voluntarily or as a result of defaults, theft of or damage to the related
motorcycles or for other reasons. The depositor will be required to repurchase a
contract from the trust if a breach of its representations and warranties
relating to that contract materially and adversely affects the trust's or the
securityholders' interest in the contract or the collectibility of the contract.
In that event, the seller will be obligated to repurchase the contract from the
depositor. Certain motorcycle dealer agreements between each of the originating
dealers and the seller require the originating dealer to repurchase certain
motorcycles repossessed by the seller in the event of a default by the obligor
pursuant to contracts designated as full recourse. This recourse to the dealers
will be assigned by the seller to the depositor pursuant to the transfer and
sale agreement, assigned from the depositor to the trust pursuant to the
agreement and, if applicable, pledged by the trust to the indenture trustee
pursuant to the indenture. There can be no assurance that an originating dealer
will perform its obligations under such motorcycle dealer agreements if and when
required to do so. In addition, the servicer will be required to purchase
contracts from the trust if it breaches certain covenants with respect to those
contracts. The seller may direct the depositor to purchase all remaining
contracts from the trust when the aggregate outstanding principal balance of the
contracts is less than 10% of the sum of (i) the aggregate outstanding principal
balance of the contracts owned by the trust as of the closing date and (ii) the
initial amount on deposit in the pre-funding account, if any.
9
The depositor cannot fully predict the extent to which prepayments on
the contracts by the related obligors will shorten the life of the securities.
The rate of prepayments on the contracts may be influenced by a variety of
economic, social and other factors including:
o changes in customer requirements;
o the level of interest rates;
o the level of casualty losses; and
o the overall economic environment.
The depositor cannot assure you that prepayments on the contracts held
by the trust will conform to any historical experience. The depositor cannot
predict the actual rates of prepayments which will be experienced on the
contracts. However, your prospectus supplement may present information as to the
principal balances of the securities remaining on each payment date under
several hypothetical prepayment rates. You will bear all reinvestment risk
resulting from prepayments on the contracts and the corresponding acceleration
of payments on the securities. See "WEIGHTED AVERAGE LIVES OF THE SECURITIES" in
this prospectus.
CERTAIN EVENTS OF DEFAULT UNDER THE INDENTURE MAY RESULT IN INSUFFICIENT FUNDS
TO MAKE PAYMENTS ON YOUR SECURITIES
If the trust fails to pay principal of any class of notes on its final
scheduled payment date, or fails to pay interest on any class of notes within
five days of its due date, the indenture trustee or the holders of more than 50%
of the notes or the class or the classes of notes described in your prospectus
supplement may declare the entire amount of the notes to be due immediately. If
this happens, the holders of more than 50% (or such higher percentage as
specified in your prospectus supplement) of the notes or the class or classes of
notes described in your prospectus supplement may direct the indenture trustee
to sell the contracts and prepay the notes. In such event, there may not be
sufficient funds to pay all of the classes of securities in full.
PAID-AHEAD SIMPLE INTEREST CONTRACTS MAY AFFECT THE WEIGHTED AVERAGE LIFE OF THE
SECURITIES
If an obligor on a simple interest contract makes a payment on the
contract ahead of schedule, the weighted average life of the securities could be
affected. This is because the additional scheduled payments will be treated as a
principal prepayment and applied to reduce the principal balance of the related
contract. Obligors are generally not required to make any scheduled payments
during the period for which the contract was paid-ahead. During this period,
interest will continue to accrue on the contract principal balance, but the
contract would not be considered delinquent. Furthermore, when an obligor
resumes the required payments, they may be insufficient to cover the interest
that has accrued since the last payment by that obligor.
Generally paid-ahead payments shorten the weighted average lives of the
securities when the paid-ahead amount is applied to the payment of principal on
the securities; however, in certain circumstances the weighted average lives of
the securities may be extended. In addition, liquidation proceeds will be
applied first to reimburse any advances made by the servicer. Therefore, to the
extent the servicer makes advances on a paid-ahead simple interest contract
which subsequently goes into
10
default, the loss on this contract may be larger than would have been the case
had advances not been made.
The seller's portfolio of contracts has historically included simple
interest contracts which have been paid-ahead by one or more scheduled monthly
payments. We cannot predict the number of contracts which may become paid-ahead
simple interest contracts or the amount of scheduled payments which may be paid
ahead.
THE PRICE AT WHICH YOU CAN RESELL YOUR SECURITIES MAY DECREASE IF THE RATINGS
OF YOUR SECURITIES DECLINE
At the initial issuance of the offered securities, at least one
nationally recognized statistical rating organization will rate the offered
securities in one of the four highest rating categories. A security rating is
not a recommendation to buy, sell or hold securities. A rating will reflect the
rating agency's assessment of the likelihood that the holders of the securities
will receive the payment of interest on the securities on each payment date and
the payment of principal on the final scheduled payment date. Similar ratings on
different types of securities do not necessarily mean the same thing. You should
analyze the significance of each rating independently from any other rating. At
any time, a rating agency may lower its ratings of the offered securities or
withdraw its ratings entirely. If a rating assigned to any security is lowered
or withdrawn for any reason, you may not be able to resell your securities or
you may be able to resell them only at a substantial discount. For more detailed
information regarding the ratings assigned to the offered securities, see
"RATINGS OF THE SECURITIES" in this prospectus and in your prospectus
supplement.
SUBORDINATION MAY CAUSE SOME CLASSES OF SECURITIES TO BEAR ADDITIONAL CREDIT
RISK AND DOES NOT ENSURE PAYMENT OF THE MORE SENIOR CLASSES OF SECURITIES
The trust may pay interest and principal on some classes of securities
prior to paying interest and principal on other classes of securities. The
subordination of some classes of securities to others means that the
subordinated classes of securities are more likely to suffer the consequences of
delinquent payments and defaults on the contracts than the more senior classes
of securities.
The senior classes of securities could lose the credit enhancement
provided by the subordinate classes if delinquencies and defaults on the
contracts increase and if the collections on the contracts and any credit
enhancement described in your prospectus supplement are insufficient to pay even
the senior classes of securities.
Your prospectus supplement will describe any subordination provisions
applicable to your securities.
FUTURE DELINQUENCY AND LOSS EXPERIENCE OF THE CONTRACTS MAY VARY SUBSTANTIALLY
FROM THE SERVICER'S HISTORICAL EXPERIENCE
In your prospectus supplement, we will present the historical
delinquency and loss experience of the portfolio of contracts originated
directly or purchased by the seller and serviced by the servicer. However, the
actual results for the contracts transferred to your trust could be
substantially worse. If so, you may not receive interest and principal payments
on your securities in the amounts and at the times you expect.
11
INTERESTS OF OTHER PERSONS IN THE CONTRACTS OR THE FINANCED MOTORCYCLES COULD
REDUCE THE FUNDS AVAILABLE TO MAKE PAYMENTS ON YOUR SECURITIES
A person could acquire an interest in a contract that is superior to
that of the trust because the servicer will retain possession of the contracts.
If a person purchases contracts, or takes a security interest therein, for value
in the ordinary course of its business and obtains possession of the contracts
without actual knowledge of the trust's interest, that person will acquire an
interest in the contracts superior to the interest of the trust and some or all
of the collections on the contracts may be not available to make payments on the
securities.
A person could also acquire an interest in a financed motorcycle that
is superior to that of the trust because of the failure to identify the trust as
the secured party on the related certificate of title. The seller will assign
its security interests in the financed motorcycles to the depositor, and the
depositor will assign its security interests in the financed motorcycles to the
trust. The seller's assignment to the depositor, and the depositor's subsequent
assignment to the trust, are subject to state vehicle registration laws. These
registration laws require that the secured party's name appear on the
certificate or similar registration of title in order for the secured party's
security interest to be perfected. To facilitate servicing and reduce
administrative costs, the servicer will continue to hold the certificates of
title or ownership for the motorcycles and will not endorse or otherwise amend
the certificates of title or ownership to identify the trust as the new secured
party. As a result, the trust may not have a perfected security interest in the
financed motorcycles in certain states because the certificates or similar
registrations of title will not be amended to reflect the assignment of the
security interests in the financed motorcycles to the trust. In addition,
because the trust will not be identified as the secured party on any certificate
of title or similar registration of title, the security interest of the trust in
the motorcycles may be defeated through fraud, forgery, negligence or error.
The holders of some types of liens, such as tax liens or mechanics
liens, may have priority over the trust's security interest in the financed
motorcycles. The trust may lose its security interest in a financed motorcycle
confiscated by the government.
In the event that the trust must rely upon repossession and sale of the
financed motorcycle securing a defaulted contract to recover amounts due on the
defaulted contract, the trust's ability to realize upon the financed motorcycle
would be limited by the failure to have a perfected security interest in the
related financed motorcycle or the existence of a senior security interest in
the financed motorcycle. In this event, you may be subject to delays in payment
and may incur losses on your investment in the securities as a result of
defaults or delinquencies by obligors. See "LEGAL ASPECTS OF THE
CONTRACTS--SECURITY INTERESTS" in this prospectus.
LIMITATIONS ON ENFORCEABILITY OF SECURITY INTERESTS IN THE FINANCED MOTORCYCLES
MAY HINDER THE TRUST'S ABILITY TO REALIZE THE VALUE OF THE FINANCED
MOTORCYCLES
State law limitations on the enforceability of security interests and
the manner in which a secured party may dispose of collateral may limit or delay
the trust's ability to obtain or sell the financed motorcycles. This could
reduce or delay the availability of funds to make payments on your securities.
Under these state law limitations:
o some jurisdictions require that the obligor be notified of the
default and be given a period of time within which it may cure the
default prior to or after repossession; and
12
o the obligor may have the right to redeem collateral for its
obligations prior to actual sale by paying the secured party the
unpaid balance of the obligation plus the secured party's expenses
for repossessing, holding and preparing the collateral for
disposition.
CONTRACTS THAT FAIL TO COMPLY WITH CONSUMER PROTECTION LAWS MAY BE
UNENFORCEABLE, WHICH MAY RESULT IN LOSSES ON YOUR INVESTMENT
The contracts are consumer contracts subject to many federal and state
consumer protection laws. If any of the contracts do not comply with one or more
of these laws, the servicer may be prevented from or delayed in collecting
amounts due on the contracts. If that happens, payments on the securities could
be delayed or reduced. See "LEGAL ASPECTS OF THE CONTRACTS--CONSUMER PROTECTION
LAWS" in this prospectus.
Each of the depositor and seller will make representations and
warranties relating to the contracts' compliance with consumer protection laws
and the enforceability of the contracts. If those representations and warranties
are not true as to any contract and the breach materially and adversely affects
the trust's or the securityholders' interest in the contract or the
collectibility of the contract, the depositor will be obligated to repurchase
the contract from the trust and the seller will be required to repurchase the
contract from the depositor.
REPURCHASE OBLIGATION OF THE DEPOSITOR AND THE SELLER PROVIDES YOU ONLY LIMITED
PROTECTION AGAINST PRIOR LIENS ON THE CONTRACTS
Federal or state law may grant liens on contracts that have priority
over the trust's interest. If the creditor associated with any prior lien on a
contract exercises its remedies, the cash proceeds from the contract and related
financed motorcycle available to the trust will be reduced. In that event, there
may be a delay or reduction in distributions to you. An example of a lien
arising under federal or state law is a tax lien on property of the seller or
depositor arising prior to the time a contract is conveyed to the trust. Such a
tax lien would have priority over the interest of the trust in the contracts.
The seller will represent and warrant to the depositor, and the
depositor will represent and warrant to the trust, that there are no prior liens
on the contracts. In addition, the seller will represent and warrant to the
depositor, and the depositor will represent and warrant to the trust, that it
will not grant any lien on the contracts. If those representations and
warranties are not true as to any contract and the breach materially and
adversely affects the trust's or the securityholders' interest in the contract
or the collectibility of the contract, the depositor will be obligated to
repurchase the contract from the trust and the seller will be required to
repurchase the contract from the depositor. There can be no assurance that the
depositor or the seller will be able to repurchase a contract at the time when
it is asked to do so.
BANKRUPTCY OF THE OBLIGORS MAY REDUCE OR DELAY COLLECTIONS ON THE CONTRACTS, AND
THE SALE OF FINANCED MOTORCYCLES RELATING TO DEFAULTING OBLIGORS MAY BE
DELAYED OR MAY NOT RESULT IN COMPLETE RECOVERY OF AMOUNTS DUE
Bankruptcy and insolvency laws affect the risk of loss on the contracts
of obligors who become subject to bankruptcy proceedings. Those laws could
result in the write-off of contracts of bankrupt obligors or result in delay in
payments due on the contracts. For example, if the obligor becomes bankrupt or
insolvent, the trust may need the permission of a bankruptcy court to obtain and
sell its
13
collateral. As a result, you may be subject to delays in receiving
payments, and you may also suffer losses if available credit enhancement for
losses is insufficient.
IF A BANKRUPTCY COURT DETERMINES THAT THE TRANSFER OF CONTRACTS FROM THE
ORIGINATING DEALERS TO THE SELLER OR FROM THE SELLER TO THE DEPOSITOR WAS
NOT A TRUE SALE, THEN PAYMENTS ON THE CONTRACTS COULD BE DELAYED RESULTING
IN LOSSES OR DELAYS IN PAYMENTS ON YOUR SECURITIES
If an originating dealer or the seller became a debtor in a bankruptcy
case, creditors of that party, or that party acting as debtor-in-possession, may
assert that the transfer of the contracts was ineffective to remove the
contracts from that party's estate. In that case, the distribution of payments
on the contracts to the trust might be subject to the automatic stay provisions
of the United States bankruptcy code. This would delay the distribution of those
payments to you for an uncertain period of time. Furthermore, reductions in
payments under the contracts to the trust may result if the bankruptcy court
rules in favor of the creditors or the debtor-in-possession. In either case, you
may experience delays or reductions in distributions or payments to you. In
addition, a bankruptcy trustee would have the power to sell the contracts if the
proceeds of the sale could satisfy the amount of the debt deemed owed by the
originating dealer or the seller, as the case may be. The bankruptcy trustee
could also substitute other collateral in lieu of the contracts to secure the
debt. Additionally, the bankruptcy court could adjust the debt if the
originating dealer or the seller were to file for reorganization under Chapter
11 of the bankruptcy code. Any of these actions could result in losses or delays
in payments on your securities. The originating dealers and the seller will each
represent and warrant that its conveyance of the contracts is a valid sale and
transfer of the contracts. See "LEGAL ASPECTS OF THE CONTRACTS--BANKRUPTCY
CONSIDERATIONS."
IF A BANKRUPTCY COURT DECIDES TO CONSOLIDATE THE ASSETS AND LIABILITIES OF
THE DEPOSITOR AND THE SELLER, PAYMENTS ON THE CONTRACTS COULD BE DELAYED
RESULTING IN LOSSES OR DELAYS IN PAYMENTS ON THE SECURITIES
If the seller became a debtor in a bankruptcy case, the seller, a
creditor or party acting as debtor-in-possession could request a bankruptcy
court to order that the seller's assets and liabilities be substantially
consolidated with the depositor's assets and liabilities. If the bankruptcy
court consolidated the assets and liabilities of the seller and the depositor,
delays and possible reductions in the amounts of distributions on the securities
could occur. See "LEGAL ASPECTS OF THE CONTRACTS--BANKRUPTCY CONSIDERATIONS."
PROCEEDS OF THE SALE OF CONTRACTS MAY NOT BE SUFFICIENT TO PAY YOUR SECURITIES
IN FULL; FAILURE TO PAY PRINCIPAL ON YOUR SECURITIES WILL NOT CONSTITUTE
AN EVENT OF DEFAULT UNTIL MATURITY
If so directed by the holders of the requisite percentage of
outstanding notes following an acceleration of the notes upon an event of
default, the indenture trustee in certain circumstances will sell the contracts
owned by the trust. However, there is no assurance that the market value of
those contracts will at any time be equal to or greater than the aggregate
outstanding principal balance of the securities. Therefore, upon a sale of the
contracts, there can be no assurance that sufficient funds will be available to
repay your securities in full. In addition, the amount of principal required to
be paid to you on each payment date will generally be limited to amounts
available in the collection account and the reserve fund, if any. The failure to
pay principal of your securities generally will not result in the occurrence of
an event of default until the final scheduled payment date for your securities.
See "DESCRIPTION OF THE NOTES AND INDENTURE--THE INDENTURE--EVENTS OF DEFAULT;
RIGHTS UPON EVENT OF DEFAULT" in this prospectus.
14
COMMINGLING OF COLLECTIONS COULD RESULT IN REDUCED PAYMENTS TO YOU
If permitted by the rating agencies, rating the securities the servicer
may hold collections it receives from the obligors on the contracts with its own
funds until the day prior to the next date on which distributions will be made
on the securities. If the servicer does not pay these amounts to the trust when
required to do so, the trust may be unable to make the payments owed on your
securities. In the event the servicer becomes a debtor in a bankruptcy case, the
trust may not have a perfected security interest in these collections. In either
case, you may suffer losses on your investment.
YOU MAY NOT BE ABLE TO RESELL YOUR SECURITIES
There is currently no secondary market for the securities. We cannot
assure you that a secondary market will develop and if it does develop how
liquid it will be. Thus, you may not be able to resell your securities at all,
or may be able to do so only at a substantial discount. The underwriters may
assist in resales of the securities but they are not obligated to do so.
IF THE TRUST ENTERS INTO A CURRENCY OR AN INTEREST RATE SWAP, PAYMENTS ON THE
SECURITIES WILL BE DEPENDENT ON PAYMENTS MADE UNDER THE SWAP AGREEMENT
If the trust enters into a swap agreement, its ability to protect
itself from shortfalls in cash flow caused by currency or interest rate changes
will depend to a large extent on the terms of the swap agreement, whether the
swap agreement is legally enforceable and whether the swap counterparty performs
its obligations under the swap. If the trust does not receive the payments it
expects under the swap agreement, the trust may not have adequate funds to make
all payments owed on your securities when due.
THE RATING OF A SWAP COUNTERPARTY MAY AFFECT THE RATINGS OF THE SECURITIES
If a trust enters into a swap, the rating agencies that rate the
trust's securities will consider the provisions of the swap agreement and the
rating of the swap counterparty. If a rating agency downgrades the debt rating
of the swap counterparty, it may downgrade the rating of the securities. In such
an event, you may not be able to resell your securities or you may be able to
resell them only at a substantial discount.
YOU MAY EXPERIENCE REINVESTMENT RISK ASSOCIATED WITH PRE-FUNDING ACCOUNTS
If so provided in the prospectus supplement, on the closing date an
amount will be deposited into the pre-funding account. The amount on deposit in
the pre-funding account will be used to purchase subsequent contracts from the
depositor (which, concurrently will acquire such subsequent contracts from the
seller) from time to time during the funding period specified in the prospectus
supplement. If the principal amount of the eligible subsequent contracts
acquired by the seller from originating dealers during the funding period is
less than the amount on deposit in the pre-funding account, the seller may have
insufficient subsequent contracts to transfer to the depositor.
Any conveyance of subsequent contracts to a trust is also subject to
the satisfaction, on or before the related subsequent transfer date, of the
following conditions precedent, among others: (i) each such subsequent contract
must satisfy the eligibility criteria specified in the related transfer and sale
agreement, pooling and servicing agreement or sale and servicing agreement, as
applicable; (ii) the seller and the
15
depositor shall not have selected such subsequent contracts in a manner that
is adverse to the interests of holders of the securities; and (iii) as of the
cutoff dates for such subsequent contracts, all of the contracts in the
trust, including the subsequent contracts to be conveyed to the trust as of
such date, must satisfy the parameters described in the prospectus supplement.
To the extent that the amount on deposit in the pre-funding account has
not been applied to the purchase of subsequent contracts by the end of the
funding period, any amounts remaining in the pre-funding account will be
distributed as a prepayment of principal to you, in the amounts and pursuant to
the priorities set forth in the prospectus supplement. To the extent you receive
such a prepayment of principal, there may not then exist a comparably favorable
reinvestment opportunity and you will bear all reinvestment risk resulting from
such prepayments.
THE TRUST HAS LIMITED RECOURSE AGAINST THE SELLER AND THE DEPOSITOR
None of the seller, the depositor or any of their affiliates is
generally obligated to make any payments in respect of any notes, the
certificates or the contracts of the trust. However, in connection with the sale
of contracts by the depositor to the trust, the depositor will make
representations and warranties with respect to the characteristics of such
contracts and, in certain circumstances, the depositor may be required to
repurchase contracts with respect to which such representations and warranties
have been breached. The seller will correspondingly be obligated to the
depositor under the transfer and sale agreement (which rights of the depositor
against the seller will be assigned to the trust) to repurchase the contracts
from the depositor contemporaneously with the depositor's repurchase of the
contracts from the trust. See "DESCRIPTION OF THE SALE AND SERVICING AGREEMENTS
AND POOLING AND SERVICING AGREEMENTS--SALE AND ASSIGNMENT OF CONTRACTS".
THE TRUST DOES NOT HAVE SIGNIFICANT ASSETS OR SOURCES OF FUNDS OTHER THAN THE
CONTRACTS
The trust does not have and will not be permitted or expected to have,
any significant assets or sources of funds other than the contracts and, to the
extent provided in your prospectus supplement, a pre-funding account, a reserve
fund and any other credit enhancement or trust property. The notes will
represent obligations solely of, and the certificates will represent interests
solely in, the trust, and neither the notes nor the certificates will be insured
or guaranteed by the depositor, the servicer, the trustee, the indenture trustee
or any other person or entity (except as may be described in your prospectus
supplement). Consequently, you must rely for repayment upon payments on the
contracts and, if and to the extent available, amounts on deposit in the
pre-funding account (if any), the reserve fund (if any) and any other credit
enhancement, all as specified in your prospectus supplement. Any such credit
enhancement will not cover all contingencies, and losses in excess of amounts
available pursuant to any credit enhancement will be borne directly by you.
SOCIAL, ECONOMIC AND OTHER FACTORS MAY AFFECT THE PERFORMANCE OF THE CONTRACTS
AND THE AVAILABILITY OF SUBSEQUENT CONTRACTS
Economic conditions in countries, states or U.S. Territories where
obligors reside may affect the delinquency, loan loss and repossession
experience of the trust with respect to the contracts. The performance by such
obligors, or the ability of the seller to acquire from originating dealers
sufficient subsequent contracts for purchase with the amount on deposit in the
pre-funding account (if any), may be affected by a variety of social and
economic factors including, but not limited to, interest rates, unemployment
levels, the rate of inflation, and consumer perception of economic conditions
generally.
16
However, neither the seller nor the depositor is able to determine or
predict whether or to what extent economic or social factors will affect the
performance by any obligors, or the availability of subsequent contracts in
cases where subsequent contracts are to be transferred to the trust as specified
in the prospectus supplement.
THE HOLDERS OF THE NOTES OR THE CLASS OR CLASSES OF NOTES DESCRIBED IN YOUR
PROSPECTUS SUPPLEMENT MAY REMOVE THE SERVICER WITHOUT THE CONSENT OF THE
HOLDERS OF THE CERTIFICATES OR THE OTHER CLASSES OF NOTES
To the extent specified in your prospectus supplement, if there is a
servicer default under the sale and servicing agreement, the indenture trustee
or the holders of either the notes or the class or classes of notes described in
your prospectus supplement may remove the servicer without the consent of the
indenture trustee or the holders of the certificates or the other classes of
notes. Neither the trustee nor the holders of the certificates will have the
ability, without the concurrence of the holders of the notes or certain classes
of notes, to remove the servicer if a servicer default occurs.
THE RATINGS ON YOUR SECURITIES MAY BE LOWERED OR WITHDRAWN
It is a condition to the issuance of the offered securities that they
be rated in one of the four highest rating categories by at least one nationally
recognized statistical rating organization. A rating is not a recommendation to
purchase, hold or sell securities inasmuch as such rating does not comment as to
market price or suitability for a particular investor. Ratings of securities
will address the likelihood of the payment of principal and interest thereon
pursuant to their terms. The ratings of securities will not address the
likelihood of an early return of invested principal. There can be no assurance
that a rating will remain for a given period of time or that a rating will not
be lowered or withdrawn entirely by a rating agency if in its judgment
circumstances in the future so warrant. For more detailed information regarding
the ratings assigned to any class of a particular series of securities, see
"RATINGS OF THE SECURITIES" in your prospectus supplement.
17
HARLEY-DAVIDSON MOTORCYCLES
All of the motorcycles securing contracts were manufactured by
Harley-Davidson, Inc. ("HARLEY-DAVIDSON"), except that not more than 8.0% of the
contracts (including all subsequent contracts) may relate to, and be secured by,
motorcycles manufactured by Buell Motorcycle Company, a wholly-owned subsidiary
of Harley-Davidson ("BUELL"), and not more than 10.0% of the contracts
(including all subsequent contracts) may relate to, and be secured by,
motorcycles manufactured by other manufacturers as described below. Buell
produces "PERFORMANCE" motorcycles using engines and certain other parts
manufactured by Harley-Davidson.
Harley-Davidson produces and sells premium heavyweight motorcycles.
Within the heavyweight class, Harley-Davidson sells touring motorcycles
(equipped for long-distance touring), as well as custom motorcycles which
emphasize the distinctive styling associated with certain classic
Harley-Davidson motorcycles. Harley-Davidson motorcycles are based on variations
of five basic chassis designs and are powered by one of four air cooled, twin
cylinder engines of "V" configuration which have displacements of 883cc, 1200cc,
1340cc, 1450cc and 1550cc. Harley-Davidson manufactures its own engines and
frames and is the only major manufacturer of motorcycles in the United States.
Buell produces "SPORTS PERFORMANCE" and "SPORT TOURING" motorcycles
using Harley-Davidson engines that are further modified in the manufacturing
process, as well as certain other Harley-Davidson parts. The "SPORTS
PERFORMANCE" and "SPORT TOURING" aspect of the motorcycles refers to overall
handling characteristics of the motorcycle, including cornering, acceleration
and braking. Buell's overall share of the "SPORTS PERFORMANCE" and "SPORT
TOURING" market has grown to approximately 18% as of December 31, 1999.
OTHER MANUFACTURERS
Except as otherwise specified in your prospectus supplement, contracts
aggregating not more than 10.0% of the aggregate principal balances of all
contracts in a trust (including subsequent contracts) may relate to, and be
secured by, motorcycles manufactured by Honda, Yamaha, Suzuki, Kawasaki as well
as certain other manufacturers. Such motorcycles fall within two categories:
"touring cycles" (with displacements typically over 750cc) which are generally
intended for use in long distance travel, and "street legal cycles", which
include all other motorcycles which may be licensed for street use under
applicable state or local law and which are not generally viewed as falling with
the "touring cycle" category.
HARLEY-DAVIDSON FINANCIAL SERVICES, INC.
Harley-Davidson Financial Services, Inc. ("HDFS") (formerly known as
Eaglemark Financial Services, Inc.) is the financing division of
Harley-Davidson. HDFS was originally formed in June 1992 with a capital infusion
of $10,000,000 from Harley-Davidson and an additional $15,000,000 capital
contribution from a major institutional investor in January 1993. In November
1995, Harley-Davidson purchased the equity owned by the major institutional
investor and, as of December 31, 1999, HDFS is a wholly-owned subsidiary of
Harley-Davidson. The business of HDFS, through its 100% ownership of
Harley-Davidson Credit Corp., has been to provide financial services programs to
Harley-Davidson and Buell motorcycle dealers and customers in the United States
and Canada.
18
In addition, HDFS markets the Harley-Davidson Chrome VISA card, through
licensing agreements, in the United States and Canada, and offers wholesale and
retail financing programs for Harley-Davidson's European motorcycle dealers
through joint ventures with other finance companies. HDFS also provides
financial services programs for personal aircraft products in the United States.
THE SELLER AND SERVICER
GENERAL
Harley-Davidson Credit Corp. ("HDCC") (formerly known as Eaglemark,
Inc.) is a Nevada corporation and is a wholly-owned subsidiary of HDFS. HDCC
began operations in January 1993 when it purchased the $85 million wholesale
financing portfolio of certain Harley-Davidson dealers from ITT Commercial
Finance; subsequently, HDCC entered the retail consumer finance business. HDCC
provides wholesale and retail financial services programs to Harley-Davidson and
Buell dealers and consumers in the United States and Canada.
Wholesale financial services include floorplan and open account
financing for motorcycles and motorcycle parts and accessories, real estate
loans, computer loans, showroom remodeling loans and, through Harley-Davidson
Insurance Services, Inc., a wholly-owned subsidiary of HDFS ("HDI"), the
brokerage of a range of commercial insurance products.
Retail financial services include installment lending for new and used
Harley-Davidson and Buell motorcycles and the brokerage of a range of motorcycle
insurance policies and extended service contracts through HDI. HDI acts as an
insurance agent and does not assume any underwriting risk with regard to
insurance policies and extended service agreements.
HDCC's financing, insurance and credit card programs are designed to
work together as a package that appeals to the needs of Harley-Davidson's
customers. The intent of such a package is to increase dealer and customer
loyalty to HDCC while improving revenue and profits over time. HDCC's principal
executive offices are located at 4150 Technology Way, Carson City, Nevada 89706
(telephone 775/886-3200). As of December 31, 1999, HDCC had total assets of
$814.1 million, and stockholder's equity of $131.9 million.
UNDERWRITING AND ORIGINATION
The contracts in each trust have been or will be purchased by the
seller from a network of Harley-Davidson dealers located throughout the United
States and, in certain instances, Canada. The seller's personnel contact dealers
and explain the seller's available financing plans, terms, prevailing rates and
credit and financing policies. If the dealer wishes to use the seller's
available customer financing, the dealer must make an application to the seller
for approval.
Contracts that the seller purchases are written on forms provided or
approved by the seller and are purchased on an individually approved basis in
accordance with the seller's guidelines. The dealer submits the customer's
credit application and purchase order to the seller's office where an analysis
of the creditworthiness of the proposed buyer is made. The analysis includes a
review of the proposed buyer's paying habits, collateral information, length and
likelihood of continued employment and certain other procedures. The seller's
current underwriting guidelines for contracts generally require that the monthly
payment on the contract, together with the obligor's other fixed monthly
obligations, not exceed 40% of
19
the obligor's monthly gross income; provided, however, that the seller may
originate a contract with a monthly payment in excess of 40% of an obligor's
monthly gross income if the obligor makes a larger down payment or has an
exceptionally good credit rating or other offsetting factors exist. With
respect to contracts for new motorcycles, and for used motorcycles of model
year 1991 or later, the seller generally finances up to 90% of the
motorcycle's sales price. The seller generally finances up to 85% of such
amount for used motorcycles of a model year earlier than 1991. The seller
will also finance, as part of the principal balance of the respective
contract, certain dealer installed accessories, sales tax and title fees as
well as premiums for the term of the contract on optional credit life and
accident and health insurance, premiums for extended warranty insurance,
premiums for GAP insurance and premiums for required physical damage
insurance on the motorcycle. If the application meets the seller's guidelines
and the credit is approved, the seller purchases the contract when the
customer accepts delivery of the motorcycle.
INDIVIDUAL MOTORCYCLE INSURANCE
The terms of each contract require that for the life of the contract,
each motorcycle is to be covered by a collision and comprehensive insurance
policy which covers physical damage risks and names the seller as a loss payee.
The amount of insurance coverage is limited to the value of the motorcycle. In
the transfer and sale agreement, the seller will represent and warrant that each
motorcycle was covered by the required insurance at the time of the related
contract's origination. Pursuant to the contract terms, the servicer may "FORCE
PLACE" (I.E., purchase on its own, with a corresponding claim for reimbursement
against the obligor to the extent provided in the applicable contract) collision
and comprehensive insurance with respect to the related motorcycle in those
situations in which the obligor has not maintained the required insurance. If
the servicer does "FORCE PLACE" insurance, as conveyee and assignee of the
contracts, the trust will be entitled to the benefits of such insurance.
Following repossession of a motorcycle by the servicer, the servicer does not
maintain such insurance. In the event the servicer repossesses a motorcycle on
behalf of the trust, the servicer will act as self-insurer for any damage to
such motorcycle until it is resold.
COLLECTION PROCEDURES
The servicer will make reasonable efforts to collect all payments due
with respect to the contracts held by any trust and will, consistent with the
related sale and servicing agreement or pooling and servicing agreement, follow
such collection procedures as it follows with respect to comparable motor
vehicle retail installment sale contracts and installment loans it services for
itself or others.
The servicer's collection efforts include having personnel, using a
predictive dialer, call a delinquent obligor on a pre-determined basis every
third day in the event such obligor is eleven to twenty-nine days delinquent
(with the exception of first payment defaults and loans classified as "DELTA
ACCOUNTS" which are called beginning on the second day of delinquency). At
thirty days delinquent, the account is reassigned from the predictive dialer
team to a dedicated senior collection associate and is called every third day in
the event the obligor is thirty to less than ninety days delinquent and every
day in the event the obligor is greater than ninety days delinquent. The
servicer's general approach is to restructure a delinquent loan as opposed to
repossessing the related motorcycle; however, the servicer's approach with
respect to a specific obligor is affected by the obligor's responsiveness and
attitude. Consistent with this approach, the servicer may, in its discretion,
arrange with the obligor on a contract to extend or modify the payment schedule,
but no such arrangement will, for purposes of any sale and servicing agreement
or pooling and servicing agreement, modify the original due dates or the amount
of
20
the scheduled payments or extend the final payment date of any contract
beyond the last day of the due period relating to the latest maturity date (as
specified with respect to the pool of contracts in the related prospectus
supplement). The servicer may sell the motorcycle securing the respective
contract at public or private sale, or take any other action permitted by
applicable law. See "LEGAL ASPECTS OF THE CONTRACTS" in this prospectus.
REPOSSESSION
Certain information concerning the experience of the seller pertaining
to delinquencies, repossessions and net losses with respect to new and used
motorcycle contracts will be set forth in the prospectus supplement. There can
be no assurance that the delinquency, repossession and net loss experience on
any particular pool of contracts will be comparable to prior experience or to
such information.
YEAR 2000
The seller and servicer initiated and completed a program designed to
resolve the potential impact of the year 2000 on the ability of its computerized
information systems to accurately process information that may be date
sensitive. The seller and servicer identified the critical data storage and
operating systems and developed plans to ensure the readiness of systems to
process dates beyond the year 2000. Furthermore, the seller and servicer
communicated with the originating dealers, financial institutions and suppliers
to determine the risk created by those parties' failure to remediate their own
year 2000 issues.
To date, neither the seller nor the servicer has experienced any
material problems relating to the year 2000 issue. In addition, neither the
seller nor the depositor expects to incur material costs in the future as a
result of the year 2000 issue. There is no assurance that neither the seller nor
servicer will experience problems in the future as a result of the year 2000
issue.
THE DEPOSITOR
The depositor will be Harley-Davidson Customer Funding Corp., a
special-purpose finance subsidiary of Harley-Davidson Credit Corp. All of
the common stock of the depositor will be owned by Harley-Davidson Credit
Corp. All of the officers and directors of the depositor will be employed by
Harley-Davidson Credit Corp. or Harley-Davidson Financial Services, Inc.,
except that at least two directors of the depositor will at all times be
independent of Harley-Davidson Credit Corp., Harley Davidson Financial
Services, Inc. and Harley-Davidson, Inc.
THE TRUSTS
The depositor will establish each trust pursuant to a trust agreement
or a pooling and servicing agreement for the transactions described in this
prospectus. Each trust will be a common law trust or a statutory trust. Each
trust may issue one or more classes of securities, representing debt of or
beneficial ownership interests in the trust.
On or before the date of the initial issuance of any securities by a
trust, the seller will sell the pool of contracts and the related property to
the depositor pursuant to a transfer and sale agreement and the depositor will
transfer the pool of contracts and the related property to the trust in exchange
for the
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securities issued by the trust pursuant to a sale and servicing
agreement or a pooling and servicing agreement.
To the extent provided in the prospectus supplement, the depositor
may convey additional contracts to the trust after the closing date as
frequently as daily during a funding period specified in the prospectus
supplement. The trust will purchase any contracts subsequently added to the
trust with amounts deposited in a pre-funding account on the closing date.
Any subsequent contracts will be required to conform to the requirements
described in the prospectus supplement. Any subsequent contracts will also be
assets of the trust. Any funds remaining on deposit in a pre-funding account
at the end of the funding period will be used to prepay principal on the
securities as specified in your prospectus supplement.
To the extent provided in the prospectus supplement, all or a portion
of the principal collected on the contracts may be applied by the trustee to the
acquisition of subsequent contracts during a period specified in the prospectus
supplement rather than used to make or distribute payments of principal to
securityholders during that period. These securities would then possess an
interest only period, also commonly referred to as a "REVOLVING PERIOD", which
will be followed by an "AMORTIZATION PERIOD", during which principal will be
paid. Any interest only or revolving period may terminate prior to the end of
the specified period and result in the earlier than expected principal repayment
of the securities.
The property of each trust, as further specified in your prospectus
supplement, will consist of:
o the contracts and the right to receive all scheduled payments
and prepayments received on the contracts on or after the
cut-off date, but excluding any scheduled payments due on or
after, but received prior to, the cut-off date;
o amounts that may be held in separate trust accounts maintained
by the trustee or the indenture trustee for the trust,
including any reserve fund or interest reserve account;
o security interests in the financed motorcycles securing the
contracts and any related property;
o rights with respect to any repossessed financed motorcycles;
o the rights to proceeds from claims on physical damage, or
other insurance policies covering the financed motorcycles or
the obligors;
o the depositor's rights against the seller under the transfer
and sale agreement pursuant to which the seller sold the pool
of contracts to the depositor;
o the right to receive payments from the depositor obligated to
repurchase contracts which do not meet specified
representations made by depositor in the sale and servicing
agreement or the pooling and servicing agreement;
o the trust's rights against the servicer under the sale and
servicing agreement or the pooling and servicing agreement;
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o credit or cash flow enhancement for the securities specified
in the prospectus supplement; and
o all proceeds of the foregoing.
The property of a trust may also include a derivative arrangement for
any series or any class of securities. A derivative arrangement may include a
guaranteed rate agreement, a maturity liquidity facility, a tax protection
agreement, an interest rate cap or floor agreement, an interest rate or currency
swap agreement or any other similar arrangement. If the property of the trust
includes any of these types of assets, additional information concerning them
will be provided to you in your prospectus supplement.
If the trust issues notes, the trust will pledge its assets to the
indenture trustee for the benefit of the noteholders to secure its obligations
under the notes.
No trust will engage in any business activity other than:
o issuing notes and/or ownership interests in the trust;
o purchasing contracts, security interests in the related
financed motorcycles and related property;
o holding and dealing with assets of the trust;
o making payments on the securities it issued;
o entering into and performing the duties, responsibilities and
functions required under the pooling and servicing agreement,
the sale and servicing agreement, the indenture and related
documents; and
o matters incidental to the foregoing.
The assets of a trust will be separate from the assets of all other
trusts created by the depositor. Accordingly, the assets of one trust will not
be available to make payments on the securities issued by any other trust.
USE OF PROCEEDS
Unless otherwise provided in the related prospectus supplement, the
trust will use the net proceeds received from the sale of the securities (i) to
purchase the initial contracts and related assets from the trust depositor, and
(ii) to make a deposit into the pre-funding account, if any. The seller will use
the net proceeds from the trust depositor's purchase of the initial contracts,
as well as subsequent contracts, for general corporate purposes.
THE TRUSTEE
The prospectus supplement will specify the trustee for each trust and,
if the trust is issuing notes, the indenture trustee under the indenture. The
trustee's or the indenture trustee's liability in connection with the issuance
and sale of the related securities is limited solely to the express obligations
set forth in
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the related trust agreement, pooling and servicing agreement, sale and
servicing agreement or indenture. A trustee may resign at any time, in which
event, the depositor will be obligated to appoint a successor. An indenture
trustee may resign at any time, in which event, the trust or the
administrator, on the trust's behalf, will be obligated to appoint a
successor. A trustee that becomes insolvent or otherwise ceases to be
eligible to continue in that capacity under the related pooling and servicing
agreement or trust agreement may be removed by the depositor. An indenture
trustee that becomes insolvent or otherwise ceases to be eligible to continue
in its capacity under the indenture may be removed by the trust or the
administrator, on the trust's behalf. In those circumstances, the servicer or
the administrator, as the case may be, will be obligated to appoint a
successor. Any resignation or removal of a trustee will not become effective
until acceptance of the appointment of a successor trustee.
In addition, the holders of more than 50% of the aggregate principal
amount of the notes or the class or classes of the notes described in your
prospectus supplement may remove the indenture trustee without cause and may
appoint a successor indenture trustee. If a trust issues a class of notes that
is subordinated to one or more other classes of notes and an event of default
occurs under the indenture, the indenture trustee may be deemed to have a
conflict of interest under the Trust Indenture Act of 1939 and may be required
to resign as trustee for one or more of the classes of notes. In any such case,
the indenture will provide for a successor indenture trustee to be appointed for
those classes of notes.
Each of the trustee and the indenture trustee and any of its respective
affiliates may hold securities in its own name or as a pledgee. For the purpose
of meeting the legal requirements of some jurisdictions, the servicer and the
related trustee will have the power to appoint co-trustees or separate trustees
of all or any part of the trust.
You will find the addresses of the principal offices of the trust, the
trustee and, if applicable, the indenture trustee in your prospectus supplement.
WEIGHTED AVERAGE LIVES OF THE SECURITIES
The weighted average lives of the securities of any trust will be a
function of the weighted average lives of the contracts held by the trust. The
weighted average lives of the contracts will be influenced by the rate at which
the principal balances of the related contracts are paid. The term "WEIGHTED
AVERAGE LIFE" means the average amount of time during which each dollar of
principal of a contract is outstanding.
All of the contracts will be prepayable at any time without penalty to
the obligor. If full or partial prepayments are received on the contracts, the
actual weighted average lives of the contracts will be shorter than the
scheduled weighted average lives of the contracts set forth in your prospectus
supplement. Prepayments include optional prepayments by obligors, liquidations
due to default, partial prepayments from rebates of extended warranties and
insurance premiums, as well as receipts of proceeds from physical damage, credit
life and disability insurance policies. Prepayment rates are influenced by a
variety of economic, social and other factors, including the fact that an
obligor generally may not sell or transfer the financed motorcycle securing a
contract without obtaining the certificate of title from the servicer.
We cannot predict the rate of prepayment on the contracts in either
stable or changing interest rate environments. The servicer maintains limited
records of the historical prepayment experience of the contracts included in its
portfolio but is not aware of any publicly available industry statistics for the
entire industry that set forth prepayment experience for receivables similar to
the contracts. The servicer
24
believes that its prepayment experience is consistent with that generally
found in the industry. However, neither the servicer nor the depositor can
assure you that prepayments will conform to historical experience. The
weighted average lives of the securities will also be impacted to the extent
that the depositor or the seller is obligated to repurchase contracts from a
given trust as a result of breaches of particular representations and
warranties relating to the contracts. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--SALE AND ASSIGNMENT OF CONTRACTS BY SELLER" and
"--TRANSFER OF CONTRACTS BY DEPOSITOR" in this prospectus. The weighted
average lives of the securities will also be impacted to the extent the
servicer is obligated to purchase contracts from a given trust as a result of
breaches of certain covenants relating to the contracts. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--SERVICING" in this prospectus. In
addition, early retirement of the securities may be effected by the exercise
of the option of the depositor, at the direction of the servicer, to purchase
all of the contracts remaining in the trust when the aggregate outstanding
principal balance of the contracts is less than 10% of the sum of (i) the
aggregate outstanding principal balance of the contracts owned by the trust
as of the closing date and (ii) the initial amount on deposit in the
pre-funding account, if any. You will bear all of the reinvestment risk
resulting from the rate of prepayments of the contracts.
Your prospectus supplement may set forth additional information
regarding the maturity and prepayment considerations applicable to your pool of
contracts and your securities.
FACTORS AND TRADING INFORMATION
The "NOTE FACTOR" or, if applicable, the "CERTIFICATE FACTOR" for any
class of securities issued by an "owner trust" will be a seven-digit decimal
indicating the principal amount of that class of securities on the payment date
as a fraction of the respective principal amount of that class as of the closing
date. The servicer will compute the note factor and, if applicable, the
certificate factor each month. Initially, each factor will be 1.0000000 and
thereafter will decline to reflect reductions in the principal amount of each
class of notes and, if applicable, the reductions in the certificate balance.
The servicer will compute the principal amount by allocating payments in respect
of the contracts to principal and interest using the simple interest method. The
portion of the principal amount of any class of notes and of the certificate
balance for any class of certificates for a given month allocable to a
securityholder can be determined by multiplying the original denomination of the
holder's security by the related note factor or certificate factor, as the case
may be, for that month.
The "POOL FACTOR" for any class of certificates issued by a "grantor
trust" will be a seven-digit decimal indicating the principal amount of that
class of certificates on the payment date as a fraction of the respective
principal amount thereof as of the closing date. The servicer will compute the
pool factor each month and will calculate the pool factor by dividing the
certificate balance for that class of certificates as of the close of business
on the last day of the preceding month by the aggregate certificate balance of
the certificates as of the closing date.
You will receive monthly reports concerning the payments received on
the contracts, the aggregate principal balance of the contracts, the related
note factors, certificate factors, pool factors and various other items of
information pertaining to the trust. Furthermore, the trustee or the indenture
trustee will furnish you with information for tax reporting purposes not later
than on the latest date permitted by law. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--SERVICING--STATEMENTS TO SECURITYHOLDERS" in this
prospectus.
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DESCRIPTION OF THE NOTES AND INDENTURE
GENERAL
The issuance of each series of notes will be under an indenture, a form
of which was filed with the Securities and Exchange Commission as an exhibit to
the registration statement of which this prospectus is a part. In addition, a
copy of the indenture for a series of notes will be filed with the Securities
and Exchange Commission following the issuance of each series of securities.
This summary describes the material terms of each indenture and the notes. This
summary is subject to, and qualified in its entirety by reference to, all of the
provisions of the indenture and the notes.
The notes will be issued in fully registered form only and will
represent the obligations of a separate trust. Notes will be available for
purchase by you in the denominations specified in your prospectus supplement.
Your prospectus supplement will provide additional information specific
to your notes.
PAYMENTS
Your prospectus supplement will describe as to your class of notes:
o the timing and priority of payments of principal and interest;
o the amount and method of determining payments of principal and
interest;
o the priority of the application of the trust's available
funds to its expenses and payments on its securities; and
o the interest rates or the formula for determining the interest
rates.
Your rights to receive payments may be senior or subordinate to the
rights of holders of other classes of notes. Furthermore, each class of notes
may have a different interest rate, which may be a fixed, variable or adjustable
interest rate or any combination of the foregoing. See "INFORMATION REGARDING
THE SECURITIES--INTEREST RATES" in this prospectus.
Payments of principal and interest on any class of notes will be made
on a pro rata basis among all noteholders of that class. If the amount of funds
available to make a payment on a class of notes is less than the required
payment, the noteholders will receive their pro rata share of the amount
available for that class.
PRO-RATA PAY/SUBORDINATE NOTES
One or more classes of notes may be payable on an interest only or
principal only basis. In addition, the notes may include two or more classes
that differ as to timing, sequential order, priority of payment, interest rate
or amount of payments of principal or interest or both. Payments of principal or
interest or both on any class may be made upon the occurrence of specified
events, in accordance with a schedule or formula, or on the basis of collections
from designated assets of the trust. A series may
26
include one or more classes of notes, as to which accrued interest will not
be distributed but rather will be added to the principal or notional balance
of the notes on each payment date.
VARIABLE FUNDING NOTE
A trust may issue one or more classes of notes having particular
maturity dates and at the same time the trust may issue variable funding notes
which relate to those particular maturity dates. These notes may have a balance
that may decrease based on the amortization of contracts or increase based on
principal collections used to purchase additional contracts.
OPTIONAL PURCHASE OF CONTRACTS AND REDEMPTION OF NOTES
At its option, the seller may purchase all of the contracts owned by a
trust on any payment date following the date on which the aggregate outstanding
principal balance of the contracts is less than 10% of the sum of (i) the
aggregate outstanding principal balance of the contracts owned by the trust as
of the closing date and (ii) the initial amount on deposit in the pre-funding
account, if any. Except as otherwise described in your prospectus supplement,
the purchase price to be paid in connection with the purchase shall be at least
equal to the sum of:
o the unpaid principal balance of the contracts as of that
payment date;
o accrued but unpaid interest on the securities to that payment
date;
o unreimbursed servicer advances;
o accrued but unpaid fees to the trustee and the indenture
trustee; and
o accrued but unpaid servicer fees.
If the seller purchases the contracts, the related notes will be repaid in full
on the payment date on which the purchase occurs. In no event will you or the
trust be subject to any liability to the seller as a result of or arising out of
the seller's optional purchase of the contracts.
VOTING RIGHTS
Your prospectus supplement may specify certain circumstances under
which the consent, approval, direction or request of the holders of a specified
percentage of the outstanding principal amount of the notes or certain classes
of notes must be obtained, given or made, or under which such holders are
permitted to take an action or give a notice. Your prospectus supplement may
further specify that one class of notes will control the voting with respect to
all classes of notes.
THE INDENTURE
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
The trust and the indenture trustee may, without your consent, may
enter into one or more supplemental indentures for any of the following
purposes:
27
o to correct or amplify the description of any property at any
time subject to the lien of the indenture;
o to evidence the succession of another person to the trust
and the assumption by any such successor of the covenants of
the trust;
o to add to the covenants of the trust or to surrender any
right or power conferred upon the trust in the indenture;
o to convey, transfer, assign, mortgage or pledge any property
to or with the indenture trustee;
o to cure any ambiguity, to correct or supplement any provision
in the indenture which may beinconsistent with any other
provision in the indenture;
o to evidence and provide for the acceptance of the appointment
by a successor indenture trustee with respect to the notes and
to add to or change any of the provisions of the indenture as
shall be necessary to facilitate the administration of the
trusts by more than one indenture trustee;
o to modify, eliminate or add to the provisions in the indenture
to the extent necessary to qualify the indenture under the
Trust Indenture Act; or
o to elect into the FASIT provisions of the Code, provided the
indenture trustee receives an opinion of counsel that such
election will not adversely affect the noteholders.
In addition, if the indenture trustee receives an opinion of counsel
that a modification will not have a material adverse effect on the noteholders,
the trust and the indenture trustee may, without your consent, enter into one or
more supplemental indentures to, among other things, add, modify or eliminate
any provisions of the indenture or modify your rights as a noteholder.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
With the consent of the holders of more than 50% (or such higher
percentage as specified in your prospectus supplement) of the outstanding
principal amount of the notes or the class or classes of notes described in your
prospectus supplement, the trust and the indenture trustee may modify the
indenture and your rights under it.
Without the consent of the holder of each outstanding note affected,
however, no modification may:
o reduce the principal amount or interest rate or change the
due date of any payment;
o modify the manner of application of collections in respect
of the contracts to payment on the notes;
o impair your right to sue to enforce payment provisions of
the indenture;
28
o reduce the percentage of the aggregate principal amount of the
notes to amend certain sections of the indenture or certain
other related agreements;
o permit the creation of any lien on collateral under the
indenture ranking prior to or on a parity with the lien of
the indenture;
o adversely affect the manner of determining notes outstanding
for voting purposes;
o reduce the percentage of the aggregate principal amount of the
notes needed to sell or liquidate the assets of a trust if the
proceeds of sale will be insufficient to pay the notes in
full; or
o modify the provisions of the indenture relating to these types
of indenture modifications without the consent of all
noteholders.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Events of default under each indenture will consist of:
o a default for five days or more in the payment of interest due
on any note;
o failure to pay the unpaid principal amount of any class of
notes when due and payable;
o a default in the observance or performance of any covenant or
agreement of the trust (other than those specifically
addressed above), which default has a material adverse effect
on the noteholders and continues for 30 days after written
notice thereof is given to the trust by the indenture trustee
or by holders of at least 25% of the aggregate principal
amount of the notes or the class or classes of notes described
in your prospectus supplement;
o any representation or warranty made by the trust in the
indenture or in any certificate delivered pursuant thereto was
incorrect as of the time made, and continues to be incorrect
for a period of 30 days after notice thereof is given to the
trust by the indenture trustee or by holders of at least 25%
of the aggregate principal amount of the notes or the class or
classes of notes described in your prospectus supplement; or
o events of bankruptcy, insolvency, receivership or liquidation
of the trust.
If an event of default should occur and be continuing with respect to
the notes of a series, other than an event of default caused by an event of
bankruptcy, insolvency, receivership or liquidation of the trust, the
indenture trustee or the holders of more than 66 2/3% (or a lesser percentage
as specified in your prospectus supplement, but in no case not less than 50%)
of the aggregate principal amount of the notes or the class or classes of
notes described in your prospectus supplement may declare the principal amount
of the notes to be immediately due and payable. If an event of default caused
by an event of bankruptcy, insolvency, receivership or liquidation of the
trust should occur and be continuing with respect to the notes of a series,
the principal amount of the notes will be immediately due and payable. This
declaration may be rescinded by the holders of more than 66 2/3% (or a lesser
percentage as specified in your prospectus, but in no case not less than 50%)
of the aggregate principal amount of the notes or the class or classes of
notes described in your prospectus supplement if:
29
o the trust has made all payments of principal and interest
then due on the notes (assuming the notes had not been
accelerated); and
o the trust has paid all amounts then owing to the indenture
trustee.
If the notes of a series have been declared to be due and payable
following an event of default, the indenture trustee may:
o institute proceedings to collect amounts due or foreclose on
the trust assets;
o exercise remedies as a secured party; or
o sell the trust assets, or elect to have the trust maintain
possession of the trust assets.
The indenture trustee, however, may not sell the trust assets following
an event of default other than a default in the payment of principal or a
default for five days or more in the payment of interest, unless:
o the holders of all the outstanding notes consent to the sale;
o the proceeds of the sale are sufficient to pay in full the
principal and accrued interest on all the outstanding notes at
the date of the sale; or
o there has been an event of default for failure to pay
principal or interest on the notes and the indenture trustee
determines that the trust assets would not be sufficient on
an ongoing basis to make all payments on the notes as the
payments would have become due if the obligations had not
been declared due and payable and the indenture trustee
provides written notice to the rating agencies and obtains
the consent of the holders of more than 66-2/3% (or a lesser
percentage as specified in your prospectus supplement, but
in no case not less than 50%) of the aggregate principal
amount of the notes or the class or classes of notes
described in your prospectus supplement.
Following a declaration upon an event of default that the notes are immediately
due and payable, the application of any proceeds of any sale of the trust assets
will be in the order of priority described in the prospectus supplement for your
class of notes.
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 the
indenture at the request or direction of any of the noteholders if the
indenture trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which it may incur in complying
with that request. Holders of more than 50% of the aggregate principal amount
of the notes or the class or classes of notes described in your prospectus
supplement will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the indenture trustee
subject to the preceding sentence. Additionally, holders of more than 50% of
the aggregate principal amount of the notes or the class or classes of notes
described in your prospectus supplement may, in some cases, waive any default,
except a default in the payment of principal or interest or a default in
respect of a covenant or provision of the indenture that cannot be modified
without the waiver or consent of all of the holders of the outstanding notes.
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No holder of a note will have the right to institute any proceeding
with respect to the indenture, unless:
o the holder previously has given to the indenture trustee
written notice of a continuing event of default;
o the holders of not less than 25% in principal amount of the
outstanding notes or the class or classes of notes described
in your prospectus supplement make written request of the
indenture trustee to institute the proceeding in its own name
as indenture trustee;
o the holder or holders offer the indenture trustee reasonable
indemnity;
o the indenture trustee has for 60 days failed to institute the
proceeding; and
o no direction inconsistent with that written request has been
given to the indenture trustee during the 60-day period by the
holders of more than 50% of the notes or the class or classes
of notes described in your prospectus supplement.
Notwithstanding the foregoing, noteholders will have the absolute and
unconditional right to receive payment of principal of and interest on a note
and to institute suit for the enforcement of such payment, which right will not
be impaired without the individual noteholder's consent.
In addition, the indenture trustee and noteholders, by accepting the
notes, will covenant that they will not at any time institute against the
depositor or the trust any bankruptcy, reorganization or other proceeding
under any federal or state bankruptcy or similar law.
Neither the trustee, the holder of any certificate, the seller, the
depositor, or any of their respective owners, beneficiaries, agents, officers,
directors, employees, affiliates, successors or assigns will be personally
liable for the payment of the notes or for any agreement or covenant of the
trust contained in the indenture.
COVENANTS
Each indenture will provide that the 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 and the performance
or observance of 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;
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o the rating agencies rating the notes (and, if so provided in
the indenture, the certificates) advise the indenture trustee
that the ratings then in effect would not be reduced or
withdrawn as a result of the merger or consolidation;
o the indenture trustee 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
noteholder or certificateholder;
o any action as is necessary to maintain the lien and security
interest of the indenture trustee shall have been taken; and
o the trust or the person, if other than the trust, formed by or
surviving the consolidation or merger has a net worth,
immediately after the consolidation or merger, that is (a)
greater than zero and (b) not less than the net worth of the
trust immediately prior to giving effect to the consolidation
or merger.
Each indenture will provide that the trust will not, among other
things:
o except as expressly permitted by the related indenture, trust
agreement, sale and servicing agreement or pooling and service
agreement, transfer any of the assets of the trust;
o claim any credit on or make any deduction from, the principal
and interest payable in respect of the related notes, other
than amounts withheld under the bankruptcy code or applicable
state law, or assert any claim against any present or former
holder of 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 indenture to be
impaired or permit the release of any person from any
covenants or obligations relating to the notes under the
indenture except as expressly permitted in the indenture; or
o except as expressly permitted in the indenture, permit any
lien or claim to burden any assets of the trust.
Each indenture will provide that each trust may engage in only those
activities specified above under "THE TRUSTS." Each trust will be prohibited
from incurring, assuming or guaranteeing any indebtedness other than
indebtedness incurred under the notes and the indenture or otherwise in
accordance with the related indenture, trust agreement and sale and servicing
agreement.
ANNUAL COMPLIANCE STATEMENT
Each trust will be required to file annually with the applicable
indenture trustee a written statement as to the fulfillment of its obligations
under the indenture.
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INDENTURE TRUSTEE'S ANNUAL REPORT
Each indenture trustee will be required to mail each year to all
noteholders of the related series a brief report relating to:
o its eligibility and qualification to continue as indenture
trustee under the related indenture;
o amounts, if any, advanced by it under the indenture;
o the amount, interest rate and maturity date of certain
indebtedness owing by the trust to the indenture trustee in
its individual capacity;
o the property and funds physically held by the indenture
trustee; and
o any action taken by it that materially affects the notes and
that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The discharge of an indenture will occur with respect to the assets
securing the notes of a series upon the delivery to the related indenture
trustee for cancellation of all the notes or, with certain limitations, upon
deposit with the indenture trustee of funds sufficient for the payment in full
of all of the notes and payment of all amounts and obligations, if any, which
the trust owes to the noteholders or indenture trustee on behalf of the
noteholders.
TRUST ACCOUNTS
Under each indenture, if the applicable indenture trustee has a rating
of A-1+/P-1 by Standard & Poor's Rating Services and Moody's Investors Service,
Inc., the indenture trustee will establish and maintain segregated bank accounts
for the trust. If the applicable indenture trustee has a rating lower than
A-1+/P-1, the indenture trustee will establish and maintain segregated trust
accounts or accounts in a qualified institution. These accounts will include,
among others, a "COLLECTION ACCOUNT" and a "DISTRIBUTION ACCOUNT." The trust
accounts may, as described in the prospectus supplement for your notes, also
include a cash collateral or reserve fund account as credit enhancement.
"QUALIFIED INSTITUTION" means the corporate trust department of the
indenture trustee or any other depositary institution:
o organized under the laws of the United States or any
state or any domestic branch of a foreign bank;
o the deposits of which are insured by the Federal Deposit
Insurance Corporation; and
o which has, or whose parent corporation has, short-term or
long-term debt ratings acceptable to Moody's Investors
Service, Inc. and Standard & Poor's Ratings Services.
33
The indenture trustee will invest funds in the trust accounts at the
direction of the servicer. All investments will be generally limited to
investments acceptable to the rating agencies rating the notes as being
consistent with the ratings of those notes that will mature not later than the
business day preceding the applicable payment date or any later date approved by
the rating agencies. If the rating agencies permit the investment of funds on
deposit in a cash collateral or reserve fund account in investments that mature
beyond a payment date, the amount of cash available in the cash collateral or
reserve fund account may be less than the amount required to be withdrawn from
that trust account to cover shortfalls in collections on the contracts and a
temporary shortfall in the amounts paid to the noteholders may result.
Investment earnings on funds deposited in the trust accounts will be paid to the
person described in your prospectus supplement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The issuance of each series of certificates will be under the terms of
a trust agreement or a pooling and servicing agreement, a form of each of which
has been filed with the Securities and Exchange Commission as an exhibit to the
registration statement of which this prospectus is a part. In addition, a copy
of the trust agreement or the pooling and servicing agreement for a series of
certificates will be filed with the Securities and Exchange Commission following
the issuance of the certificates. This summary describes the material terms of
the certificates issued by each trust. This summary is subject to, and qualified
in its entirety by reference to, all the provisions of the certificates, the
trust agreement or pooling and servicing agreement, as applicable.
The certificates of each series will be issued in fully registered form
only and will represent an ownership interest in the trust. Certificates will be
available for purchase by you in the denominations specified in your prospectus
supplement.
Your prospectus supplement will provide additional information specific
to your certificates.
DISTRIBUTIONS
Your prospectus supplement will describe as to your class of
certificates:
o the timing and priority of distributions on account of
principal and interest;
o the amount and method of determining distributions on account
of principal and interest;
o the priority of the application of the trust's available funds
to its expenses and distributions on its securities;
o allocation of losses on the contracts among the classes of
certificates; and
o the interest rates or the formula for determining the
interest rates.
Your rights to receive distributions may be senior or subordinate to
holders of other classes of certificates. Furthermore, each class of
certificates may have a different interest rate, which may be a fixed, variable
or adjustable interest rate or any combination of the foregoing. See
"INFORMATION REGARDING THE SECURITIES--INTEREST RATES" in this prospectus.
34
Distributions of principal and interest with respect to any class of
certificates will be made on a pro rata basis among all certificateholders of
that class. If the amount of funds available to make a distribution with respect
to a class of certificates is less than the required payment, the
certificateholders will receive their pro rata share of the amount available for
that class.
PRO-RATA PAY/SUBORDINATE CERTIFICATES
One or more classes of certificates may be payable on an interest only
or principal only basis. In addition, the certificates may include two or more
classes that differ as to timing, sequential order, priority of payment,
interest rate or amount of distributions of principal or interest or both.
Distributions of principal or interest or both on any class may be made upon the
occurrence of specified events, in accordance with a schedule or formula, or on
the basis of collections from designated assets of the trust. A series may
include one or more classes of certificates, as to which accrued interest will
not be distributed but rather will be added to the principal or notional balance
of the certificates on each payment date.
OPTIONAL PURCHASE OF CONTRACTS AND PREPAYMENT OF CERTIFICATES
At its option, the seller may purchase all of the contracts owned by a
trust on any payment date following the date on which the aggregate outstanding
principal balance of the contracts is less than 10% of the sum of (i) the
aggregate outstanding principal balance of the contracts owned by the trust as
of the closing date and (ii) the initial amount on deposit in the pre-funding
account, if any. Except as otherwise described in your prospectus supplement,
the purchase price to be paid in connection with the purchase shall be at least
equal to the sum of:
o the unpaid principal balance of the contracts as of that
payment date;
o accrued but unpaid interest on the certificates to the payment
date;
o unreimbursed servicer advances;
o accrued but unpaid fees to the trustee; and
o accrued but unpaid servicer fees.
If the seller purchases the contracts, the related certificates will be paid in
full on the payment date on which the purchase occurs. In no event will you or
the trust be subject to any liability to the seller as a result of or arising
out of the seller's optional purchase of the contracts.
THE POOLING AND SERVICING AGREEMENT
MODIFICATION OF THE POOLING AND SERVICING AGREEMENT WITHOUT
CERTIFICATEHOLDER CONSENT
In the case of a "grantor trust", the depositor and the trustee may,
without your consent, correct or supplement any provision in the pooling and
servicing agreement that is ambiguous or inconsistent with any other provision
of the pooling and servicing agreement. In addition, if the trustee receives an
opinion of counsel that a modification will not have a material adverse effect
on the certificateholders, the depositor and the trustee may, without your
consent, enter into one or more supplements to the pooling and servicing
agreement to, among other things, add, modify or eliminate any provisions of the
pooling and servicing agreement or modify your rights as a certificateholder.
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MODIFICATION OF POOLING AND SERVICING AGREEMENT WITH
CERTIFICATEHOLDER CONSENT
With the consent of the holders of more than 50% of the outstanding
principal amount of the certificates or the class or classes of certificates
described in your prospectus supplement, the depositor and the trustee may
modify the pooling and servicing agreement and your rights under it.
Without the consent of the holder of each outstanding certificate
affected, however, no modification may:
o reduce the principal amount or pass-through rate or
change the due date of any distribution;
o modify the manner of application of collections in
respect of the contracts to distributions in respect
of the certificates;
o impair your right to sue to enforce payment
provisions of the pooling and servicing agreement;
o reduce the percentage of the aggregate certificate
balance of the certificates needed for consents of
certificateholders;
o permit the creation of any lien on collateral under
the pooling and servicing agreement ranking prior to
or on a parity with the lien of the pooling and
servicing agreement;
o adversely affect the manner of determining
certificates outstanding for voting purposes; or
o modify the provisions of the pooling and servicing
agreement relating to these types of pooling and
servicing agreement modifications without the consent
of all certificateholders.
TRUST ACCOUNTS
Under the pooling and servicing agreement or trust agreement, if the
applicable trustee has a rating of A-1+/P-1 by Standard & Poor's Rating Services
and Moody's Investors Service, Inc., the trustee will establish and maintain
segregated bank accounts for the trust. If the applicable trustee has a rating
lower than A-1+/P-1, the trustee will establish and maintain segregated trust
accounts or accounts in a qualified institution. These accounts will include,
among others, a "COLLECTION ACCOUNT".
"QUALIFIED INSTITUTION" means the corporate trust department of the
trustee or any other depositary institution:
o organized under the laws of the United States or any
state or any domestic branch of a foreign bank;
o the deposits of which are insured by the Federal
Deposit Insurance Corporation; and
36
o which has, or whose parent corporation has,
short-term or long-term debt ratings acceptable to
Moody's Investors Service, Inc. and Standard & Poor's
Ratings Services.
The trustee will invest funds in the trust accounts at the direction of the
servicer. All investments will be generally limited to investments acceptable to
the rating agencies rating the certificates as being consistent with the ratings
of those certificates that will mature not later than the business day preceding
the applicable payment date or any later date approved by the rating agencies.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this
prospectus for summaries of the material terms of the trust agreements, sale and
servicing agreements and pooling and servicing agreements pursuant to which
certificates will be issued.
INFORMATION REGARDING THE SECURITIES
INTEREST RATES
A class of securities may bear interest at a fixed, variable or
adjustable rate per annum, as more fully described below and in your prospectus
supplement.
FIXED RATE SECURITIES. Each class of fixed rate securities will bear
interest at the applicable per annum interest rate or pass through rate,
specified in the applicable prospectus supplement. Interest on each class of
fixed rate securities will be computed on the basis of a 360-day year consisting
of twelve 30-day months or on such other day count basis as is specified in your
prospectus supplement.
FLOATING RATE SECURITIES. Each class of floating rate securities will
bear interest during each applicable interest period at a rate per annum
determined by reference to a base rate, plus or minus a specified spread, if
any, or multiplied by the spread multiplier, if any, as specified in the
applicable prospectus supplement. The "SPREAD" is a number of basis points to be
added to or subtracted from the related base rate. The "SPREAD MULTIPLIER" is a
percentage of the related base rate by which that base rate will be multiplied
to determine the applicable interest rate. Your prospectus supplement will
designate one of the following base rates as applicable to a floating rate
security:
o London interbank offered rate;
o commercial paper rates;
o Treasury rate;
o federal funds rate;
o negotiable certificates of deposit rate; or
o any other base rate that is set forth in your prospectus
supplement.
Your prospectus supplement will specify whether the interest rate will
be reset daily, weekly, monthly, quarterly, semiannually, annually or some other
specified period and the dates on which that interest rate will be reset. If the
reset date does not fall on a business day, then the reset date will be
37
postponed to the next succeeding business day; except that with respect to
securities having a base rate based on the London interbank offered rate, if the
reset date falls in the next succeeding calendar month, then the reset date will
be the immediately preceding business day.
Interest on each class of floating rate security will accrue on an
Actual/360 basis, an Actual/Actual basis, or a 30/360 basis. For floating rate
securities calculated on an Actual/360 basis and Actual/Actual basis, accrued
interest for each interest period will be calculated by multiplying:
1. the face amount of that floating rate security;
2. the applicable interest rate; and
3. the actual number of days in the related interest period, and
dividing the resulting product by 360 or the actual number of
days in the related year, as applicable.
For floating rate securities calculated on a 30/360 basis, accrued
interest for an interest period will be computed on the basis of a 360-day year
consisting of twelve 30-day months, irrespective of how many days are actually
in that interest period.
Floating rate securities may also have either or both of the following:
o a maximum limitation, or ceiling, on the rate at which
interest may accrue during any interest period; and
o a minimum limitation, or floor, on the rate at which
interest may accrue during any interest period.
The applicable interest rate will not exceed the maximum rate permitted by
applicable law.
Each trust issuing floating rate securities will appoint a calculation
agent to calculate interest rates on each class of floating rate securities.
Your prospectus supplement will set forth the identity of the calculation agent,
which may be the related trustee or indenture trustee with respect to that
series. All determinations of interest by the calculation agent shall, in the
absence of manifest error, be conclusive for all purposes and binding on the
holders of floating rate securities of a given class. All percentages resulting
from any calculation on floating rate securities will be rounded to the nearest
one hundred-thousandth of a percentage point, with five one millionths of a
percentage point rounded upwards, and all dollar amounts used in or resulting
from that calculation on floating rate securities will be rounded to the nearest
cent.
CD RATE SECURITIES. The base rate for any securities having a base rate
based on a CD rate for each reset date shall be either:
o the rate for negotiable certificates of deposit having the
index maturity designated in the applicable prospectus
supplement as published in H.15(519) under the heading
"CDs (Secondary Market)" as of the second business day
prior to the reset date; or
o if that rate is not published prior to 3:00 p.m., New York
City time on that business day, the rate for negotiable
certificates of deposit having the index maturity
designated
38
in the applicable prospectus supplement as published in
H.15 Daily Update under the heading "CDs (Secondary
Market)" or such other recognized electronic source used
for the purpose of displaying such rate; or
o if by 3:00 p.m., New York City time on that business day,
that rate is not yet published in either H.15(519) or H.15
Daily Update or such other recognized electronic source
used for the purpose of displaying such rate, the
arithmetic mean of the secondary market offered rates as
of 10:00 a.m., New York City time on that business day, of
three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in the City of New York selected
by the calculation agent for negotiable certificates of
deposit of major United States money market banks with a
remaining maturity closest to the index maturity
designated in the applicable prospectus supplement in an
amount that is representative for a single transaction in
that market at that time.
"H.15(519)" means the publication entitled "Federal Reserve Statistical
Release H.15(519), Selected interest rates," or any successor publication,
published by the Board of Governors of the Federal Reserve System.
"H.15 DAILY UPDATE" means the publication entitled "H.15 Daily Update,
Selected interest rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System.
COMMERCIAL PAPER RATE SECURITIES. The base rate of any securities
having a base rate based on commercial paper rates for each reset date shall be
either:
o the money market yield on the reset date of the rate for
commercial paper having the index maturity specified in
your prospectus supplement, as published in H.15(519)
under the heading "Commercial Paper--Nonfinancial" as of
the second business day prior to the reset date; or
o if that rate is not published prior to 3:00 p.m., New York
City time on that business day, the money market yield on
the second business day prior to the reset date of the
rate for commercial paper of the specified index maturity
as published in H.15 Daily Update or such other recognized
electronic source used for the purpose of displaying such
rate under the heading "Commercial Paper--Nonfinancial";
or
o if by 3:00 p.m., New York City time on that business day,
that rate is not yet published in either H.15(519) or H.15
Daily Update or such other recognized electronic source
used for the purpose of displaying such rate, the money
market yield of the arithmetic mean of the offered rates,
as of 11:00 a.m., New York City time, on that date of
three leading dealers of commercial paper in the City of
New York selected by the calculation agent for commercial
paper of the specified index maturity placed for an
industrial issuer whose bonds are rated "AA" or the
equivalent by a nationally recognized rating agency.
"MONEY MARKET YIELD" means a yield calculated in accordance with the
following formula:
39
D x 360
Money Market Yield = ------------- x 100
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
FEDERAL FUNDS RATE SECURITIES. The base rate for any securities having
a base rate based on the federal funds rate for each reset date shall be either:
o the rate set forth in H.15(519) for that date opposite the
caption "Federal Funds (Effective)" as such rate is
displayed on Bridge Telerate, Inc. Page 120 (or any other
page as may replace that page); or
o if that rate does not appear on Bridge Telerate, Inc. Page
120 or is not published in H.15(519) prior to 3:00 p.m.,
New York City time, the rate set forth in H.15 Daily
Update or such other recognized electronic source used for
the purpose of displaying such rate under the heading
"Federal Funds/Effective Rate"; or
o if by 3:00 p.m., New York City time, that rate does not
appear on Bridge Telerate, Inc. Page 120 or is not yet
published in either H.15(519) or H.15 Daily Update or such
other recognized electronic source used for the purpose of
displaying such rate, the arithmetic mean of the rates for
the last transaction in overnight United States dollar
federal funds arranged by three leading brokers of federal
funds transactions in the City of New York selected by the
calculation agent prior to 9:00 a.m., New York City time.
LIBOR SECURITIES. The base rate for any securities having a base rate
based on LIBOR will be determined by the calculation agent as follows:
1. On the second London business day prior to the reset date, the
calculation agent will determine the offered rates for
deposits in U.S. dollars for the period of the index maturity
specified in the applicable prospectus supplement, as either
o if "LIBOR Bloomberg" is specified in the applicable
prospectus supplement, the arithmetic mean of the
offered rates for deposits in the index currency
having the index maturity designated in the
applicable prospectus supplement, commencing on the
reset date, that appear on the page specified in the
applicable prospectus supplement as of 11:00 a.m.
London time, on the second London business day prior
to the reset date, if at least two offered rates
appear (unless, described above, only a single rate
is required) on that page, or
o if "LIBOR Telerate" is specified in the applicable
prospectus supplement, the rate for deposits in the
index currency having the index maturity designated
in the applicable prospectus supplement, commencing
on reset date that appears on the page specified in
the applicable prospectus supplement as of 11:00 a.m.
London time, on the second London business day prior
to the reset date.
40
2. If "LIBOR Bloomberg" is specified and fewer than two offered
rates appear on the designated page or if LIBOR Telerate is
specified and no rate appears on the designated page, the
calculation agent will request the principal London offices of
each of four major banks in the London interbank market to
provide the calculation agent with its offered quotations for
deposits in the index currency for the period of the index
maturity designated in the applicable prospectus supplement,
commencing on the reset date, to prime banks in the London
interbank market at approximately 11:00 a.m., London time, on
the second London business day prior to the reset date and in
a principal amount that is representative for a single
transaction in that index currency in that market at that
time.
o If at least two of those quotations are provided,
LIBOR will be the arithmetic mean of those
quotations.
o If fewer than two quotations are provided, LIBOR will
be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., in the applicable principal
financial center, on the second London business day
prior to the reset date by three major banks in that
principal financial center for loans in the index
currency to leading European banks, having the index
maturity designated in the applicable prospectus
supplement and in a principal amount that is
representative for a single transaction in that index
currency in that market at that time; provided,
however, that if the banks so selected by the
calculation agent are not quoting offered rates as
mentioned in this sentence, LIBOR will be LIBOR in
effect on the reset date.
"INDEX CURRENCY" means the currency specified in the applicable
prospectus supplement as the currency for which LIBOR shall be calculated. If no
currency is specified in the applicable prospectus supplement, the index
currency shall be U.S. dollars.
"PRINCIPAL FINANCIAL CENTER" will generally be the capital city of the
country of the specified index currency, except that with respect to U.S.
dollars, Deutsche marks, Canadian dollars, Australian dollars, Italian lira,
Swiss francs, Dutch guilders and Euros, the principal financial center shall be
New York, Frankfurt, Toronto, Sydney, Milan, Zurich, Amsterdam and London,
respectively.
TREASURY RATE SECURITIES. The base rate for any securities
having a base rate based on the Treasury rate for each reset date shall be
either:
o the rate for the most recent auction of Treasury bills
having the index maturity specified in the applicable
prospectus supplement, as that rate shall be set forth
under the heading "Investment Rate" on the display on
Bridge Telerate, Inc. Page 56 or Bridge Telerate, Inc.
Page 57 (or such other page as may replace either of those
pages opposite the index maturity) or,
o if Treasury bills of the index maturity have been
auctioned but that rate for those Treasury bills does not
appear on either Bridge Telerate, Inc. Page 56 or Bridge
Telerate, Inc. Page 57 prior to 3:00 p.m., New York City
time, the auction average rate for those Treasury bills
announced by the United States Department of the Treasury,
or
o if the results of the auction of Treasury bills having the
specified index maturity are not announced as provided
above by 3:00 p.m., New York City time, or if that auction
is
41
not held in a particular week, the rate published in
H.15(519) under the heading "U.S. Government
Securities--Treasury bills--Secondary market", or
o if that rate does not appear on H.15(519) by 3:00 p.m.,
New York City time, the rate set forth in H.15 Daily
Update or such other recognized electronic source used for
the purpose of displaying that rate under the heading
"U.S. Government Securities--Treasury bills--Secondary
market," or
o if those results are not published in H.15 Daily Update or
another recognized electronic source used for the purpose
of displaying such rate, by 3:00 p.m. New York City time,
the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 p.m., New York City time, on that
date, of three leading primary United States government
securities dealers selected by the calculation agent for
the issue of Treasury bills with a remaining maturity
closest to the specified index maturity.
INDEXED SECURITIES. Any class of securities may consist of securities
in which the amounts payable on the final scheduled payment date and/or the
interest payable on any payment date is determined by reference to a measure
which will be related to the exchange rates of one or more currencies or
composite currencies or the price of commodities or stocks, on dates as
specified in the applicable prospectus supplement. Holders of indexed securities
may receive a principal amount on the related final scheduled payment date that
is greater than or less than the face amount of the indexed securities depending
upon the relative value on the related final payment date of the specified
indexed item. The applicable prospectus supplement will contain information as
to the method for determining the principal amount payable on the related final
scheduled payment date, if any, and, where applicable, historical information
with respect to the specific indexed item or items and special tax
considerations associated with an investment in indexed securities. For purposes
of determining the rights of a holder of a security indexed as to principal in
respect of voting for or against amendments to the related trust agreement,
indenture, or other related agreements, as the case may be, and modifications
and the waiver of rights under those agreements, the principal amount of that
indexed security shall be deemed to be the face amount thereof upon issuance
less any payments allocated to principal of that indexed security.
If the principal amount of an indexed security is based on an index
calculated or announced by a third party and that third party either suspends
the calculation or announcement of that index or changes the basis upon which
that index is calculated, then that index shall be calculated by an independent
calculation agent named in the applicable prospectus supplement on the same
basis, and subject to the same conditions and controls, as applied to the
original third party. If for any reason that index cannot be calculated on the
same basis and subject to the same conditions and controls as applied to the
original third party, then the principal amount of that indexed security shall
be calculated in the manner set forth in the applicable prospectus supplement.
Any determination of that independent calculation agent shall, in the absence of
manifest error, be binding on all parties.
The applicable prospectus supplement will describe whether the
principal amount of the related indexed security, if any, that would be payable
upon repayment prior to the applicable final scheduled payment date will be the
face amount of that indexed security, the principal amount of that indexed
security at the time of repayment or another amount described in that prospectus
supplement.
42
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements
and the applicable provider, if any, will be set forth in the applicable
prospectus supplement. This credit or cash flow enhancement may be in one or
more of the following forms:
o subordination of one or more classes of securities;
o spread account;
o reserve fund;
o over-collateralization;
o letter of credit;
o credit or liquidity facility;
o financial guaranty insurance policy;
o surety bond;
o guaranteed investment contract or other interest rate
protection agreement;
o repurchase obligation;
o yield supplement agreement;
o swap or other interest rate protection agreement;
o other agreements with respect to third party payments or other
support; or
o cash deposit or other arrangement that may be described in
your prospectus supplement.
Credit and cash flow enhancement is intended to enhance the likelihood
that you will receive the full amount of principal and interest due on your
securities and to decrease the likelihood that that you will experience losses.
The enhancement for a class or series of securities will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal of and interest on those securities. If losses occur which exceed the
amount covered by any credit or cash flow enhancement or which are not covered
by any credit or cash flow enhancement, you will bear your allocable share of
deficiencies, as described in your prospectus supplement. In addition, if a form
of enhancement covers more than one class or series of securities, you will be
subject to the risk that the enhancement will be exhausted by the claims of
securityholders of other classes or series.
If so provided in the prospectus supplement, the depositor or the trust
may replace the credit or cash flow enhancement for any class of securities with
another form of credit or cash flow enhancement without the consent of the
securityholders, provided that the rating agencies rating that class of
securities confirm that that substitution will not result in the reduction or
withdrawal of the rating of that class of securities.
43
RESERVE FUND
The depositor or a third party may establish for a series or class of
securities an account or reserve fund, which will be maintained with a
collateral agent or the related trustee or indenture trustee. The reserve fund
will be funded by an initial deposit by the depositor or a third party on the
closing date in the amount set forth in your prospectus supplement and, if the
related trust has a pre-funding account, will also be funded on each date that
the trust acquires subsequent contracts from the depositor to the extent
described in the applicable prospectus supplement. The amount on deposit in the
reserve fund will be increased on each payment date thereafter up to the reserve
fund required amount by the deposit in the reserve fund of the amount of
collections on the related contracts available therefor as described in the
prospectus supplement.
Your prospectus supplement will describe the circumstances and manner
under which payments may be made out of the reserve fund, either to make
payments or distributions to you or to the servicer or a third party. Monies on
deposit in the reserve fund may be invested in investments acceptable to the
rating agencies rating the securities as being consistent with the ratings of
those securities under the circumstances and in the manner described in the
related sale and servicing agreement, pooling and servicing agreement or
indenture. Earnings on investment of funds in the reserve fund in eligible
investments will be paid to the person described in your prospectus supplement
under the circumstances described in your prospectus supplement on each payment
date. Any monies remaining on deposit in the reserve fund upon termination of
the trust also will be released to the depositor or its assignee.
BOOK-ENTRY REGISTRATION
Each class of securities offered by this prospectus will be represented
by one or more certificates registered in the name of Cede & Co., as nominee of
The Depository Trust Company. Unless your prospectus supplement states
otherwise, you may hold your securities through DTC in the United States, or
Clearstream, Luxembourg or the Euroclear System in Europe, if you are a
participant of those systems, or indirectly through organizations that are
participants in those systems.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under to Section 17A of the Securities Exchange Act
of 1934. DTC was created to hold securities for its direct participants and to
facilitate the clearance and settlement of securities transactions between its
direct participants through electronic book-entries, thereby eliminating the
need for physical movement of certificates. DTC's direct participants include:
o the underwriters offering the securities to you;
o securities brokers and dealers;
o banks;
o trust companies; and
o clearing corporations, and may include other
organizations.
44
Indirect access to the DTC system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a direct participant, either directly or indirectly.
To facilitate subsequent transfers, DTC will register all deposited
securities in the name of DTC's nominee, Cede & Co. DTC has no knowledge of the
actual holders of the securities; DTC's records reflect only the identify of its
direct participants to whose accounts the securities are credited, which may or
may not be the securityholders. DTC's direct and indirect participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
You have no entitlement to receive a certificate representing your
interest in a class of securities. As long as the securities are registered in
the name of Cede & Co., any action to be taken by your or any other holders will
be taken by DTC upon instructions from DTC's participants. All distributions,
notices, reports and statements to you will be delivered to Cede & Co., as the
registered holder of the securities, for distribution to you in compliance with
DTC procedures.
You will receive all payments of principal and interest on the
securities through direct participants or indirect participants. DTC will
forward the payments to its direct participants which will forward them to the
indirect participants or securityholders. Under a book-entry format, you may
experience some delay in their receipt of payments, since payments will be
forwarded to Cede & Co. as nominee of DTC. The trustee or indenture trustee will
not recognize you as a holder of securities under the trust agreement, pooling
and servicing agreement or indenture. You may exercise the rights as a holders
of securities only indirectly through DTC and its direct participants and
indirect participants. Because DTC can act only on behalf of direct
participants, who in turn act on behalf of indirect participants, and on behalf
of banks, trust companies and other persons approved by it, there may be limits
on your ability to pledge the securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to securities,
due to the absence of physical securities for the securities.
Arrangements among the various parties govern conveyance of notices and
other communications by:
o DTC to direct participants;
o by direct participants to indirect participants; and
o by direct participants and indirect participant to
holders, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Standing instructions and customary practices govern payments by DTC
participants to you, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of the DTC participant and not of DTC, the indenture trustee, the
trustee, the depositor or the seller, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment or distribution of
principal and interest to DTC is the responsibility of the indenture trustee or
trustee, disbursement of the payments or distributions to direct participants
shall be the responsibility of DTC and disbursement of payments to you shall be
the responsibility of the direct participants and the indirect participants.
45
Purchases of securities under the DTC system must be made by or through
direct participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each actual holder is in turn to be recorded
on the direct participants' and indirect participants' records. You will not
receive written confirmation from DTC of your purchase, but you are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of your holdings, from the direct participant or indirect
participant through which you entered into the transaction. Entries made on the
books of DTC's participants acting on behalf of you evidence transfers of
ownership interests in the securities.
DTC has advised the depositor that it will take any action permitted to
be taken by a holder of securities only at the direction of one or more direct
participants to whose accounts with DTC the securities are credited.
Additionally, DTC has advised the depositor that to the extent that the pooling
and servicing agreement, the trust agreement or the indenture, as applicable,
requires that any action may be taken only by holders representing a specified
percentage of the aggregate outstanding principal amount of the securities, DTC
will take the action only at the direction of and on behalf of direct
participants, whose holdings include undivided interests that satisfy the
specified percentage.
DTC may discontinue providing its services as securities depositary
with respect to any class of securities at any time by giving reasonable notice
to the trustee or the indenture trustee, as applicable. Under these
circumstances, in the event that a successor securities depositary is not
obtained, fully registered, certificated securities are required to be printed
and delivered. A trust may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event, fully
registered, certificated securities will be delivered to you. See "--ISSUANCE OF
DEFINITIVE SECURITIES."
The information in this section concerning DTC and DTC's book-entry
system are from sources that the depositor believes to be reliable, but the
depositor does not take any responsibility for the accuracy of this information.
Clearstream and Euroclear will hold omnibus positions on behalf of the
participants in the Clearstream and Euroclear systems, respectively, through
customers' securities accounts in Clearstream's and Euroclear's names on the
books of their respective depositaries which in turn will hold these positions
in customers' securities accounts in the depositaries' names on the books of
DTC.
Clearstream is incorporated under the laws of Luxembourg as a
professional depositary. Clearstream holds securities for its participants and
facilitates the clearance and settlement of securities transactions between its
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates.
Indirect access to Clearstream is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Clearstream participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear's participants
through simultaneous electronic book entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. The Brussels, Belgium
office of Morgan Guaranty Trust Company of New York operates Euroclear, under
contract with Euroclear Clearance Systems S.C.,
46
a Belgian cooperative corporation. Euroclear's operator conducts all
operations and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with Euroclear's operator. Euroclear Clearance Systems
S.C. establishes policy for Euroclear on behalf of Euroclear's participants,
including banks, securities brokers and dealers, and other professional
financial intermediaries.
Indirect access to Euroclear is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Morgan Guaranty Trust Company of New York is the Belgian branch of a
New York banking corporation which is a member bank of the Federal Reserve
System. As such, the Board of Governors of the Federal Reserve System and the
New York Banking Department, as well as the Belgian Banking Commission,
regulates and examines it.
Euroclear holds all securities on a fungible basis without attribution
of specific certificates to specific securities clearance accounts. The
Euroclear operator acts under the Euroclear terms and conditions only on behalf
of Euroclear's participants, and has no record of or relationship with persons
holding through Euroclear's participants.
Transfers between direct participants will comply with DTC rules.
Transfers between Clearstream's participants and Euroclear's participants will
comply with their rules and operating procedures.
DTC will effect, under DTC rules, cross-market transfers between
persons holding directly or indirectly through DTC in the United States, on the
one hand, and directly or indirectly through Clearstream or Euroclear, on the
other, through the relevant European international clearing system through its
depository; however, these cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in this system as required by its rules and procedures and within
its established deadlines, European time. The relevant European international
clearing system will, if the transaction meets its settlement requirement,
deliver instructions to its depositary to take action to effect final settlement
on its behalf by delivering or receiving securities in DTC, and making or
receiving payment using its normal procedures for same-day funds settlement
applicable to DTC. Clearstream participants and Euroclear participants may not
deliver instructions directly to the depositories.
Because of time-zone differences, credits of securities in Clearstream
or Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and the credits or any transactions in
the securities settled during the processing day will be reported to the
relevant Clearstream participant or Euroclear participant on that business day.
Cash received in Clearstream or Euroclear as a result of sales of securities by
or through a Clearstream participant or a Euroclear participant to a DTC
participant will be received with value on the DTC settlement date but will be
available in the relevant Clearstream or Euroclear cash account only as of the
business day following settlement in DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of securities among participants of
DTC, Clearstream and Euroclear, they are under no obligation to perform or
continue to perform these procedures and these procedures may be discontinued at
any time.
47
Except as required by law, none of the seller, the servicer, the
depositor, the trustee or the indenture trustee will have any liability for any
aspect of the records relating to, actions taken or implemented by, or payments
made on account of, beneficial ownership interests in the securities held
through DTC, or for maintaining, supervising or reviewing any records or actions
relating to beneficial ownership interests.
ISSUANCE OF DEFINITIVE SECURITIES
The trust will issue the notes, if any, and certificates in fully
registered, definitive form to beneficial owners or their nominees rather than
to DTC or its nominee, only if:
(1) DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the securities, and the
trustee or the indenture trustee is unable to locate a qualified
successor;
(2) The administrator of the trust or the trustee, as
applicable, at its option, elects to terminate the book-entry system
through DTC; or
(3) After the occurrence of an event of default under the
indenture or a servicer default under the sale and servicing agreement
or the pooling and servicing agreement, holders representing more than
50% of the notes or the certificates, as the case may be, of that
series, acting together as a single class, advise the applicable
indenture trustee or trustee through DTC in writing that the
continuation of a book-entry system through DTC with respect to those
notes or certificates is no longer in the best interests of the holders
of those securities.
Upon the occurrence of any of the three events described immediately
above, the applicable indenture trustee or trustee must notify all beneficial
owners for each class of securities held through DTC of the availability of
securities in fully registered, definitive form. Upon surrender by DTC of the
global note representing the securities and instructions for reregistration, the
indenture trustee or trustee will issue these fully registered, definitive
securities, and the indenture trustee or trustee will recognize the holders of
fully registered, definitive securities.
Additionally, upon the occurrence of any event described above, the
indenture trustee or trustee will distribute principal of and interest on the
securities directly to you as required by the indenture, trust agreement or
pooling and servicing agreement, as applicable. Distributions will be made by
check, mailed to your address as it appears on the register maintained by the
applicable trustee or indenture trustee. Upon at least five days' notice to
holders of a class of securities, however, the indenture trustee or trustee will
make the final payment on any security only upon presentation and surrender of
the security at the office or agency specified in the notice of final
distribution to the securityholders. The indenture trustee or trustee will make
the final payment in this manner whether the securities are in book-entry form
or definitive form.
You may transfer any fully registered, definitive security of any class
at the offices of the indenture trustee or trustee or its agent in New York, New
York, which the indenture trustee or trustee shall designate on or prior to the
issuance of any fully registered, definitive securities with respect to that
class. There is no service charge for any registration of transfer or exchange,
but the indenture trustee or trustee may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection with the
transfer or exchange.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
This section summarizes the material terms of the following agreements:
o the transfer and sale agreement pursuant to which the seller
will sell and assign all right, title and interest in the pool
of contracts and the related property to the depositor;
o the sale and servicing agreement or pooling and servicing
agreement pursuant to which the depositor will deposit the
pool of contracts and the related property to the trust and
the servicer will agree to service those contracts;
o the trust agreement, or in the case of a grantor trust, the
pooling and servicing agreement, pursuant to which a trust
will be created and certificates will be issued; and
o the administration agreement pursuant to which Harley-Davidson
Credit Corp. will undertake specified administrative duties
with respect to a trust that issues notes.
Forms of these documents, which we collectively refer to as the
"TRANSFER AND SERVICING AGREEMENTS", have been filed as exhibits to the
registration statement of which this prospectus is a part. In addition, a copy
of the relevant transfer and servicing agreements relating to a series of
securities will be filed with the Securities and Exchange Commission following
the sale of those securities. This summary describes the material terms of each
transfer and servicing agreement. This summary is subject to, and qualified in
its entirety by reference to, all the provisions of the transfer and servicing
agreements relating to a particular series. You should read the forms of the
transfer and servicing agreements filed as noted above.
SALE AND ASSIGNMENT OF CONTRACTS BY SELLER
Harley-Davidson Credit Corp. will be the seller of the contracts and
the related property to the depositor for deposit into the trust. The seller
will acquire the contracts originated by the originating dealers throughout the
United States and, in certain instances, Canada, pursuant to dealer agreements.
On or before the applicable closing date, the seller will sell to the
depositor under a transfer and sale agreement all of its interest in the
following:
o the contracts and the right to receive all scheduled payments
and prepayments received on the contracts on or after the
cut-off date, but excluding any scheduled payments due on or
after, but received prior to, the cut-off date;
o security interests in the financed motorcycles securing the
contracts and any related property;
o the rights to proceeds from claims on theft, physical damage,
credit life and disability insurance policies covering the
financed motorcycles or the obligors;
o certain rebates of premiums and other amounts relating to
insurance policies, extended service contracts or other repair
agreements and other items financed under the contracts; and
49
o all proceeds of the foregoing.
TRANSFER OF CONTRACTS BY THE DEPOSITOR
Pursuant to a sale and servicing agreement or pooling and servicing
agreement, on the applicable closing date, the depositor will transfer to the
trust all of its interest in the following:
o all property acquired by the depositor from the seller under
the transfer and sale agreement;
o amounts that may be held in separate trust accounts maintained
by the trustee or indenture trustee for the trust, including
any reserve fund or interest reserve account;
o the depositor's rights against the seller under the transfer
and sale agreement pursuant to which the seller sold the pool
of contracts to the depositor; and
o all proceeds of the foregoing.
The depositor will designate the servicer as custodian to maintain
physical possession, as the trust's agent, of the retail installment contracts
and any other documents relating to the contracts. To facilitate servicing and
save administrative costs, the documents will not be physically segregated from
other similar documents that are in the servicer's possession. However, UCC
financing statements will be filed in the applicable jurisdictions reflecting:
o the sale and assignment of the contracts and the security
interests in the financed motorcycles by the originating
dealers to the seller;
o the sale and assignment of the contracts and the security
interests in the financed motorcycles and the related property
by the seller to the depositor;
o the transfer of the contracts, the security interests in the
financed motorcycles, the related property and the depositor's
rights against the seller under the transfer and sale
agreement; and
o if applicable, the pledge by the trust of the trust assets to
the indenture trustee.
The seller and servicer's accounting records and computer systems will
also reflect these assignments and, if applicable, the pledge. Because the
contracts will remain in the servicer's possession, if a subsequent purchaser
were able to take physical possession of the contracts without knowledge of the
assignment, the trust's interest in the contracts could be defeated. In
addition, in some cases, the trust's security interest in collections that have
been received by the servicer but not yet remitted to the related collection
account could be defeated. See "LEGAL ASPECTS OF THE CONTRACTS--SECURITY
INTERESTS" in this prospectus.
The depositor will cause the applicable trustee and the indenture
trustee, if any, concurrently with the depositor's transfer and assignment of
the contracts and related property to the trust, to execute and deliver the
related notes and/or certificates to the depositor. The depositor will apply the
net proceeds received from the sale of the certificates and the notes of a given
series to the purchase of the related
50
contracts from the seller and, to the extent specified in the applicable
prospectus supplement, to make any required initial deposit into the reserve
fund and the interest reserve account, if any.
CONVEYANCE OF CONTRACTS
On the closing date:
o the seller will sell, transfer, assign, set over and otherwise
convey the initial contracts and related assets to the depositor;
o the depositor will sell, transfer, assign, set over and otherwise
convey to the trust all right, title and interest in the initial
contracts and related assets; and
o if applicable, the trust will pledge to the indenture trustee all
right, title and interest in the initial contracts and related
assets.
The initial contracts will be described on a list delivered to the
trustee and, if applicable, the indenture trustee, and certified by a duly
authorized officer of the depositor. Such list will include the amount of
monthly payments due on each initial contract as of the initial cutoff date, the
contractual rate of interest on each contract and the maturity date of each
contract. Such list will be available for inspection by any securityholder at
the principal office of the servicer. Shortly after the conveyance of the
initial contracts to the trust, the servicer's compliance officer will have
completed a review of all the documents that the seller has customarily kept on
file relating to the contracts, including the certificates of title to, or other
evidence of a perfected security interest in, the related motorcycles, and
confirmed the accuracy of the list of initial contracts delivered to the trustee
and, if applicable, the indenture trustee. The depositor will deliver to the
trustee, and, if applicable, the indenture trustee, a report of a nationally
recognized independent public accounting firm which states that such firm has
performed specific procedures for a sample of the initial contracts supplied by
the seller. Any contract discovered not to agree with such list in a manner that
is materially adverse to the interests of the noteholders and, if applicable,
certificateholders, will be required to be repurchased by the seller, or, if the
discrepancy relates to the unpaid principal balance of a contract, the seller
may deposit cash in the collection account in an amount sufficient to offset
such discrepancy.
In addition to the initial contracts, the trust's assets will include
the trust's rights under the sale and servicing agreement in respect of the
depositor's obligation to purchase from the seller, and concurrently convey to
the trust, subsequent contracts purchased as of the applicable subsequent cutoff
date. Any conveyance of subsequent contracts will be subject to the satisfaction
of certain conditions including:
o each such subsequent contract satisfies the eligibility criteria
specified in the transfer and sale agreement and the related
subsequent purchase agreement executed thereunder;
o the depositor shall have delivered certain opinions of counsel to
the trustee, the underwriters and the rating agencies with respect
to the validity and other aspects of the conveyance of all such
subsequent contracts; and
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o the rating agencies shall have each notified the depositor and the
trustees in writing that the ratings on the notes and, if
applicable, certificates will not be lowered following the
addition of such subsequent contracts.
REPRESENTATIONS AND WARRANTIES MADE BY THE SELLER AND THE DEPOSITOR
The seller will make certain representations and warranties in the
transfer and sale agreement with respect to each contract, including that
(references to the closing date below being deemed, in respect of subsequent
contracts, to refer to the date such subsequent contracts are transferred to the
depositor):
(a) as of the related cutoff date, the most recent scheduled
payment was made or was not delinquent more than 30 days and,
to the best of the seller's knowledge, all payments on the
contract were made by the obligor;
(b) as of the closing date, no provision of a contract has been
waived, altered or modified in any respect, except by
instruments or documents contained in the files customarily
maintained by the servicer for each contract;
(c) each contract is a genuine, legal, valid and binding
obligation of the obligor and is enforceable in accordance
with its terms (except as may be limited by laws affecting
creditors' rights generally);
(d) as of the closing date, no contract is subject to any right of
rescission, set-off, counterclaim or defense;
(e) as of the contract's origination date, each motorcycle
securing a contract is covered by certain insurance policies
described under "THE SELLER AND SERVICER--INDIVIDUAL
MOTORCYCLE INSURANCE";
(f) each contract was originated by a Harley-Davidson motorcycle
dealer in the ordinary course of such dealer's business (which
dealer had all necessary licenses and permits to originate the
contracts in the state where such dealer was located), was
fully and properly executed by the parties thereto and was
sold by such dealer to the seller without any fraud or
misrepresentation on the part of such dealer;
(g) no contract was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer, sale and
assignment of the contract pursuant to the transfer and sale
agreement or the sale and servicing agreement unlawful, void
or voidable;
(h) each contract and each sale of the related motorcycle complies
with all requirements of any applicable federal, state,
provincial, or local law and regulations thereunder,
including, without limitation, usury, truth in lending, motor
vehicle installment loan and equal credit opportunity laws,
with such compliance not being affected by the depositor's
conveyance and assignment of the contracts to the trust, or,
if applicable, the trust's pledge of the contracts to the
indenture trustee, and the seller will maintain in its
possession, available for inspection by or delivery to the
depositor, the trustee, and, if applicable, the indenture
trustee, evidence of compliance with all such requirements;
(i) as of the closing date no contract has been satisfied,
subordinated in whole or in part or rescinded and the
motorcycle securing the contract has not been released from
the lien of the contract in whole or in part;
(j) each contract creates a valid, subsisting and enforceable
first priority security interest in favor of the seller in the
motorcycle securing such contract; such security interest has
been conveyed and assigned by the seller to the depositor;
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(k) the original certificate of title, certificate of lien or
other notification (the "LIEN CERTIFICATE") issued by the body
responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens
thereon (the "REGISTRAR OF TITLES") of the applicable state to
a secured party which indicates the lien of the secured party
on such motorcycles is recorded on the original certificate of
title; and the original certificate of title for each such
motorcycle shows, or if a new or replacement Lien Certificate
is being applied for with respect to such motorcycle the Lien
Certificate will be received within 180 days of the closing
date and will show, the seller as original secured party under
each contract and as the holder of a first priority security
interest in such motorcycle (and with respect to each contract
for which the Lien Certificate has not yet been returned from
the Registrar of Titles, the seller has received written
evidence from the related dealer that such Lien Certificate
showing the seller as lienholder has been applied for);
(l) the seller's security interest has been validly assigned by
the seller to the depositor pursuant to UCC financing
statements in order that immediately after the sale, each
contract will be secured by an enforceable and perfected first
priority security interest in the related motorcycle in favor
of the trust as secured party, which security interest is
prior to all other liens upon and security interests in such
motorcycle which now exist or may hereafter arise or be
created (except, as to priority, for any lien for taxes,
labor, materials or any state law enforcement agency affecting
a motorcycle and for the lien of the indenture, if
applicable);
(m) all parties to each contract had capacity to execute such
contract;
(n) no contract has been sold, conveyed and assigned or pledged to
any other person other than the depositor, as transferee of
the seller and the trust as transferee of the depositor and,
if applicable, the indenture trustee as pledgee of the trust
and prior to the transfer of the contract to the depositor,
the seller had good and marketable title to each contract free
and clear of any encumbrance, equity, loan, pledge, charge,
claim or security interest, and as of the closing date, the
trust and the owner trustee or, if applicable, the indenture
trustee, will have a first priority perfected security
interest therein;
(o) as of the related cutoff date, there was no default, breach,
violation or event permitting acceleration under any contract
(except for payment delinquencies permitted by clause (a)
above), no event which with notice and the expiration of any
grace or cure period would constitute a default, breach,
violation or event permitting acceleration under such
contract, and the seller has not waived any of the foregoing;
(p) as of the closing date, there are, to the best of the seller's
knowledge, no liens or claims which have been filed for work,
labor or materials affecting a motorcycle securing a contract,
which are or may be liens prior or equal to the lien of the
contract;
(q) each contract has a fixed rate of interest and provides for
monthly payments of principal and interest which, if timely
made, would fully amortize the loan on a simple interest basis
over its term;
(r) each contract contains customary and enforceable provisions
such as to render the rights and remedies of the holder
thereof adequate for realization against the collateral of the
benefits of the security;
(s) the description of each contract set forth in the list
delivered to the trustee and, if applicable, the indenture
trustee is true and correct; and
(t) there is only one original of each contract.
53
The seller will also make certain representations and warranties with
respect to the contracts in the aggregate as set forth in your prospectus
supplement.
In the event of a breach of any representation or warranty with respect
to a contract that materially and adversely affects the trust's or any
noteholder's or certificateholder's interest in the contract or the
collectibility of the contract, the depositor will be obligated to repurchase
the contract from the trust and the seller will be obligated to repurchase the
contract from the depositor. Any purchase shall be made at least two business
days prior to the first determination date after the date on which the servicer,
the trustee or the indenture trustee becomes aware and gives notice to the
depositor or the seller of the breach or the depositor or the seller becomes
aware of the breach at a price equal to the required payoff amount of the
contract. The related trustee or the indenture trustee may enforce this purchase
obligation on your behalf, and will constitute your sole remedy available
against the depositor or the seller for any uncured breach of its
representations and warranties in the sale and servicing agreement or pooling
and servicing agreement, as applicable, and the transfer and sale agreement,
except that the seller will indemnify the trust, the trustee, and, if
applicable, the indenture trustee against losses, damages, liabilities and
claims which may be asserted against any of them as a result of third-party
claims arising out of the facts giving rise to that breach.
Upon the purchase by the seller of a contract, the indenture trustee,
if any, the trust and the depositor will release the contract and its interest
in the related financed motorcycles to the seller.
COLLECTION ACCOUNT
In the case of a trust issuing notes, the indenture trustee will
establish and maintain the collection account in the name of the indenture
trustee for the benefit of the noteholders under the indenture. In the case of a
trust issuing only certificates, the trustee will maintain the collection
account in the name of the trustee for the benefit of the certificateholders
under the pooling and servicing agreement.
The servicer will deposit the following amounts into the collection
account no later than the second business day after processing by the servicer:
o all payments made by the obligors under the contracts;
o all proceeds of the contracts and the financed motorcycles;
and
o all payments made by the seller under the related transfer and
sale agreement, or the depositor under the sale and servicing
agreement or pooling and servicing agreement to repurchase any
contract as a result of a breach of a representation or
warranty, as described under "--REPRESENTATIONS AND WARRANTIES
MADE BY THE SELLER AND THE DEPOSITOR" above.
However, if the conditions to making monthly deposits into the
collection account set forth in the sale and servicing agreement or pooling and
servicing agreement (including the satisfaction of the minimum ratings of the
servicer and the absence of a servicer default) are satisfied and if permitted
by the rating agencies rating the securities, the servicer may retain
collections received on the contracts during each month until the business day
immediately prior to the related payment date. Pending deposit into the
collection account, the servicer will not be obligated to segregate collections
from its own funds and may use collections for its own benefit. To the extent
set forth in the applicable prospectus supplement, the servicer may, in order to
satisfy the requirements set forth in the sale and servicing agreement or
54
pooling and servicing agreement obtain a letter of credit or other security for
the benefit of the related trust to secure timely remittances of collections on
the contracts.
The servicer may withdraw from the collection account any amounts
deposited in error or required to be repaid to an obligor, based on the
servicer's good-faith determination that the amount was deposited in error or
must be returned to the obligor.
Collections on a contract made during a month will be applied in the
following order:
o first, to accrued interest;
o second, to pay any expenses and late or extension fees owing;
and
o third, to principal until the principal balance is brought
current.
Any collections on a contract remaining after those applications will
be considered an "EXCESS PAYMENT". Excess payments constituting prepayments of
principal will be applied as a prepayment of principal. All other excess
payments will be held by the servicer.
SERVICING
The servicer will be obligated under the sale and servicing agreement
or pooling and servicing agreement, as applicable, to service the contracts with
reasonable care, using that degree of skill and attention that the servicer
generally exercises with respect to all comparable motor vehicle retail
installment contracts it services for itself and others in accordance with its
credit and collections policies and applicable law. In performing these duties,
the servicer shall comply in all material respects with its credit and
collection policies and procedures described above under "THE SELLER AND
SERVICER--UNDERWRITING AND ORIGINATION", as modified from time to time. The
servicer may delegate servicing responsibilities to third parties or affiliates,
provided that the servicer will remain obligated to the related trust for the
proper performance of its servicing responsibilities.
The servicer is responsible for:
o reviewing the contract files in the normal course of business;
o monitoring and tracking any property and sales taxes to be
paid by obligors;
o billing, collecting and recording payments from obligors;
o communicating with and providing billing records to obligors;
o depositing funds into the collection account;
o receiving payments as the trust's agent on the insurance
policies maintained by the obligors
and communicating with insurers;
o issuing reports to the trustee and indenture trustee, if any,
specified in the relevant transfer and servicing agreements;
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o repossessing and remarketing financed motorcycle following
obligor defaults; and
o paying the fees and ordinary expenses of the trusts, trustee
and the indenture trustee.
The servicer is obligated to act in a commercially reasonable manner
with respect to the repossession and disposition of financed motorcycles
following a contract default with a view to realizing proceeds at least equal to
the financed motorcycle's fair market value.
If the servicer determines that eventual payment in full of a contract
is unlikely, the servicer will follow its normal practices and procedures to
recover all amounts due upon that contract, including repossessing and disposing
of the related financed motorcycle at a public or private sale, or taking any
other action permitted by applicable law. See "LEGAL ASPECTS OF THE CONTRACTS"
in this prospectus. The servicer will be entitled to recover all reasonable
out-of-pocket expenses incurred by it in liquidating a contract and disposing of
the related financed motorcycle.
The servicer may, consistent with its customary servicing procedures,
grant to the obligor on any contract an extension of payments due under such
contract if:
(i) the extension period is limited to 45 days;
(ii) the obligor has not received an extension during the
previous twelve-month period;
(iii) the evidence supports the obligor's willingness and
capability to resume monthly payments; and
(iv) such extension is consistent with the servicer's
customary servicing procedures and with the sale and servicing
agreement or pooling and servicing agreement.
Exceptions to this extension policy may be authorized by the servicer's
management on a case-by-case basis consistent with the servicer's prudent
business practices.
If so specified in your prospectus supplement, a "backup servicer" may
be appointed and assigned certain oversight servicing responsibilities with
respect to the contracts. The identity of any backup servicer, as well as a
description of its responsibilities, of any fees payable to such backup servicer
and the source of payment of such fees, will be included in your prospectus
supplement.
EVIDENCE AS TO COMPLIANCE
Annually, the servicer will be obligated to deliver to the trustee and
the indenture trustee if any, a report from a nationally recognized accounting
firm stating that the accounting firm has audited the financial statements of
the servicer and issued an opinion on those financial statements and that the
accounting firm has examined and provided a report as to the servicer's controls
over the servicing of the contracts.
Annually the servicer will be obligated to deliver to the trustee and
the indenture trustee, if any, a certificate signed by an officer stating that
the servicer has fulfilled its obligations under the sale and servicing
agreement or the pooling and servicing agreement, as applicable, during the
preceding
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twelve-month period in all material respects or, if there has been a default
in the fulfillment of any obligation, describing such default.
You may obtain copies of these reports and certificates by delivering a
request in writing to the trustee or the indenture trustee, as the case may be,
at the address set forth in your prospectus supplement.
SERVICER DEFAULT
A servicer default under a sale and servicing agreement or pooling and
servicing agreement will occur if:
o the servicer fails to make any payment or deposit required under
the securities, the sale and servicing agreement, the pooling and
servicing agreement or the transfer and sale agreement and such
failure continues for four business days after the date on which
such payment or deposit was due;
o the servicer fails to observe or perform in any material respect
any covenant or agreement in the securities, the sale and
servicing agreement, the pooling and servicing agreement or the
transfer and sale agreement which continues unremedied for thirty
days after the date on which such failure commences;
o the servicer assigns its duties or rights under the sale and
servicing agreement, the pooling and servicing agreement or the
transfer and sale agreement, except as specifically permitted
under the sale and servicing agreement, the pooling and servicing
agreement or the transfer and sale agreement, or attempts to make
such an assignment;
o an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect shall have been
commenced against the servicer and shall not have been dismissed
within 90 days, or a court having jurisdiction in the premises
enters a decree or order for relief in respect of the servicer in
an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appoints a
receiver, liquidator, assignee, custodian, trustee or sequestrator
(or similar official) of the servicer, or for any substantial
liquidation of its affairs;
o the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of
an order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other
similar official) of the servicer or for any substantial part of
its property or shall have made any general assignment for the
benefit of creditors, or fails to, or admits in writing its
inability to, pay debts as they become due, or takes any corporate
action in furtherance of the foregoing;
o the failure of the servicer to deliver the monthly report pursuant
to the terms of the sale and servicing agreement or the pooling
and servicing agreement and such failure remains uncured for five
business days after the date on which such failure commences; or
o any representation, warranty or statement of the servicer made in
the sale and servicing agreement, the pooling and servicing
agreement or any certificate, report or other writing
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delivered pursuant to the sale and servicing agreement or the
pooling and servicing agreement shall prove to be incorrect in
any material respect as of the time when the same shall have been
made and the incorrectness of such representation, warranty or
statement has a material adverse effect on the trust and, within
30 days after written notice has been given to the servicer or the
trust depositor by the trustee or, if applicable, the indenture
trustee, the circumstances or condition in respect of which such
representation, warranty or statement was incorrect have not been
eliminated or otherwise cured.
The servicer will be required under the sale and servicing agreement or the
pooling and servicing agreement to give the trustees and, if applicable, the
indenture trustee, the rating agencies, the noteholders and the
certificateholders notice of an event of termination promptly upon the
occurrence of such event.
RIGHTS UPON SERVICER DEFAULT
If a servicer default remains unremedied, the indenture trustee or the
holders of more than 50% of the aggregate principal amount of the notes or the
class or classes of notes described in your prospectus supplement or, if the
trust has no notes outstanding, the trustee or the holders of more than 50% of
the aggregate certificate balance of the certificates or the class or classes of
certificates described in your prospectus supplement may terminate all of the
rights and obligations of the servicer under the sale and servicing agreement or
pooling and servicing agreement. When this happens, the indenture trustee, the
trustee or a successor servicer selected by the indenture trustee or the trustee
will succeed to all the responsibilities, duties and liabilities of the servicer
under the sale and servicing agreement or pooling and servicing agreement.
If the indenture trustee or the trustee is unwilling or unable to act
as the successor servicer, it may appoint, or petition a court to appoint, a
successor servicer. The indenture trustee or the trustee may arrange for
compensation to the successor servicer but that compensation may not exceed the
base servicing fee payable to the servicer. Any successor servicer will not be
liable for any acts or omissions of the prior servicer occurring prior to a
transfer of the servicer's servicing and related functions or for any breach by
the prior servicer of any of its obligations.
If a trust has notes outstanding, the holders of more than 50% of the
aggregate principal amount of the notes or the class or classes of notes
described in your prospectus supplement may waive any servicer default, other
than a default in making any required deposits into the collection account. If a
trust has no notes outstanding, the holders of more than 50% of the aggregate
certificate balance of the certificates or the class or classes of certificates
described in your prospectus supplement may waive any servicer default, other
than a default in making any required deposits into the collection account.
Following an event of termination, the indenture trustee will terminate
the lockbox agreement and direct all obligors under the contracts to make all
payments under the contracts to the indenture trustee, or to a lockbox
established by the indenture trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The servicer may not resign from its obligations under the sale and
servicing agreement or pooling and servicing agreement except if its duties are
no longer permissible under applicable law. No resignation will become effective
until a successor servicer has assumed the servicer's obligations and
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duties under the sale and servicing agreement or pooling and servicing
agreement. Removal of the servicer is permissible only upon the occurrence of
a servicer default as discussed above.
Each sale and servicing agreement and pooling and servicing agreement
will provide that neither the servicer nor any of its directors, officers,
employees or agents will be under any liability to the trust or you for taking
any action or for refraining from taking any action pursuant to that agreement
or for errors in judgment; except that neither the servicer nor any person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of the
servicer's duties under that agreement or by reason of reckless disregard of its
obligations and duties under that agreement.
In addition, the servicer will not be obligated to appear in, prosecute
or defend any legal action that is not incidental to the servicer's servicing
responsibilities under the related sale and servicing agreement or pooling and
servicing agreement and that, in its opinion, may cause it to incur any expense
or liability. The servicer may, however, undertake any reasonable action that it
may deem necessary or desirable in respect of that agreement, the rights and
duties of the parties thereto and the interests of the securityholders under
that agreement. In that event, the legal expenses and costs of that action and
any liability resulting therefrom will be expenses, costs and liabilities of the
servicer, and the servicer will not be entitled to be reimbursed therefor.
Under the circumstances specified in each sale and servicing agreement
or 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 will be the successor of the
servicer under that agreement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Compensation to the servicer will include a base monthly fee equal:
o to the product of the percentage per annum specified in your
prospectus supplement multiplied by the monthly principal
balance of the contracts at the beginning of the month,
plus any
o late fees;
o prepayment charges, if any;
o documentation fees;
o extension fees and other administrative charges; and
o if specified in the prospectus supplement, investment
earnings on funds deposited in the trust accounts.
The servicer will pay all expenses incurred by it in connection with its
activities under the transfer and servicing agreements and the annual fees and
expenses of the trustee and the indenture trustee, if any.
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The servicer will be authorized to waive any administrative fees or extension
fees that may be collected in the ordinary course of servicing any contract.
STATEMENTS TO TRUSTEES AND THE TRUST
On or prior to each payment date the servicer will provide to the
applicable indenture trustee, if any, and the applicable trustee a statement
setting forth with respect to a series of securities substantially the same
information that is required to be provided in the periodic reports to be
provided to securityholders of that series described under "--STATEMENTS TO
SECURITYHOLDERS" below.
STATEMENTS TO SECURITYHOLDERS
With respect to each series of securities that includes notes, on or
prior to each payment date, the servicer will prepare and provide to the related
indenture trustee a statement to be delivered to you on that payment date. With
respect to each series of securities that includes certificates, on or prior to
each payment date, the servicer will prepare and provide to the related trustee
a statement to be delivered to you on the payment date. Each statement will
include the following information:
o the amount of the payment allocable to the principal
amount of each class of those notes and to the certificate
balance of each class of those certificates;
o the amount of the payment allocable to interest on each
class of securities of that series;
o the amount of the distribution allocable to the yield
supplement deposit, if any;
o the aggregate principal balance of the contracts as of the
close of business on the last day of the preceding month;
o the amount of base servicing fees paid to the servicer and
fees payable to the trustees;
o the interest rate or pass-through rate for the interest
period relating to the next succeeding payment date for
any class of notes or certificates of that series with
variable or adjustable rates;
o the amount, if any, otherwise distributable to one or more
subordinated classes of notes or certificates that has
instead been distributed to more senior classes of notes
or certificates on that payment date;
o the outstanding principal amount and the note factor for
each class of those notes, and either the certificate
balance and the certificate factor for each class of those
certificates or the outstanding principal amount and the
pool factor for each class of those certificates, each
after giving effect to all payments allocable to the
principal of each class of notes and to the certificate
balance of the certificates on that date;
o the amount of advances made by the servicer in respect of
the related contracts and the preceding month and the
amount of unreimbursed advances in respect of contracts
determined by the servicer to be defaulted contracts
during that month;
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o the balance of any related reserve fund, interest reserve
account or other credit or liquidity enhancement on that
date, after giving effect to changes thereto on that date
and the amount of those changes;
o during the funding period, the remaining amount on deposit
in the pre-funding account on the last day of the
preceding month;
o the amount, if any, of any mandatory redemption payment;
o the number and aggregate principal balance of contracts
delinquent computed as of the end of the related due
period;
o the number and aggregate principal balance of contracts
that became liquidated contracts during the immediately
preceding due period, the amount of liquidation proceeds
for such due period, the amount of liquidation expenses
being deducted from liquidation proceeds for such due
period, the net liquidation proceeds and the net
liquidation losses for such due period;
o average and cumulative loss and delinquency information as
of such payment date;
o the number of contracts and the aggregate principal
balance of such contracts, as of the first day of the due
period relating to such payment date (after giving effect
to payments received during such due period and to any
transfers of subsequent contracts to the trust occurring
on or prior to such payment date);
o the aggregate principal balance and number of contracts
that were repurchased by the depositor with respect to the
related due period, identifying such contracts and the
repurchase price for such contracts; and
o such other customary factual information as is available
to the servicer as the servicer deems necessary and can
reasonably obtain from its existing data base to enable
securityholders to prepare their tax returns.
You may obtain copies of the statements by delivering a request in
writing addressed to the applicable trustee or indenture trustee at its address
set forth in your prospectus supplement.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each trust, the applicable
trustee or indenture trustee will mail to each person who at any time during
that calendar year has been a securityholder with respect to that trust and
received any payment a statement containing information for the purposes of that
securityholder's preparation of federal income tax returns. See "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES" in this prospectus.
COLLECTIONS
With respect to each trust, the servicer will deposit all payments on
the related contracts (from whatever source) and all proceeds of such contracts
collected during each collection period specified in your prospectus supplement
into the related collection account within two business days after receipt
thereof. The servicer is required to use its best efforts to cause an obligor to
make all payments on the
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contracts directly to one or more lockbox banks, acting as agent for the
trust pursuant to a lockbox administration agreement. In addition, the
servicer may in the future collect payments from obligors through other
methods, including direct debit programs and the internet.
ADVANCES
The servicer will be obligated to advance each month an amount equal to
accrued and unpaid interest on any contract which was delinquent with respect to
the related due period, but only to the extent that the servicer believes that
the amount of such advance will be recoverable from collections on the
contracts. The servicer will deposit any advances in the collection account no
later than the day preceding the related payment date. The servicer will be
entitled to recoup advances on a contract by means of a first priority
withdrawal from Available Amounts on any payment date. The servicer will not be
obligated to make an advance to the extent that it determines, in its sole
discretion, that the advance will not be recovered from subsequent collections
on or in respect of the related contract.
All advances are reimbursable to the servicer, without interest, if and
when a payment relating to a contract with respect to which an advance has
previously been made is subsequently received. In addition, upon the
determination by the servicer that a contract is a defaulted contract, it will
be entitled to recover unreimbursed advances in respect of that contract from
collections on or in respect of other contracts. A defaulted contract means a
contract with respect to which there has occurred one or more of the following:
(i) all or some portion of any payment under the contract is 120 days or more
delinquent, (ii) repossession (and expiration of any redemption period) of a
motorcycle securing a contract or (iii) the servicer has determined in good
faith that an obligor is not likely to resume payment under a contract.
NET DEPOSITS
As an administrative convenience and as long as specified conditions
are satisfied, the servicer will be permitted to make the deposit of
collections, aggregate advances and payments for purchases of contracts from the
trust for or with respect to a month net of payments to be made to the servicer
with respect to that month. The servicer may cause to be made a single, net
transfer to the collection account. The servicer, however, will account to the
related trustee, and you with respect to each trust as if all deposits, payments
and transfers were made individually. With respect to any trust that issues both
certificates and notes, if the related payment dates are not the same for all
classes of securities, all distributions, deposits or other remittances made on
a payment date will be treated as having been distributed, deposited or remitted
on the same payment date for the applicable month for purposes of determining
other amounts required to be distributed, deposited or otherwise remitted on a
payment date.
LIST OF SECURITYHOLDERS
Three or more holders of the notes of any class in a series or one or
more holders of those notes of that class evidencing not less than 25% of the
aggregate principal amount of those notes then outstanding may, by written
request to the related indenture trustee, obtain access to the list of all
noteholders maintained by that indenture trustee for the purpose of
communicating with other noteholders with respect to their rights under the
related indenture or under those notes. An 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 that series.
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Three or more holders of the certificates of any class in a series or
one or more holders of those certificates of that class evidencing not less than
25% of the certificate balance of those certificates may, by written request to
the related trustee, obtain access to the list of all certificateholders
maintained by that trustee for the purpose of communicating with other
certificateholders with respect to their rights under the related trust
agreement or pooling and servicing agreement or under those certificates.
The related trustee will provide to the servicer within 15 days after
receipt of a written request from the servicer, a list of the names of all
noteholders or certificateholders of record as of the most recent applicable
record date.
No transfer and servicing agreement will provide for the holding of
annual or other meetings of securityholders.
INSOLVENCY OF TRUST
Each trust agreement will provide that the related trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
the related trust without the unanimous prior approval of all certificateholders
of that trust and the delivery to that trustee by each certificateholder of a
certificate certifying that that certificateholder reasonably believes that that
trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding notes issued by a trust and
the satisfaction and discharge of the related indenture, the trustee will
succeed to all the rights of the indenture trustee, and the certificateholders
of that series will succeed to all the rights of the noteholders of that series,
under the related sale and servicing agreement, except as otherwise provided in
the sale and servicing agreement.
ADMINISTRATION AGREEMENT
Harley-Davidson Credit Corp., in its capacity as administrator, will
enter into an administration agreement with each trust that issues notes and the
related indenture trustee pursuant to which the administrator will agree to
provide notices and perform other administrative obligations of the trust under
the related indenture. For its services under the administration agreement the
administrator may be entitled to receive a monthly administration fee, which
administration fee will be paid by the depositor. The amount of the
administration fee, if any, will be set forth in your prospectus supplement.
AMENDMENT
The parties may, without your consent, correct or supplement any
provision in the transfer and servicing agreements that is ambiguous or
inconsistent with any other provision in the transfer and servicing agreements.
In addition, the parties may amend any transfer and servicing agreement without
the consent of any securityholder to add any provisions to or change in any
manner or eliminate any of the provisions of a transfer and servicing agreement
if the indenture trustee or trustee receives an opinion of counsel that the
modification will not have a material adverse effect on the securityholders.
Any transfer and servicing agreement may also be amended in any respect
by the parties with the consent of the holders of more than 50% of the aggregate
principal amount of the notes or the class or classes of the notes described in
your prospectus supplement issued by the trust or, if the trust has no
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notes outstanding, the holders of more than 50% of the aggregate certificate
balance of the certificates or the class or classes of the certificates
described in your prospectus supplement, except that no amendment:
o that reduces the amount or changes the timing of any
collections on any contracts or payments required to be
distributed on any security;
o that changes the interest rate on any security, that adversely
affects the priority of payment of principal or interest to
the securityholders; or
o that reduces the percentage of securityholders required to
consent to these amendments or any waiver under the transfer
and servicing agreement,
may be effective without the consent of the holder of each security. Also, an
amendment under the foregoing sentence will not be effective unless each rating
agency rating the securities confirms that the amendment will not result in a
reduction, qualification or withdrawal of the ratings on the securities.
TERMINATION
The obligations of the servicer, the depositor, the trustee and
indenture trustee with respect to you pursuant to the trust agreement, the sale
and servicing agreement, pooling and servicing agreement or indenture will
terminate upon the earlier to occur of (i) the maturity or other liquidation of
the last contract and the disposition of any amounts received upon liquidation
of any property remaining in the trust, or (ii) the payment to all
securityholders of all amounts required to be paid to them pursuant to the
indenture and the trust agreement or pooling and servicing agreement; PROVIDED,
HOWEVER, in no event shall the trust continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late Ambassador of the United States to the Court of St. James, living on the
closing date (each a "TERMINATION EVENT"). The seller's representations,
warranties and indemnities will survive any termination of the sale and
servicing agreement or pooling and servicing agreement. Upon termination,
amounts in the collection account, if any, will be paid to the depositor.
The trustee and, if applicable, the indenture trustee will give written
notice of termination to each securityholder of record. The final distribution
to you will be made only upon surrender and cancellation of your notes or
certificates at the office or agency of the trustee or, if applicable, the
indenture trustee specified in the notice of termination. Any funds remaining in
the trust, after the trustee or, if applicable, the indenture trustee has taken
certain measures to locate you and such measures have failed, will be
distributed to the depositor.
LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The transfer of the contracts to the applicable trust, the perfection
of the security interests in the contracts and the enforcement of rights to
realize on the motorcycles as collateral for the contracts are subject to a
number of federal and state laws. Uniform Commercial Code financing statements
will be filed in the applicable jurisdictions reflecting the transfer or pledge
of the contracts and the security interests in the motorcycles and the related
property by the seller to the depositor and by the depositor to
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the trust and, if applicable, by the trust to the indenture trustee. A person
could acquire an interest in a contract that is superior to that of the trust
or the indenture trustee because the servicer will retain possession of the
contracts. If a person purchases contracts, or takes a security interest
therein, for value in the ordinary course of its business and obtains
possession of the contracts without actual knowledge of the trust's or
indenture trustee's interest, that person will acquire an interest in the
contracts superior to the interest of the trust or the indenture trustee.
SECURITY INTERESTS
GENERAL
In states in which the contracts evidence the credit sale of new and
used motorcycles by originating dealers to obligors, the contracts also
constitute personal property security agreements and include grants of security
interests in the motorcycles under the applicable Uniform Commercial Code.
Perfection of security interests in financed motor motorcycles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In most states, a security interest in a motor vehicle is
perfected by obtaining possession of the certificate of title to the motor
vehicle or notation of the secured party's lien on the motor vehicle's
certificate of title.
All contracts acquired by the seller from the originating dealers will
name the seller as obligee or assignee and as the secured party. The seller will
also take all actions necessary under the laws of the state in which the related
financed motorcycle is located to perfect its security interest in that financed
motorcycle, including, where applicable, having a notation of its lien recorded
on the related certificate of title and/or obtaining possession of that
certificate of title. Because Harley-Davidson Credit Corp. will continue to
service the contracts as servicer under the sale and servicing agreement or the
pooling and servicing agreement, as applicable, the obligors on the contracts
will not be notified of the sale from the seller to the depositor or the sale
from the depositor to the related trust or, if applicable, the pledge to the
related indenture trustee.
PERFECTION
The seller will sell and assign its security interest in the financed
motorcycles to the depositor and the depositor will assign its security interest
in the financed motorcycles to the trust and, if applicable, the trust will
assign its security interest in the financed motorcycles to the indenture
trustee. However, because of the administrative burden and expense, none of the
seller, the depositor or the related trust will amend any certificate of title
to identify the trust or indenture trustee as the new secured party on that
certificate of title relating to a financed motorcycle. However, UCC financing
statements with respect to the transfer to the depositor of the seller's
security interest in the financed motorcycles and the transfer to the trust of
the depositor's security interest in the financed motorcycles and, if
applicable, the transfer to the indenture trustee of the trust's security
interest in the financed motorcycles will be filed. In addition, the servicer
will continue to hold any certificates of title relating to the financed
motorcycles in its possession as custodian for that trust. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS" in this prospectus.
In most states, an assignment is an effective conveyance of a security
interest without amendment of any lien noted on a motor vehicle's certificate of
title. Although re-registration of the motor vehicle is not necessary to convey
a perfected security interest in the financed motorcycles to the trust or the
indenture trustee, because neither the trust nor the indenture trustee will be
listed as lienholder on the
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certificates of title, the security interest of that trust or the indenture
trustee in the motorcycle could be defeated through fraud, forgery,
negligence or error. In the absence of fraud or forgery by the motorcycle
owner or the servicer or administrative error by state or local agencies, the
notation of the seller's lien on the certificates of title will be sufficient
to protect the trust and the indenture trustee against the rights of
subsequent purchasers of a financed motorcycle or subsequent lenders who take
a security interest in a financed motorcycle. The seller and depositor will
each represent and warrant that the seller a perfected security interest in
each financed motorcycle. If there are any financed motorcycles as to which
the seller failed to obtain a perfected security interest, the security
interest of the trust and the indenture trustee would be subordinate to,
among others, subsequent purchasers of the financed motorcycles and holders
of perfected security interests in the financed motorcycles. To the extent
that failure has a material and adverse effect on the trust's, the indenture
trustee's or any securityholder's interest in the related contract or the
collectibility of the contract, however, it would constitute a breach of the
warranties of the seller and the depositor. Accordingly, the depositor would
be required to repurchase the related contract from the trust and the seller
will be required to purchase that contract from the depositor, unless the
breach was cured. The depositor will assign to the related trust its rights
to cause the seller to repurchase that contract under the related transfer
and sale agreement and, if applicable, the related trust will pledge to the
indenture trustee its rights to cause the depositor to repurchase that
contract under the related sale and servicing agreement. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS" and "RISK FACTORS--INTERESTS OF OTHER
PERSONS IN THE CONTRACTS OR THE FINANCED MOTORCYCLES COULD REDUCE FUNDS
AVAILABLE TO MAKE PAYMENTS ON YOUR SECURITIES" in this prospectus.
CONTINUITY OF PERFECTION
Under the laws of most states, the perfected security interest in a
vehicle would continue for four months after the motor vehicle is moved to a
state that is different from the one in which it is initially registered and
thereafter until the owner re-registers the motor vehicle in the new state. A
majority of states generally require surrender of a certificate of title to
re-register a motor vehicle. In those states, such as California, that
require a secured party to hold possession of the certificate of title to
maintain perfection, the secured party would learn of the re-registration
through the request from the obligor under the related contract to surrender
possession of the certificate of title. In the case of motor motorcycles
registered in states providing for the notation of a lien on the certificate
of title but not possession by the secured party, such as Texas, 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 re-perfect 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, the 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 motor vehicle, re-registration
could defeat perfection. In the ordinary course of servicing the contracts,
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 motorcycle, the servicer must
surrender possession of the certificate of title or will receive notice as a
result of its lien noted on the certificate of title and accordingly will
have an opportunity to require satisfaction of the related contract before
release of the lien. The servicer will be obligated to take appropriate
steps, at the servicer's expense, to maintain perfection of security
interests in the financed motorcycles and will be obligated to purchase the
related contract if it fails to do so and that failure has a material and
adverse effect on the trust's or any securityholder's interest in the
contract or the collectibility of the contract.
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PRIORITY OF LIENS ARISING BY OPERATION OF LAW
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
security interest in a financed motorcycle. The Internal Revenue Code also
grants priority to specified federal tax liens over the lien of a secured
party. The laws of some states and federal law permit the confiscation of
motor motorcycles 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 the confiscated vehicle. The seller
will represent and warrant to the depositor and the depositor will represent
and warrant to the trust that, to its knowledge, as of the related closing
date, each security interest in a financed motorcycle is prior to all other
present liens upon and security interests in that financed motorcycle.
However, liens for repairs or taxes could arise, or the confiscation of a
financed motorcycle could occur, at any time during the term of a contract.
No notice will be given to related trustee, indenture trustee or you in
respect of a given trust if a lien arises or confiscation occurs that would
not give rise to the depositor's or seller's repurchase obligation.
REPOSSESSION
In the event of default by an obligor, the holder of the related
contract has all the remedies of a secured party under the UCC, except where
specifically limited by other state laws. Among the UCC remedies, the secured
party has the right to perform repossession by self-help means, unless it
would constitute a breach of the peace or is otherwise limited by applicable
state law. Unless a motor vehicle financed by the seller is voluntarily
surrendered, self-help repossession is the method employed by the servicer in
most states and is accomplished simply by retaking possession of the financed
motorcycle. In cases where an 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 that vehicle must then
be recovered in accordance with that order. In some jurisdictions, the
secured party is required to notify that obligor of the default and the
intent to repossess the collateral and to give that obligor a time period
within which to cure the default prior to repossession. In some states, an
obligor has the right to reinstate its contract and recover the collateral by
paying the delinquent installments or other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an
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.
In most states, an 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 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. In some states, an obligor has the right to redeem the collateral prior
to actual sale by payment of delinquent installments or the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the motor vehicle generally will be
applied first to the expenses of resale and repossession and then to the
satisfaction of the indebtedness. While some states impose prohibitions or
limitations on deficiency judgments if the net proceeds from resale do not
cover the full amount of the indebtedness, a deficiency judgment can be
sought in those states that do not prohibit or limit those judgments. In
addition to the notice requirement described above, the UCC requires that
every aspect of
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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. 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. Therefore, in many cases, 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, the UCC permits the
obligor 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 obligor or other interested person to prohibit 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 resale of a repossessed vehicle and payment of
all 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 that vehicle or if no lienholder exists, the UCC
requires the creditor to remit the surplus to the obligor.
BANKRUPTCY CONSIDERATIONS
The depositor has taken steps that are intended to make it unlikely
that the voluntary or involuntary application for relief by the seller under
the United States Bankruptcy Code or similar applicable state laws will
result in consolidation of the assets and liabilities of the depositor with
those of the seller. These steps include the creation of the depositor as a
wholly-owned, limited purpose subsidiary pursuant to articles of
incorporation and bylaws containing restrictions on the nature of the
depositor's business and on its ability to commence a voluntary case or
proceeding under any insolvency law without the unanimous affirmative vote of
all of its directors. In addition, to the extent that the seller granted a
security interest in the contracts to the depositor, and that interest was
validly perfected before the bankruptcy or insolvency of the seller and was
not taken or granted in contemplation of insolvency or with the intent to
hinder, delay or defraud the seller or its creditors, that security interest
should not be subject to avoidance, and payments to the trust with respect to
the contracts should not be subject to recovery by a creditor or trustee in
bankruptcy of the seller.
However, delays in payments on the securities and possible
reductions in the amount of those payments could occur if:
1. a court were to conclude that the assets and liabilities of
the depositor should be consolidated with those of the seller
in the event of the application of applicable insolvency laws
to the seller, as the case may be;
2. a filing were made under any insolvency law by or against the
depositor; or
3. an attempt were to be made to litigate any of the foregoing
issues.
On each closing date, Winston & Strawn will give an opinion to the
effect that, based on a reasoned analysis of analogous case law, although
there is no precedent based on directly similar facts, and, subject to facts,
assumptions and qualifications specified in the opinion and applying the
principles set forth in the opinion, in the event of a voluntary or
involuntary bankruptcy case in respect of the seller under Title 11 of the
United States Bankruptcy Code at a time when the seller was insolvent, the
property
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of the seller would not properly be substantively consolidated with the
assets of the depositor. Among other things, that opinion will assume that
each of the depositor and the seller will follow specified procedures in the
conduct of its affairs, including maintaining records and books of account
separate from those of the other, refraining from commingling its assets with
those of the other, and refraining from holding itself out as having agreed
to pay, or being liable for, the debts of the other. The depositor and the
seller intend to follow these and other procedures related to maintaining
their separate identities. However, there can be no assurance that a court
would not conclude that the assets and liabilities of the depositor should be
consolidated with those of the seller.
The seller will represent and warrant that the sale of the related
contracts to the depositor is a valid sale. Notwithstanding the foregoing, if
the seller were to become a debtor in a bankruptcy case, a court could take
the position that the sale of contracts to the depositor should instead be
treated as a pledge of those contracts to secure a borrowing of the seller.
If a court were to reach such conclusions, or a filing were made under any
insolvency law by or against the depositor, or if an attempt were made to
litigate any of the foregoing issues, delays and possible reduction in
payments on the securities could occur. In addition, if the transfer of
contracts to the depositor is treated as a pledge instead of a sale, a tax or
government lien on the property of the seller arising before the transfer of
a contract to the depositor may have priority over the depositor's interest
in that contract.
The seller and the depositor will treat the transactions described
in this prospectus as a sale of the contracts to the depositor, so that the
automatic stay provisions of the United States Bankruptcy Code should not
apply to the contracts if the seller were to become a debtor in a bankruptcy
case.
Furthermore, if an originating dealer or the seller became a debtor
in a bankruptcy case, creditors of that party, or that party acting as
debtor-in-possession, may assert that the transfer of the contracts was
ineffective to remove the contracts from that party's estate. In that case,
the distribution of payments on the contracts to the trust might be subject
to the automatic stay provisions of the United States bankruptcy code. This
would delay the distribution of those payments to you for an uncertain period
of time. Furthermore, reductions in payments under the contracts to the trust
may result if the bankruptcy court rules in favor of the creditors or the
debtor-in-possession. In either case, you may experience delays or reductions
in distributions or payments to you. In addition, a bankruptcy trustee would
have the power to sell the contracts if the proceeds of the sale could
satisfy the amount of the debt deemed owed by the originating dealer or the
seller, as the case may be. The bankruptcy trustee could also substitute
other collateral in lieu of the contracts to secure the debt. Additionally,
the bankruptcy court could adjust the debt if the originating dealer or the
seller were to file for reorganization under Chapter 11 of the bankruptcy
code. Any of these actions could result in losses or delays in payments on
your securities. Each of the originating dealers and the seller will
represent and warrant that the conveyance of the contracts by it is in each
case a valid sale and transfer of the contracts.
Also, cash collections on the contracts may be commingled with
general funds of the servicer and, in the event of a bankruptcy of the
servicer, a court may conclude that the trust does not have a perfected
security interest in those collections.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders 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
69
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' Civil Relief Act of 1940, the
Texas Consumer Credit Code, state adoptions of the National Consumer Act and
of the Uniform Consumer Credit Code and state motor vehicle retail
installment sales acts and other similar laws. Also, state laws impose
finance charge ceilings and 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 an assignee's ability to enforce consumer finance contracts such as
the contracts.
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 in some
states, has the effect of subjecting a seller (and specified creditors and
their assignees) in a consumer credit transaction 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 that contract from the obligor.
Most of the contracts will be subject to the requirements of the FTC
Rule. Accordingly, each trust, as holder of the related contracts, will be
subject to any claims or defenses that the purchaser of the applicable
financed motorcycle may assert against the seller of the related financed
motorcycle. As to each obligor, these claims are limited to a maximum
liability equal to the amounts paid by the obligor on the related contract.
Under most state motor vehicle dealer licensing laws, sellers of motor
motorcycles are required to be licensed to sell motor motorcycles at retail
sale. Furthermore, federal odometer regulations promulgated under the Motor
Vehicle Information and Cost Savings Act require that all sellers of new and
used motorcycles furnish a written statement signed by the seller certifying
the accuracy of the odometer reading. If the originating dealer is not
properly licensed or if a written odometer disclosure statement was not
provided to the purchaser of the related financed motorcycle, an obligor may
be able to assert a defense against the originating dealer. If an obligor
were successful in asserting any of those claims or defenses, that claim or
defense would constitute a breach of the depositor's representations and
warranties under the related sale and servicing agreement or pooling and
servicing agreement and a breach of the seller's warranties under the related
transfer and sale agreement and would, if the breach materially and adversely
affects the collectibility of the contract or the interests of the trust or
the securityholders in the contract, create an obligation of the depositor
and the seller, respectively, to repurchase the contract unless the breach is
cured. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this
prospectus.
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 provided under the 14th Amendment to the Constitution of
the United States. Courts have generally upheld the notice provisions of the
UCC and related laws as reasonable or have found that the repossession and
resale by the creditor do not involve sufficient state action to afford
constitutional protection to borrowers.
The seller and the depositor will represent and warrant that each
contract complies with all requirements of law in all material respects.
Accordingly, if an obligor has a claim against a trust for
70
violation of any law and that claim materially and adversely affects that
trust's or the securityholder's interest in a contract or the collectibility
of the contract, that violation would constitute a breach of the
representations and warranties of the seller and the depositor would create
an obligation of the seller and the depositor to repurchase the contract
unless the breach is cured. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS" in this prospectus.
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
secured party to realize upon collateral or to 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 vehicle and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the vehicle at the time of bankruptcy, as determined by the
court, leaving the creditor as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments
due under a contract or change the rate of interest and time of repayment of
the indebtedness.
Under the terms of the Soldiers' and Sailors' Relief Act of 1940
(the "Relief Act"), an obligor who enters the military service after the
origination of that obligor's contract (including an obligor who is a member
of the National Guard or is in reserve status at the time of the origination
of the obligor's contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of that
obligor's active duty status, unless a court orders otherwise upon
application of the lender. In addition, some states, including California,
allow members of its national guard to extend payments on any contract
obligation if called into active service by the Governor for a period
exceeding 7 days. It is possible that the foregoing could have an effect on
the ability of the servicer to collect the full amount of interest owing on
some of the contracts. In addition, both the Relief Act and the laws of some
states, including California, New York and New Jersey, impose limitations
that would impair the ability of the servicer to repossess the released
financed motorcycle during the obligor's period of active duty status. Thus,
if that contract goes into default, there may be delays and losses occasioned
by the inability to exercise the trust's rights with respect to the contract
and the related financed motorcycle in a timely fashion.
Any shortfall pursuant to either of the two preceding paragraphs, to
the extent not covered by amounts payable to the securityholders from amounts
on deposit in the related reserve fund or from coverage provided under any
other credit enhancement mechanism, could result in losses to the
securityholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a discussion of the material United States federal
income tax consequences of the purchase, ownership and disposition of notes
or certificates issued by a trust as described in this prospectus. The
federal income tax consequences to certificate holders will vary depending on
whether the trust is an owner trust or a grantor trust. As an alternative to
those two types of trusts, a trust could elect to be treated as a financial
asset securitization investment trust, generally referred to as a FASIT. The
prospectus supplement for each series of notes or certificates will specify
the treatment of the trust
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for federal income tax purposes. Winston & Strawn has delivered its opinion
letter with respect to each type of trust contemplated by this prospectus
regarding the federal income tax characterization of the trust and the notes
or certificates to be issued by the trust. Each of those opinions is
described fully below in connection with the discussion of each type of trust.
The opinions of Winston & Strawn and this discussion of "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES" are based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "CODE"), existing and proposed
Treasury Regulations, current administrative rulings, judicial decisions and
other applicable authorities in effect as of the date of this prospectus, all
of which are subject to change, possibly with retroactive effect. There are
no cases, regulations, or Internal Revenue Service rulings on comparable
transactions or instruments to those described in this prospectus. As a
result, there can be no assurance that the Internal Revenue Service will not
challenge the opinions of federal tax counsel and no ruling from the Internal
Revenue Service has been or will be sought on any of the issues discussed
below. Furthermore, legislative, judicial or administrative changes may
occur, perhaps with retroactive effect, which could affect the accuracy of
the statements set forth below.
This discussion does not attempt to deal with all aspects of federal
income taxation that may be relevant to all holders of notes and certificates
in light of their personal investment or tax circumstances. Also, this
discussion does not describe tax consequences to certain types of holders who
may be subject to special treatment under the federal income tax laws
including, without limitation, financial institutions, dealers in securities
or currencies, insurance companies, and persons who hold the notes or
certificates as part of a straddle, hedging or conversion transaction.
Investors and preparers of tax returns (including returns filed by
any trust described in this prospectus) should be aware that under applicable
Treasury Regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (1) is given with
respect to events that have occurred at the time the advice is rendered and
is not given with respect to the consequences of contemplated actions, and
(2) is directly relevant to the determination of an entry on a tax return.
Accordingly, taxpayers should consult their own tax advisors and tax return
preparers regarding the preparation of any item on a tax return even where
the anticipated tax treatment has been discussed in this prospectus. The
depositor suggests that you consult with your own tax advisors as to the
federal, state, local, foreign and any other tax consequences to you of the
purchase, ownership and disposition of the notes and the certificates.
The tax opinions of Winston & Strawn with respect to each type of
trust and the notes or certificates to be issued by the trusts which have
been delivered in connection with the filing of this prospectus are subject
to certain assumptions, conditions and qualifications as described in detail
below. At the time a trust is established and notes or certificates are
issued, tax counsel will deliver another opinion, regarding the same tax
issues, to either confirm the accuracy of those assumptions or conditions or
to address any changes or differences which may exist at that time. To the
extent any given series of notes or certificates, or the form of any trust,
differs from the assumptions or conditions set forth in the following
discussion or changes occur in the relevant tax laws, or in their
application, any additional tax considerations will be disclosed in the
applicable prospectus supplement. Each of those subsequent opinions of tax
counsel will be filed, together with the final documentation for the
respective trust transaction, with the Securities and Exchange Commission
under Form 8-K prior to sale.
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OWNER TRUSTS
A trust structured as an owner trust will typically issue one or
more classes of notes, intended to be treated as debt for federal income tax
purposes, and certificates, representing equity interests in the trust. The
characterization of the trust for federal income tax purposes depends in part
upon whether the certificates are owned by a single holder, such as the
depositor, or by multiple holders. This summary of material federal income
tax consequences with respect to the issuance of notes or certificates by an
owner trust is divided into three parts. The first part describes
characterization of the trust as a pass-through entity rather than as a
corporation or other entity subject to tax at the entity level. The second
part describes the taxation of an investor in the notes. The third part
describes taxation of an investor in the certificates.
TAX CHARACTERIZATION OF OWNER TRUSTS
Winston & Strawn, as federal tax counsel to the depositor, is of the opinion
that if the prospectus supplement specifies that the trust will be treated as
an owner trust, it will not be an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes and
therefore its income will not be subject to the federal income tax imposed by
Subtitle A of the Code. This opinion is based on the assumptions that the
terms of the trust agreement and related documents will be substantially in
the form filed in connection with this prospectus and will be complied with.
It is also assumed that the owner or owners of certificates issued by the
trust will take all action necessary, if any, or refrain from taking any
inconsistent action so as to ensure the trust is, for federal income tax
purposes, either disregarded as a separate entity from the depositor (or
other sole certificateholder) or treated as a partnership. Winston & Strawn's
opinion is also based on its conclusions that (1) the trust will constitute a
business entity, (2) the nature of the income of the trust will exempt it
from the rule that certain publicly traded partnerships are taxable as
corporations, and (3) the trust, if a corporation, would not constitute a
regulated investment company under the federal income tax laws.
If certificates issued by the trust are at all times required to be
owned by a single person, such as the depositor, then, for federal income tax
purposes, the trust may be disregarded as a separate entity from the owner of
its certificates. In this situation, although it is the opinion of Winston &
Strawn that the notes issued by the trust will be characterized as
indebtedness for federal income tax purposes (as discussed below), no
assurance can be given that this characterization of the notes will prevail.
If the Internal Revenue Service 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. As a result, the trust would be
considered to have multiple equity owners (rather than just the single owner
of the trust certificates). In that case, the trust would be characterized as
a partnership for federal income tax purposes and the tax consequences to
holders of notes which were recharacterized as equity would be similar to
those discussed below under "--TAX TREATMENT OF INVESTORS IN CERTIFICATES".
Rather than having a single owner of certificates issued by the
trust, it is possible that the trust may issue certificates to multiple
owners. In that situation, the certificate owners would be treated as equity
owners of the trust and the trust would be characterized as a partnership for
federal income tax purposes.
In any case where the trust is treated as a partnership for federal
income tax purposes, it is the opinion of Winston & Strawn that it will not
constitute a publicly traded partnership. That opinion is
73
based upon Winston & Strawn's conclusions that (1) the nature of the income
of the trust will exempt it from publicly traded partnership characterization
and/or (2) the trust will at all times have fewer than 100 owners of its
equity interests. If, contrary to the opinion of Winston & Strawn, the trust
were treated as a publicly traded partnership or were otherwise taxable as a
corporation for federal income tax purposes, it would be subject to corporate
income tax on its taxable income. The trust's taxable income would include
all its income on the receivables and other assets owned by the trust, which
may be reduced by the interest expense on the notes issued by the trust to
the extent the notes are properly characterized as debt. Any such corporate
income tax could materially reduce cash available to make payments on the
notes and distributions on the certificates. If the trust were classified as
a partnership, other than a publicly traded partnership taxable as a
corporation, the trust itself would not be subject to United States federal
income tax. Instead, holders of equity interests in the partnership would be
required to take into account their allocable share of the trust's income and
deductions as discussed below under "--TAX TREATMENT OF INVESTORS IN
CERTIFICATES".
TAX TREATMENT OF INVESTORS IN NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. Winston & Strawn, as federal
tax counsel, is of the opinion that the notes will be classified as debt for
federal income tax purposes. This opinion is based upon the assumption that
the terms of the trust agreement, the notes and the related documents will be
substantially in the form filed in connection with this prospectus and will
be complied with. The depositor and the owners of the notes, by their
purchase of notes, will agree to treat the notes as debt for federal income
tax purposes. Winston & Strawn's opinion also assumes that the terms and
delinquency experience with respect to the contracts as described in this
prospectus will remain substantially unchanged and that the terms of the
notes will be as contemplated by this prospectus. The discussion below
assumes that the characterization of the notes as debt is correct.
INTEREST ON THE NOTES. An investor will be taxed on the amount of
payments of interest on a note as ordinary interest income at the time it
accrues or is received in accordance with the investor's regular method of
accounting for United States federal income tax purposes. This treatment
assumes that all payments on the notes are denominated in U.S. dollars. It
also assumes that the payment of interest on the notes constitutes "QUALIFIED
STATED INTEREST" under Treasury Regulations relating to original issue
discount and that an investor does not acquire its notes as "STRIPPED NOTES"
or at an original issue discount as discussed below. If these assumptions are
incorrect with respect to any notes issued by a trust, additional tax
considerations with respect to those notes will be disclosed in the related
prospectus supplement.
A holder of a note that has a fixed maturity date of not more than
one year from the issue date of that note (which will be referred to in this
paragraph as a "SHORT-TERM NOTE") may be subject to special rules. An accrual
basis holder of a short-term note (and some cash method holders, including
regulated investment companies, as set forth in Section 1281 of the Code)
generally would be required to report interest income as interest accrues on
a straight-line basis or under a constant yield method over the term of each
interest period. Other cash basis holders of a short-term note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the short-term note). However, a
cash basis holder of a short-term note reporting interest income as it is
paid may be required to defer a portion of any interest expense otherwise
deductible on indebtedness incurred to
74
purchase or carry the short-term note until the taxable disposition of the
short-term note. A cash basis taxpayer may elect under Section 1281 to accrue
interest income on all nongovernment debt obligations with a term of one year
or less, in which case the taxpayer would not be subject to the interest
expense deferral rule referred to in the preceding sentence. Special rules
apply if a short-term note is purchased for more or less than its principal
amount.
SALE OR OTHER DISPOSITION OF A NOTE. An investor who disposes of a
note, whether by sale, exchange for other property, or payment by the trust,
will recognize taxable gain or loss equal to the difference between the
amount realized on the sale or other disposition, not including any amount
attributable to accrued but unpaid interest which will be taxable as such,
and the investor's adjusted tax basis in the note. In general, an investor's
adjusted tax basis in a note will be equal to the investor's initial purchase
price increased by any accrued original issue discount or market discount
previously included in income by the investor and decreased by the amount of
any bond premium previously amortized and the amount of any payments, other
than payments of stated interest, previously received by the investor with
respect to the note. Any gain or loss recognized upon the sale or other
disposition of a note will be capital gain or loss so long as the note is a
"CAPITAL ASSET" in the hands of the investor. For non-corporate investors,
capital gain recognized on the sale or other disposition of a note held by
the investor for more than one year will be taxed at a maximum rate of 20%.
Capital gain for a note held for one year or less is taxed at the rates
applicable to ordinary income, I.E., up to 39.6%. Taxpayers must aggregate
capital gains and losses for each taxable year. In the event a taxpayer
realizes a net capital loss for any year there are limitations on the amount
of these capital losses which can be deducted.
PURCHASE AT A DISCOUNT. An investor who purchases a note as part of
the initial offering by the trust for an issue price that is less than its
"STATED REDEMPTION PRICE AT MATURITY" will generally be considered to have
purchased the note at an original issue discount for United States federal
income tax purposes. In general, the stated redemption price at maturity for
a note is equal to the principal amount. If a note is acquired with original
issue discount greater than a DE MINIMIS amount (one-fourth of one percent,
or 0.25%, of the bond's principal amount or other stated redemption price at
maturity multiplied by the full number of years included in determining the
weighted average maturity of the bonds) the investor will be required to
include in income each year, taxable as ordinary income, a portion of the
original issue discount. For cash basis investors, such as individuals, the
requirement that original issue discount be accrued as income each year means
the investor recognizes taxable income in advance of the receipt of some or
all of the cash corresponding to that income. The amount of original issue
discount accrued as income each year is based upon a formula which looks at
the constant yield on the notes and the term to maturity so as to annually
allocate a proportionate share of original issue discount. Under these rules,
investors generally will be required to include in income increasingly
greater amounts of original issue discount in successive accrual periods.
Generally, an investor that acquires a note that has more than a DE
MINIMIS amount of original issue discount must include in gross income the
sum of the "daily portions" of the original issue discount for each day on
which it owns a note, including the date of purchase but excluding the date
of disposition. In the case of an original holder of a note, the daily
portions of original issue discount with respect to the note generally would
be determined as follows. A calculation will be made of the portion of
original issue discount that accrues on the note during each successive
monthly accrual period (or shorter period in respect of the date of original
issue or the final payment date). This will be done, in the case of each full
monthly accrual period, by adding (1) the present value of all remaining
payments to be received on the note under the prepayment assumption used in
respect of the contracts and (2) any payments received
75
during that accrual period, and subtracting from that total the "adjusted
issue price" of the note at the beginning of that accrual period. The
adjusted issue price of a note at the beginning of the first accrual period
is the amount of the purchase price paid by the holder for the note that is
allocable to those contracts. The adjusted issue price of a note at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of
original issue discount allocable to that accrual period and reduced by the
amount of any payment on the note (other than qualified stated interest) made
at the end of or during that accrual period. The original issue discount
accruing during that accrual period will then be divided by the number of
days in the period to determine the daily portion of original issue discount
for each day in the period. With respect to an initial accrual period shorter
than a full monthly accrual period, the daily portions of original issue
discount must be determined according to a reasonable method, provided that
the method is consistent with the method used to determine the yield to
maturity of the note.
For purposes of calculating the daily portion of original issue
discount to be accrued as income, the method of determining yield to maturity
is not clear, and in particular it is not clear whether prepayments on the
underlying contracts should be taken into account in determining such yield.
In determining the weighted average maturity of the notes for purposes of
calculating original issue discount, the depositor expects to use a
reasonable assumption regarding prepayment of the contracts owned by the
trust. No representation is made as to the actual prepayments to be made on
the contracts. This method of calculating the accrual of original issue
discount will cause the accrual of original issue discount to either increase
or decrease (but never below zero) in any given accrual period to reflect the
fact that prepayments are occurring at a faster or slower rate than the
prepayment assumption used in respect of the contracts. In determining
whether a note has original issue discount, the issue price of the note may
not necessarily equal the investor's purchase price, although they generally
should be the same. The issue price of a note will equal the initial offering
price to the public, not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters or wholesalers, at which
price a substantial amount of the notes is sold.
If an investor acquires a note in a secondary market transaction for
a purchase price which is less than the principal amount or other amount
payable at maturity of the note, the difference is referred to for tax
purposes as market discount. Similarly to original issue discount, an
investor must accrue a portion of the market discount each year. Unlike
original issue discount, however, an investor does not include accrued market
discount in ordinary income each year. Rather, the aggregate amount of
accrued market discount is included in income when an investor sells or
otherwise disposes of the note. At that time, the portion of the amount
realized by the investor on the sale or other disposition of the note equal
to accrued market discount is taxed as ordinary income, which has a maximum
tax rate of 39.6%, rather than the long term capital gain maximum tax rate of
20%. The amount of market discount which accrues annually will be calculated
on a straight-line basis over the remaining term to maturity of the note
unless the investor elects to accrue market discount using a constant yield
method.
An investor may elect to include market discount in income currently
as it accrues rather than being taxed on the aggregate amount of all accrued
market discount when the note is sold or otherwise disposed of. This election
would apply to all of the investor's debt investments acquired with market
discount in or after the taxable year in which the notes are acquired and not
just to the notes issued by the trust.
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Limitations imposed by the federal tax laws which are intended to
match deductions with the taxation of income may defer deductions for
interest paid by an investor on indebtedness incurred or continued, or short
sale expenses incurred, to purchase or carry a note with market discount. A
noteholder who elects to include market discount in gross income as it
accrues is exempt from this rule.
Whenever an investor accrues and includes in income an amount of
original issue discount or market discount, the investor's adjusted basis in
the corresponding note is increased by that same amount. As a result, the
investor would recognize a lower capital gain or greater capital loss on the
sale or other disposition of the note.
In general, if the amount of original issue discount or market
discount would be less than one-fourth of one percent (0.25%) of the note's
principal or other stated redemption price at maturity multiplied by the
number of full years included in determining the weighted average maturity of
the notes, the investor can disregard the original issue discount or market
discount rules.
PURCHASE AT A PREMIUM. If an investor purchases a note for a price
that exceeds the principal amount or other amount payable at maturity, the
investor will be considered to have an amortizable bond premium. An investor
can elect to accrue a portion of the premium each year as a deduction to
offset interest income on the corresponding note. The amount of premium which
can be amortized and deducted each year is calculated using a constant yield
method over the remaining term to maturity of the note. The deduction is
available only to offset interest income on the corresponding note; it cannot
be used as a deduction to the extent it exceeds taxable note interest. The
adjusted tax basis which an investor has in a note must be reduced by the
amount of premium for which a deduction is claimed. Because the basis is
reduced, the investor would recognize a larger taxable capital gain, or a
smaller capital loss, on the sale or other disposition of the note. If an
investor elects to amortize and deduct premium, the election will apply to
all of the investor's debt investments and not just to the notes.
If an investor purchases in a secondary market transaction a note
which was originally issued with original issue discount for an amount which
is less than the sum of all amounts payable on the note after the purchase
date other than payments of qualified stated interest but in excess of its
adjusted issue price, I.E., the original issue price plus any accrued
original issue discount as those terms are described above, the excess is
referred to for tax purposes as "ACQUISITION PREMIUM." The investor would be
permitted to reduce the daily portions of original issue discount the
investor would otherwise include in income by an amount corresponding to the
ratio of (1) the excess of the investor's purchase price for the note over
the adjusted issue price of the note as of the purchase date to (2) the
excess of all amounts payable on the note after the purchase date, other than
payments of qualified stated interest, over the note's adjusted issue price.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. An
investor may elect to include in gross income all interest that accrues on a
note using the constant-yield method described above under the heading
"PURCHASE AT A DISCOUNT" with modifications described below. For purposes of
this election, interest includes qualified stated interest, original issue
discount, DE MINIMIS original issue discount, market discount, DE MINIMIS
market discount, and unstated interest, as adjusted by any amortizable bond
premium or acquisition premium.
In applying the constant-yield method to a note with respect to
which this election has been made, the issue price of the note will equal the
electing investor's adjusted basis in the note
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immediately after its acquisition. The issue date of the note will be the
date of its acquisition by the electing investor, and no payments on the note
will be treated as payments of qualified stated interest. This election, if
made, may not be revoked without the consent of the Internal Revenue Service.
Investors should consult with their own tax advisors as to the effect in
their circumstances of making this election.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The trust or an agent
acting on its behalf will be required to report annually to the Internal
Revenue Service, and to each non-corporate noteholder, the amount of interest
paid on the notes for each calendar year. Each non-corporate noteholder,
other than noteholders who are not subject to the reporting requirements,
will be required to provide, under penalties of perjury, a certificate, Form
W-9, containing the noteholder's:
(1) name,
(2) address,
(3) correct federal taxpayer identification number, and
(4) a statement that the noteholder is not subject to backup
withholding.
Should a non-exempt noteholder fail to provide the required certification,
the trust will be required to withhold or cause to be withheld 31% of the
interest otherwise payable to the noteholder and remit the withheld amounts
to the Internal Revenue Service as a credit against the noteholder's federal
income tax liability.
FOREIGN NOTEHOLDERS. Special tax rules apply to the purchase of
notes by foreign persons. For U.S. tax purposes, foreign investors include
any person who is not
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof,
(3) an estate the income of which is includible in gross income for
U.S. federal income tax purposes, regardless of its source,
(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 the authority to control all substantial decisions
of the trust, or
(5) a trust that has a valid election in effect under applicable
United States Treasury Regulations to be treated as a United States person.
Interest paid or accrued to a foreign investor that is not
effectively connected with the conduct of a trade or business within the
United States by the investor will generally be considered "portfolio
interest" and not be subject to United States federal income tax or
withholding tax as long as the foreign investor is not actually or
constructively a 10 percent shareholder of the trust or a controlled foreign
corporation related to the trust through stock ownership. Additionally, the
foreign investor must provide or have a
78
financial institution provide on its behalf to the trust or paying agent an
appropriate statement or Form W-8 (or successor form), that is signed under
penalties of perjury, certifying that the beneficial owner of the note is a
foreign person and providing that foreign person's name and address. If the
information provided in this statement changes, the foreign investor must
provide a new Form W-8 (or successor form) within 30 days. If the foreign
investor fails to satisfy these requirements so that interest on the
investor's notes was not portfolio interest, interest payments would be
subject to United States federal income and withholding tax at a rate of 30%
unless reduced or eliminated under an applicable income tax treaty. To
qualify for any reduction as the result of an income tax treaty, the foreign
investor must provide the paying agent with Form 1001 (or successor form).
The realization of any capital gain on the sale or other taxable
disposition of a note by a foreign investor will be exempt from United States
federal income and withholding tax, provided that (1) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the investor, and (2) in the case of an individual foreign
investor, the investor is not present in the United States for 183 days or
more during the taxable year. If an individual foreign investor is present in
the U.S. for 183 days or more during the taxable year, the gain on the sale
or other disposition of the notes could be subject to a 30% withholding tax
unless reduced by treaty.
If the interest, gain or income on a note held by a foreign investor
is effectively connected with the conduct of a trade or business in the
United States by the investor, the noteholder will be subject to United
States federal income tax on the interest, gain or income at regular federal
income tax rates. At the same time, the noteholder may be exempt from
withholding tax if a Form 4224 (or successor form) is furnished to the paying
agent. In addition, if the foreign investor is a foreign corporation, it may
be subject to a branch profits tax equal to 30% of its "EFFECTIVELY CONNECTED
EARNINGS AND PROFITS" for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty.
Regardless of when a foreign investor acquired a note, recently
adopted Treasury Regulations will become effective for note payments made
after December 31, 2000. The new regulations make certain changes to the
withholding, backup withholding and information reporting rules just
described and attempt to unify certification requirements and modify reliance
standards. It is suggested that prospective investors consult their own tax
advisors regarding the new regulations.
If a foreign investor fails to provide necessary documentation to
the trust or its paying agent regarding the investor's taxpayer
identification number or certification of exempt status, a 31% backup
withholding tax may be applied to note payments to that investor. Any amounts
withheld under the backup withholding rules will be allowed as a refund or a
credit against the foreign investor's U.S. federal income tax liability
provided the required information is furnished to the Internal Revenue
Service.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of Winston & Strawn, the Internal Revenue Service 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 a publicly traded partnership
taxable as a corporation with the adverse consequences described above (and
the resulting taxable corporation would not be able to reduce its taxable
income by deductions for interest expense on notes recharacterized as
equity). See "--OWNER TRUSTS--TAX CHARACTERIZATION OF OWNER TRUSTS" in this
prospectus. Alternatively, it is possible that the trust might be
79
treated as a partnership that would not be taxable as a corporation. However,
treatment of the notes as equity interests in a partnership could have
adverse tax consequences to certain holders. For example, income to certain
tax-exempt entities (including pension funds) could constitute "UNRELATED
BUSINESS TAXABLE INCOME"; income to foreign holders generally would be
subject to U.S. tax and U.S. tax return filing and withholding requirements;
individual holders might be subject to certain limitations on their ability
to deduct their share of trust expenses; and income from the trust's assets
would be taxable to noteholders without regard to whether cash distributions
are actually made from the trust or any particular noteholder's method of
accounting.
TAX TREATMENT OF INVESTORS IN CERTIFICATES
TREATMENT OF TRUST AS A PARTNERSHIP. As mentioned above, in any case
where the trust issues certificates to multiple owners, the trust will be
treated by the depositor as a partnership for federal income tax purposes.
The depositor and the servicer will agree, and each certificateholder will
agree by its purchase of certificates, to treat the trust as a partnership
for purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership
being the assets held by the trust, the partners of the partnership being the
certificateholders, and the notes being debt of the partnership. The trust,
the depositor, and the certificateholders will take all necessary actions, if
any, and refrain from taking any inconsistent actions, so as to ensure that
the trust will be treated as a partnership under the final Treasury
Regulations which allow an entity to elect status as a partnership.
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 depositor or the
trust. Any such characterization should not result in materially adverse tax
consequences to certificateholders as compared to the consequences from
treatment of the certificates as equity in a partnership, described below.
The following discussion assumes that the certificates represent equity
interests in a partnership and that all payments on the certificates are
denominated in U.S. dollars.
PARTNERSHIP TAXATION. As a partnership, the trust will not be
subject to federal income tax. Rather, each certificateholder will be
required to separately take into account such holder's allocated share of
income, gains, losses, deductions and credits of the trust. The trust's
income will consist primarily of interest and finance charges earned on the
contracts owned by the trust (including appropriate adjustments for any
market discount, original issue discount and bond premium), any yield
supplement deposits and any gain upon collection or disposition of the
contracts. 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 the contracts.
The tax items of a partnership are allocable to the partners in
accordance with the applicable federal income tax laws and the partnership
agreement (I.E., the trust agreement and related documents). The trust
agreement will provide, in general, that the certificateholders will be
allocated taxable income of the trust for each month equal to the sum of (1)
the interest that accrues on the certificates in accordance with their terms
for such month, including interest accruing at the pass-through rate for such
month and interest on amounts previously due on the certificates but not yet
distributed; (2) any trust income attributable to discount on the contracts
that corresponds to any excess of the principal amount of the certificates
over their initial issue price; (3) monthly prepayment premium payable to the
certificateholders; and (4) any other amounts of income payable to the
certificateholders for the month
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including, for example, any yield supplement deposits. That allocation of
income will be reduced by any amortization by the trust of premium on
contracts that corresponds to any excess of the issue price of certificates
over their principal amount. All remaining taxable income of the trust will
be allocated to the trust depositor. Based on the economic arrangement of the
parties, this approach for allocating trust income should be permissible
under the applicable Treasury Regulations, although no assurance can be given
that the Internal Revenue Service would not require a greater amount of
income to be allocated to certificateholders.
Certificateholders may be allocated income equal to the entire
pass-through rate plus the other items described above, even though the trust
might not have sufficient cash to make current cash distributions equal to
that amount. In that situation, cash basis holders will in effect be required
to report income from the certificates on the accrual basis and
certificateholders may become liable for taxes on trust income even if they
have not received cash from the trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
certificateholders, but certificateholders may be purchasing certificates at
different times and at different prices, certificateholders may be required
to report on their tax returns taxable income that is greater or less than
the amount reported to them by the trust. See the discussion below under
"--ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES."
Most or all of the taxable income allocated to a certificateholder
that is a tax-exempt entity (including an individual retirement account) will
constitute "UNRELATED BUSINESS TAXABLE INCOME" generally taxable to such a
holder for federal income tax purposes.
With respect to any certificateholder who is an individual, an
individual taxpayer's share of certain expenses of the trust (including fees
to the servicer, but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income
that exceeds the amount of cash actually distributed to such holder over the
life of the trust.
The trust will make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis with respect to the
entire pool of contracts owned by the trust. If the Internal Revenue Service
were to require that such calculations be made separately for each contract,
the trust might be required to incur additional expense but it is believed
that there would not be a material adverse effect on certificateholders.
DISCOUNT AND PREMIUM. It is believed that the contracts will not be
issued with original issue discount, and, therefore, the trust should not
have income due to the accrual of original issue discount. However, the
purchase price paid by the trust for contracts may be greater or less than
the remaining principal balance of the contracts at the time of purchase. If
so, the contracts will have been acquired at a premium or market discount as
the case may be. As indicated above, the trust will make this calculation on
an aggregate basis with respect to the entire pool of contracts owned by the
trust, but might be required to recompute it on a contract-by contract basis.
If the trust acquires the contracts at a market discount or premium,
it will elect to include any such discount in income currently as it accrues
over the life of such contracts or to offset any such premium against
interest income on such contracts. See "--TAX TREATMENT OF INVESTORS IN
NOTES--
81
PURCHASE AT A DISCOUNT" and "--PURCHASE AT A PREMIUM" in this prospectus. As
indicated above, a portion of such market discount income or premium
deduction may be allocated to certificateholders.
DISTRIBUTIONS TO CERTIFICATEHOLDERS. Certificateholders generally
will not recognize gain or loss with respect to distributions from the trust.
A certificateholder will recognize gain, however, to the extent that any
money distributed exceeds the certificateholder's adjusted basis in the
certificates (as described below under "--DISPOSITION OF CERTIFICATES")
immediately before the distribution. If a certificateholder is required to
recognize an aggregate amount of income (not including income attributable to
disallowed itemized deductions described above) over the life of the
certificates that exceeds the aggregate cash distributions with respect
thereto, the amount of that excess will generally give rise to a capital loss
upon the retirement of the certificates. Any gain or loss will generally be
long-term gain or loss if the holding period of the certificate is more than
one year.
SECTION 708 TERMINATION. Under Section 708 of the Code, if 50% or more of the
outstanding equity interests in the trust are sold or exchanged within any
12-month period, the trust will be deemed to terminate and then be
reconstituted for federal income tax purposes. If such a termination occurs,
the assets of the terminated trust (the "OLD TRUST") are deemed to be
constructively contributed to a reconstituted trust (the "NEW TRUST") in
exchange for interests in the new trust. Such interests would be deemed
distributed to the partners, or certificateholders, of the old trust in
liquidation thereof, which would not constitute a sale or exchange.
Accordingly, if the sale of the trust's interests terminated the partnership
under Section 708 of the Code, the certificateholder's basis in its ownership
interest would not change. The trust's taxable year would also terminate as a
result of a constructive termination and, if the certificateholder was on a
different taxable year than the trust, the termination could result in the
bunching of more than twelve months of the trust's income or loss in the
certificateholder's income tax return for the year in which the trust was
deemed to terminate.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on the sale of certificates, so long as the certificate is a
"CAPITAL ASSET" in the hands of the investor, in an amount equal to the
difference between the amount realized and the holder's tax basis in the
certificates sold. A certificateholder's tax basis in a certificate will
generally equal the holder's cost increased by the holder's share of trust
income (that was includible in the certificateholder's income) and decreased
by any distributions received with respect to such certificate. In addition,
both the tax basis in the certificates and the amount realized on a sale of a
certificate would include the holder's share of the notes and other
liabilities of the trust. A holder acquiring certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in all of
the certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of that aggregate tax basis to the
certificates sold (rather than maintaining a separate tax basis in each
certificate for purposes of computing gain or loss on a sale of that
certificate).
Any gain on the sale of a certificate attributable to the holder's
share of unrecognized accrued market discount on the contracts owned by the
trust would generally be treated as ordinary income to the holder and would
give rise to special tax reporting requirements. The trust does not expect to
have any other assets that would give rise to such special reporting
requirements. Thus, to avoid those special reporting requirements, the trust
will elect to include market discount in income as it accrues as previously
stated.
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ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
trust's taxable income and losses will be determined monthly and the tax
items for a particular calendar month will be apportioned among the
certificateholders in proportion to the principal amount of certificates
owned by them as of the close of the last day of the month. As a result, a
holder purchasing certificates may be allocated tax items (which will affect
its tax liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by
existing regulations. If a monthly convention is not allowed (or only applies
to transfers of less than all of the partner's interest), taxable income or
losses of the trust might be reallocated among the certificateholders. The
depositor will be authorized to revise the trust's method of allocation
between transferors and transferees to conform to a method permitted by
future regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells
its certificates at a profit or loss, the purchasing certificateholder will
have a higher or lower basis in the certificates than the selling
certificateholder had. The tax basis of the trust's assets will not be
adjusted to reflect that higher or lower basis unless the trust were to file
an election under Section 754 of the Code. In order to avoid the
administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the trust will not make such election. As a result,
certificateholders might be allocated a greater or lesser amount of trust
income than would be appropriate based on their own purchase price for
certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year
of the trust will be the calendar year. The trustee will file a partnership
information return (Form 1065) with the Internal Revenue Service for each
taxable year of the trust and will report each certificateholder's allocable
share of items of trust income and expense to holders and the Internal
Revenue Service on Schedule K-l. The trustee will provide the Schedule K-1
information to nominees that fail to provide the trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the certificates. Generally, holders
must file tax returns that are consistent with the information return filed
by the trust or be subject to penalties unless the holder notifies the
Internal Revenue Service of all such inconsistencies.
Under Section 6031 of the Code, any person that holds certificates
as a nominee at any time during a calendar year is required to furnish the
trust with a statement containing certain information on the nominee, the
beneficial owners and the certificates so held. Such information includes (1)
the name, address and taxpayer identification number of the nominee and (2)
as to each beneficial owner (a) the name, address and identification number
of such person, (b) whether such person is a United States person, a
tax-exempt entity, a foreign government or an international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and
(c) certain information on certificates that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and financial
institutions that hold certificates through a nominee are required to furnish
directly to the trust information as to themselves and their ownership of
certificates (a registered clearing agency is not required to furnish any
such information statements 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.
83
The trust depositor will be designated as the tax matters partner
for the trust in the trust agreement and, as such, will be responsible for
representing the certificateholders in any dispute with the Internal Revenue
Service. The federal income tax laws provide for administrative examination
of a partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return
is filed. Any adverse determination following an audit of the return of the
trust by the appropriate taxing authorities could result in an adjustment of
the returns of the certificateholders, and, under certain circumstances, a
certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a certificateholder's returns and adjustments of items not related
to the income and losses of the trust.
BACK-UP WITHHOLDING. Distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a back-up
withholding tax of 31% if, in general, the certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable tax law provisions. See "--TAX TREATMENT OF
INVESTORS IN NOTES--INFORMATION REPORTING AND BACKUP WITHHOLDING" in this
prospectus.
FOREIGN CERTIFICATEHOLDERS. It is not clear whether the trust would
be considered to be engaged in a trade or business in the United States for
purposes of federal withholding taxes with respect to non-U.S. persons
because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Nevertheless, the trust will
withhold as if it were so engaged in order to protect the trust from possible
adverse consequences of a failure to withhold. The trust expects to withhold
on the portion of its taxable income that is allocable to foreign
certificateholders, as if such income were effectively connect to a U.S.
trade or business, at a rate of 35% for foreign holders that are taxable as
corporations and 39.6% for all other foreign holders. Subsequent adoption of
Treasury Regulations or the issuance of other administrative pronouncements
may require the trust to change its withholding procedures. In determining a
holder's withholding status, the trust may generally rely on Form W-8, Form
W-9 (or successor forms) or the holder's certification of nonforeign status
signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the trust's income. Each foreign holder
must obtain a taxpayer identification number from the Internal Revenue
Service and submit that number to the trust on Form W-8 (or successor form)
in order to assure appropriate crediting of the taxes withheld. A foreign
holder generally would be entitled to file with the Internal Revenue Service
a claim for refund with respect to taxes withheld by the trust, taking the
position that no taxes were due because the trust was not engaged in a U.S.
trade or business (although no assurance can be given as to the prospects for
success of the refund claim). However, even if such a position is successful,
interest payments made (or accrued) to a certificateholder who is a foreign
person may be considered to be guaranteed payments, but only to the extent
such payments are determined without regard to the income of the trust. It is
unclear whether the Internal Revenue Service would agree with that
characterization. If these interest payments are properly characterized as
guaranteed payments, then the interest will not constitute "PORTFOLIO
INTEREST." As a result, certificateholders will be subject to 30% U.S.
withholding tax, unless reduced or eliminated pursuant to an applicable
treaty. In such case, a foreign holder would only be entitled to claim a
refund for that portion of the taxes in excess of the taxes that should be
withheld with respect to the guaranteed payments.
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GRANTOR TRUSTS
This summary of material federal income tax consequences with
respect to the issuance of certificates by a grantor trust is divided into
two parts. The first part describes characterization of the trust as a
grantor trust. The second part describes taxation of an investor in
certificates issued by a grantor trust.
TAX CHARACTERIZATION OF GRANTOR TRUSTS
Winston & Strawn, as federal tax counsel, is of the opinion that if
the prospectus supplement specifies that the trust will be treated as a
grantor trust, it will be classified for federal income tax purposes as a
grantor trust and not as an association (or a publicly traded partnership)
taxable as a corporation and therefore its income will not be subject to the
federal income tax imposed by Subtitle A of the Code. Winston & Strawn is
further of the opinion that, subject to the discussion below under
"--STRIPPED BONDS AND STRIPPED COUPONS", each certificateholder will be
treated for federal income tax purposes as the owner of a pro rata undivided
interest in the income and assets of the trust. This opinion is based on the
assumption that the terms of the pooling and servicing agreement, the
certificates and the related documents will be substantially in the form as
filed with this prospectus and will be complied with.
For federal income tax purposes, the trust will be deemed to have
acquired the following assets: (1) the principal of each contract, plus a
portion of the interest due on each contract (the "TRUST STRIPPED BONDS");
(2) the portion of the interest due on each contract not allocable to the
Trust Stripped Bonds or retained by the depositor (the "TRUST STRIPPED
COUPONS"); (3) the right to receive any yield supplement deposits; (4) the
proceeds of certain insurance policies on the financed assets; (5) rights
under the trust agreement and (6) rights under the security agreement in
favor of the trust securing the depositor's obligation to purchase subsequent
contracts and deliver them to the trust. Although a grantor trust may have
certain rights with respect to a reserve fund, pre-funding account or
interest reserve account, such accounts would not be assets of the trust.
It is possible, for federal income tax purposes, that the grantor
trust may be viewed as owning a single debt obligation having a principal
amount equal to the total stated principal amount of the entire pool of
contracts and an interest rate equal to the pass-through rate. Accordingly,
the owners of certificates would be viewed as owning an undivided interest in
that single debt obligation. In that case, the tax consequences to the
certificate owners would be the same as owners of notes owned by a trust
structured as an owner trust described above under the heading "--OWNER
TRUSTS--TAX TREATMENT OF INVESTORS IN NOTES."
The remainder of the discussion in this prospectus assumes that a
grantor trust certificateholder will be treated as owning an interest in each
contract, a portion of the interest payable on each contract, any right to
receive yield supplement deposits, and any other assets of the trust.
However, for administrative convenience, the servicer will report information
to investors and to the Internal Revenue Service on an aggregate basis (as
though all of the contracts and the rights to payments under the yield
supplement agreement were a single obligation). The amount and, in some
instances, character, of the income reported to a grantor trust
certificateholder may differ under this method for a particular period from
that which would be reported if income were reported on a precise
asset-by-asset basis.
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TAX TREATMENT OF INVESTORS
CHARACTERIZATION OF INVESTMENT. As mentioned above, Winston & Strawn
is of the opinion that each grantor trust certificateholder will be treated
as the owner of a pro rata undivided interest in each of the contracts in the
trust, any right to receive yield supplement deposits, and any other trust
property. Any amounts received by a grantor trust certificateholder in lieu
of amounts due with respect to any contract 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.
In each case where the interest rate on a contract exceeds the sum
of the certificate pass-through rate plus the servicing fee rate, for federal
income tax purposes, the depositor will be treated as having retained a fixed
portion of the interest due on the contract equal to the difference between
(1) the interest rate on each contract and (2) the sum of the pass-through
rate and the servicing fee rate. The depositor's retained yield with respect
to the contracts will be treated as "STRIPPED COUPONS" within the meaning of
Section 1286 of the Code and the contracts will be treated as "STRIPPED
BONDS." See "--STRIPPED BONDS AND STRIPPED COUPONS" below.
Each grantor trust certificateholder will be required to report on
its federal income tax return in accordance with that certificateholder's
method of accounting its pro rata share of the entire income from the
contracts in the trust represented by certificates, including interest,
original issue discount, prepayment fees, assumption fees, any gain
recognized upon an assumption, late payment charges received by the servicer
and any gain recognized upon collection or disposition of the contracts (but
not including any portion of the depositor's retained yield). A grantor trust
certificateholder will also be required to report under its usual method of
accounting any payments received under any yield supplement agreement to the
extent that these payments are treated as income. 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
those amounts are reasonable compensation for services rendered to the trust.
Certificateholders that are individuals, estates or trusts will be entitled
to deduct their share of expenses only to the extent those expenses exceed
two percent of its adjusted gross income. Grantor trust certificateholders
who are individuals may be subject to additional deduction limitations based
on adjusted gross income.
A grantor trust certificateholder using the cash method of
accounting must take into account its pro rata share of income and deductions
as and when collected by or paid to the servicer. A grantor trust
certificateholder using an accrual method of accounting must take into
account its pro rata share of income and deductions as they become due or are
paid, whichever is earlier. Because (1) interest accrues on the contracts
over differing monthly periods and is paid in arrears and (2) interest
collected on a contract generally is paid to certificateholders in the
following month, the amount of interest accruing to a grantor trust
certificateholder during any calendar month will not equal the interest
distributed in that month.
PURCHASE PRICE ALLOCATION. A certificateholder must allocate the
cost of its certificates among its allocable share of each of the separate
assets of the trust, in accordance with the proportion of the relative fair
market values of the assets as of the date the holder acquired its
certificate, in order to determine its initial tax basis for its pro rata
portion of each asset held by the trust. For this purpose, a
certificateholder may treat the trust's rights in the security interests, the
individual insurance contracts, and other rights the
86
trust may have which provide credit enhancement as part of the contracts such
that no separate allocation of the certificate cost and determination of
basis must be made to these rights.
In addition to the contracts however, the purchase price for
certificates should be allocated to the grantor trust certificateholder's
undivided interest in accrued but unpaid interest, amounts collected at the
time of purchase but not distributed, and, perhaps, rights to receive yield
supplement deposits. As a result, the portion of the purchase price allocable
to the grantor trust certificateholder's undivided interest in the contracts
may be decreased. The allocation of purchase price among the assets is
important for purposes of determining the amount of gain or loss recognized
by a certificateholder when the trust disposes of a contract and for
calculating discount or premium with respect to the contracts, all as
discussed below.
STRIPPED BONDS AND STRIPPED COUPONS. Although the tax treatment of
stripped bonds is not entirely clear, based on recent guidance from the
Internal Revenue Service, each purchaser of a grantor trust certificate will
be treated as the purchaser of a stripped bond and coupon, to the extent that
the contracts consist of contracts having an interest rate in excess of the
sum of the pass-through rate plus the servicing fee rate. The stripped bond
generally should be treated as a single debt instrument issued on the day it
is purchased for purposes of calculating any original issue discount.
Generally, under applicable Treasury Regulations, if the discount on a
stripped bond is larger than a DE MINIMIS amount (one-fourth of one percent,
or 0.25%, of the bond's principal amount or other stated redemption price at
maturity multiplied by the full number of years included in determining the
weighted average maturity of the bonds) that stripped bond will be considered
to have been issued with original issue discount. See "--OWNER TRUSTS--TAX
TREATMENT OF INVESTORS IN NOTES--ORIGINAL ISSUE DISCOUNT." Although the
matter is not entirely clear, each certificateholder's share of the interest
income on the contracts at the sum of the pass-through rate and the fee
servicing rate will be treated as "QUALIFIED STATED INTEREST." The trustee
will treat each holder's share of the interest income in this manner for tax
information reporting purposes. As a result, the amount of original issue
discount for each certificateholder will equal the amount, if any, by which
the portion of the certificate purchase price allocable to the contracts is
less than the remaining principal balance of those contracts.
Generally, a certificateholder that acquires an undivided interest
in contracts constituting stripped bonds that have original issue discount
(referred to in this discussion as "stripped contracts") must include in
gross income the sum of the "DAILY PORTIONS" of the original issue discount
for each day on which it owns a certificate, including the date of purchase
but excluding the date of disposition. In the case of an original grantor
trust certificateholder, the daily portions of original issue discount with
respect to the stripped contracts generally would be determined as follows. A
calculation will be made of the portion of original issue discount that
accrues on those contracts during each successive monthly accrual period (or
shorter period in respect of the date of original issue or the final payment
date). This will be done, in the case of each full monthly accrual period, by
adding (1) the present value of all remaining payments to be received on the
stripped contracts under the prepayment assumption used in respect of the
contracts and (2) any payments received during that accrual period, and
subtracting from that total the "ADJUSTED ISSUE PRICE" of the stripped
contracts at the beginning of that accrual period. The adjusted issue price
of the stripped contracts at the beginning of the first accrual period is the
amount of the purchase price paid by the certificateholder for the
certificate that is allocable to those contracts. The adjusted issue price of
the stripped contracts at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of original issue discount allocable to that accrual
period and reduced by the amount of any payment on the stripped contracts
87
(other than qualified stated interest) made at the end of or during that
accrual period. The original issue discount accruing during that accrual
period will then be divided by the number of days in the period to determine
the daily portion of original issue discount for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual
period, the daily portions of original issue discount must be determined
according to a reasonable method, provided that the method is consistent with
the method used to determine the yield to maturity of the stripped contracts.
For purposes of calculating the daily portion of original issue
discount to be accrued as income, the method of determining yield to maturity
is not clear, and in particular it is not clear whether prepayments on the
underlying contracts should be taken into account in determining such yield.
The method of calculating the accrual of original issue discount as described
above will cause the accrual of original issue discount to either increase or
decrease (but never below zero) in any given accrual period to reflect the
fact that prepayments are occurring at a faster or slower rate than the
prepayment assumption used in respect of the stripped contracts. Subsequent
purchasers that purchase interests in stripped contracts at more than a DE
MINIMIS discount should consult their tax advisors with respect to the proper
method to accrue that original issue discount.
PREMIUM. A certificateholder that acquires an interest in contracts
at a premium over the stated redemption price at maturity of the contracts
may elect to amortize that premium under a constant interest method. A
premium would occur if the purchase price for a certificate exceeded the
holder's proportionate share of the remaining payments due on the contracts
Amortizable premium will be treated as an offset to interest income
recognized by the holder on its grantor trust certificate. However, the
holder's tax basis for the grantor trust certificate will be reduced to the
extent that amortizable premium is claimed as a deduction to offset interest
payments. A certificateholder that makes this election for a grantor trust
certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the certificateholder holds during the year of
the election or thereafter.
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable as a deduction. If a
premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a certificate acquired at a premium should
recognize a loss if a contract is prepaid in full, equal to the difference
between the portion of the prepaid principal amount of that contract that is
allocable to the grantor trust certificate and the portion of the adjusted
basis of the certificate that is allocable to that contract. On the other
hand, if a reasonable prepayment assumption is used in calculating the amount
of amortizable premium, it appears that a loss would be available, if at all,
only if prepayments occur at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
YIELD SUPPLEMENT DEPOSITS. A grantor trust may, under certain
circumstances, receive yield supplement deposits to augment the cash flows
from interest income on the contracts. It is possible that the right to
receive payments under a yield supplement agreement will be treated as a
separate asset purchased by each grantor trust certificateholder.
Accordingly, as previously discussed (see "--ALLOCATION OF PURCHASE PRICE") a
portion of each grantor trust certificateholder's purchase price or other tax
basis in the certificate may have to be allocated to the right to receive
payments of yield supplement deposits based on the fair market value of that
right.
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However, the sum of the income and deductions properly reportable by
a certificateholder in any taxable year in which the trust receives yield
supplement deposits may not equal the amounts that would be reportable if a
grantor trust certificateholder, instead of holding its undivided interest in
the contracts and the yield supplement deposits, held either (1) a debt
instrument bearing interest at the applicable pass-through rate or (2) an
interest in a trust holding contracts each of which paid interest at a rate
at least equal to the sum of the pass-through rate plus the servicing fee
rate.
The right to receive yield supplement deposits may be treated as a
loan made by a certificateholder to the depositor in an amount equal to the
present value, discounted at a rate equal to the sum of the applicable
pass-through rate and the servicing fee rate, of the projected yield
supplement deposits. In that event, a portion of the yield supplement
deposits generally representing a yield on such discounted value should be
treated as interest includible in income as accrued or received, and the
remainder should be treated as a return of the principal amount of the deemed
loan. Alternatively, it is possible that the entire amount of each yield
supplement deposit should be included in income as accrued or received, in
which event a certificateholder should also be entitled to amortize the
portion of its certificate purchase price allocable to its right to receive
yield supplement deposits.
The method of calculating that amortization is unclear, and could
result in the inclusion of greater amounts of income than a
certificateholder's actual yield on a contract. In addition, to the extent
that the amounts payable pursuant to a yield supplement agreement decline
during any period by reason of prepayments on the contracts, it is possible
that the Internal Revenue Service might contend that none of the above
methods is appropriate, and that income with respect to the yield supplement
deposits should be reported by a certificateholder in some other manner. It
is suggested that grantor trust certificateholders consult their tax advisors
regarding the appropriate method of accounting for income attributable to
yield supplement deposits.
MARKET DISCOUNT. Generally, all discount on an interest in stripped
contracts will be treated as original issue discount under the stripped bond
rules of the Code, and the rules relating to market discount on bonds will
not apply. However, if the difference between the interest rate on the
contracts and the pass-through rate on the certificates were determined to
constitute reasonable compensation for services rendered to the trust, then
the stripped bond rules described above should not apply. In that event, a
certificateholder will be subject to the market discount rules to the extent
that its undivided interest in a contract is considered to have been
purchased at a "MARKET DISCOUNT." Generally, the amount of market discount is
equal to the excess of the portion of the principal amount of a contract
allocable to a holder over that holder's tax basis (I.E., the portion of the
certificate purchase price allocable to that contract). At the present time
there is no express authority for determining whether market discount exists
by reference to the entire pool of contracts rather than on a
contract-by-contract basis. Market discount with respect to a contract will
be considered to be zero if the amount allocable to the contract is less than
one-fourth of one percent (0.25%) of the stated redemption price at maturity
of the contracts multiplied by the weighted average maturity remaining after
the date of purchase.
Any principal payment (whether a scheduled payment or a prepayment)
or any gain on disposition of a market discount instrument is required to be
treated as ordinary income up to the amount of the accrued market discount at
that time. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the
market discount debt instrument is reduced by the amount so treated as
ordinary income. Market discount will generally be considered to accrue
ratably, unless a certificateholder elects to accrue on a constant interest
method.
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In addition, special rules may apply to the determination of the accrual of
market discount where the principal of an instrument is payable in more than
one installment.
A holder who acquired a grantor trust certificate at a market
discount may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry that certificate. For these purposes, the DE MINIMIS rule
referred to above applies. Any deferred interest expense would not exceed the
market discount that accrues during that taxable year and is, in general,
allowed as a deduction not later than the year in which the market discount
is includible in income. A holder may elect to include market discount in
income currently as it accrues, on either a ratable or constant interest
method, in which case the rule described above regarding deferral of interest
deductions will not apply. A holder's election to include market discount in
income currently, once made, applies to all market discount obligations
acquired by the holder on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service.
Because Treasury Regulations implementing the market discount rules
have not yet been issued, it is suggested that investors consult their own
tax advisors regarding the application of these rules and the advisability of
making the election to accrue market discount.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The
original issue discount regulations permit a certificateholder to elect to
accrue all interest and discount (including DE MINIMIS discount), offset by
any premium, in income as interest based on a constant yield method. If that
election were to be made with respect to a grantor trust certificate with
market discount, the grantor trust certificateholder would be deemed to have
made an election to include in income currently market discount with respect
to all other debt instruments having market discount that the
certificateholder acquires during the year of the election or thereafter.
Similarly, a certificateholder that makes this election for a certificate
that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that the certificateholder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect
to a grantor trust certificate is irrevocable except with the approval of the
Internal Revenue Service.
SALE OR EXCHANGE OF A CERTIFICATE. Sale or exchange of a grantor
trust certificate prior to its maturity will result in the recognition by the
owner of gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the certificate. The adjusted
basis generally will equal the seller's purchase price for the certificate,
increased by any accrued market discount or original issue discount
previously included in the seller's gross income with respect to the
certificate and reduced by the amount of any previously amortized premium and
by the amount of any payments on the certificate, other than payments of
qualified stated interest, previously received by the seller. That gain or
loss will be capital gain or loss to an owner for which a grantor trust
certificate is a "CAPITAL ASSET" and will be long-term or short-term
depending on whether the certificate has been owned for the long-term capital
gain holding period (currently more than one year).
FOREIGN CERTIFICATEHOLDERS. Interest or discount income attributable
to contracts which is received by a foreign certificateholder will generally
not be subject to the normal 30% withholding tax imposed with respect to such
payments, provided that (1) the foreign certificateholder does not own,
directly or indirectly, 10% or more of, and is not a controlled foreign
corporation related to, the depositor and (2) the foreign holder fulfills
certain certification requirements. Under those requirements, the holder
90
must certify, under penalty of perjury, that it is not a "UNITED STATES
PERSON" and provide its name and address on Form W-8 (or successor form). For
this purpose, United States person generally means (a) a citizen or resident
of the United States, (b) a corporation, partnership or other entity created
or organized in or under the laws of the United States or any political
subdivision thereof, (c) an estate the income of which is subject to United
States federal income taxation regardless of its source, (d) a trust if a
court within the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust, or (e) a
trust that has a valid election in effect under applicable United States
Treasury Regulations to be treated as a United States person. Gain realized
upon the sale of a certificate by a foreign certificateholder generally will
not be subject to United States withholding tax. If, however, such interest
or gain is effectively connected to the conduct of a trade or business within
the United States by such foreign certificateholder (or in the case of gain
if the certificateholder is an individual who is present in the United States
for a total of 183 days or more during the taxable year in which such gain is
realized), such holder will be subject to United States federal income tax
thereon at the regular rates and, in addition, an investor that is a foreign
corporation may be subject to a branch profits tax equal to 30% (or lower
applicable treaty rate) of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items.
It is not entirely clear whether amounts received by a foreign
certificateholder that are attributable to payments of yield supplement
deposits received pursuant to any yield supplement agreement would not be
subject to withholding tax. Potential investors who are not United States
persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a certificate issued by a grantor trust.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a grantor trust certificateholder at
any time during the year, the information that is deemed necessary or
desirable to assist certificateholders in preparing their federal income tax
returns, or to enable holders to make that information available to
beneficial owners or financial intermediaries that hold grantor trust
certificates as nominees on behalf of beneficial owners. If a non-exempt
holder, beneficial owner, financial intermediary or other recipient of a
payment on behalf of a non-exempt beneficial owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that that person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup withholding
may be required with respect to any payments. Any amounts deducted and
withheld from a payment to a recipient would be allowed as a credit against
the recipient's federal income tax liability.
FASITS
GENERAL DESCRIPTION OF FASIT
Pursuant to legislation enacted by Congress in 1996, a new type of
entity was created called a "financial asset securitization investment
trust," or FASIT. On February 7, 2000, the Internal Revenue Service released
proposed regulations regarding FASITs. As stated previously in this section
of the prospectus under the caption "GENERAL", the discussion with respect to
FASITs is based upon existing law, including the proposed FASIT regulations,
all of which are subject to change, possibly with retroactive effect.
91
Treatment of a trust as a FASIT is elective. The FASIT election will be
made by attaching a statement to the income tax return for the owner of the
"OWNERSHIP INTEREST" in the FASIT (as that interest is described below) for the
taxable year that includes the startup day of the FASIT. The owner of the
ownership interest may be the depositor or it may be an independent third party.
There is no prescribed form for the statement electing FASIT status. If, as is
likely to be the case, an entity is formed to be the FASIT, the election
statement must be signed by the person who would be responsible for signing the
entity's tax return in the absence of FASIT treatment. On the other hand, if
instead of a separate entity the FASIT election is only to apply to a segregated
pool of assets, the election statement must be signed by each person who is the
owner, for federal income tax purposes, of assets in the pool immediately before
the startup day of the FASIT.
If a FASIT election is made for a trust, the accompanying prospectus
supplement will so indicate. For each trust as to which one or more FASIT
elections are made, Winston & Strawn, as federal tax counsel, is of the opinion
that the trust, or one or more segregated pools of trust assets, will be treated
as a FASIT, and therefore its income will not be subject to the federal income
tax imposed by Subtitle A of the Code, assuming that there is (1) compliance
with the terms of the pooling agreement (or similar governing documents
pertaining to the acquisition of assets by the trust) and (2) compliance with
any changes in the federal income tax laws pertaining to FASITs, including
applicable provisions of the Code, the proposed FASIT regulations or other
treasury regulations, or any judicial or administrative interpretations of the
Code or regulations. The opinion is also based on the assumptions that the
pooling agreement (or similar governing documents) will require that
substantially all of the trust assets consist only of "PERMITTED ASSETS", as
described below and also will contain certain other restrictions necessary for
the trust to be and continue to qualify as a FASIT. Based upon those
assumptions, Winston & Strawn is of the opinion that each trust, or one or more
segregated pools of trust assets, for which a FASIT election is made is
organized, operated and will continue to operate in a manner so as to qualify
for FASIT status. Winston & Strawn in further of the opinion that the regular
interests issued by each trust, or one or more segregated pools of trust assets,
so qualifying for FASIT status will be treated as debt for federal income tax
purposes.
Although the Internal Revenue Service recently published regulations in
proposed form with respect to FASITs, the regulations are only in proposed form
and do not attempt to deal with all aspects of FASIT taxation. Accordingly,
definitive statements cannot be made with respect to many aspects of the tax
treatment of FASITs and the holders of certificates issued by FASITs. Investors
should also note that the following FASIT discussion constitutes only a summary
of the United States federal income tax consequences to FASIT
certificateholders. With respect to each series of FASIT certificates, the
related prospectus supplement will provide a detailed discussion regarding the
federal income tax consequences associated with the particular transaction.
FASIT REQUIREMENTS
A trust fund can qualify to elect FASIT status if it is not a
"REGULATED INVESTMENT COMPANY" as described in Section 851(a) of the Code, it
issues only "REGULAR INTERESTS" and one "OWNERSHIP INTEREST" (as described
below), and substantially all of its assets are "permitted assets." For this
purpose, permitted assets include (1) cash and cash equivalents, (2) any debt
instrument that provides for interest payments which (A) are payable based on a
fixed rate or certain variable rates, or (B) consist of a specified portion of
the interest payments on the trust assets, which portion does not vary during
the period such interest is
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outstanding, (3) foreclosure property, (4) certain hedging instruments (I.E.,
swap contracts, futures contracts, and guarantee arrangements) intended to
hedge against the risks associated with being the obligor on FASIT regular
interests, (5) contract rights to acquire debt instruments described in (2)
above or hedges described in (4) above, and (6) any regular interest in a
real estate mortgage investment conduit, or REMIC, or in another FASIT. The
term "permitted asset" does not, however, include any debt instrument issued
by the holder of the ownership interest or any person related to such holder.
In order for substantially all of a FASIT's assets to consist of
permitted assets, the aggregate adjusted basis of assets held by the FASIT which
are not permitted assets must be less than 1% of the aggregate adjusted basis of
all of the FASIT's assets. The pooling agreement (or similar governing
documents) for each FASIT will require that substantially all of the FASIT's
assets consist of permitted assets at all times. However, there is the
possibility that changes in the assets owned by the FASIT could adversely affect
the ability of the FASIT to comply with the permitted asset requirement. Failure
of the FASIT to comply with this requirement could cause it to lose FASIT
status, however, certain mitigation provisions exist which may be available.
The Code does not provide comprehensive rules describing the
consequences of a cessation of FASIT status. Under the recently proposed
regulations the owner of the FASIT ownership interest would be deemed to dispose
of all of the FASIT's assets in a "PROHIBITED TRANSACTION" and any gain would be
subject to the prohibited transactions tax. The regular interests will be deemed
satisfied for an amount which could generate cancellation of indebtedness income
for the owner of the FASIT ownership interest. The FASIT which ceased to so
qualify would, under the proposed rules, no longer be treated as a FASIT and
would be prohibited from making a new FASIT election. The trust would then be
classified under general tax principles. In that event, the trust could be
treated as an association or other entity subject to an entity level tax. Under
the proposed rules, the regular interests owned by investors would be deemed to
be exchanged for interests in the reclassified entity, which exchange could
result in the recognition of gain or loss by those investors. Any of the
foregoing could adversely affect investors.
On February 7, 2000, the Clinton Administration submitted to Congress
its budget proposals for fiscal year 2001. The budget proposals include a
provision which would impose on a FASIT secondary liability for the payment of
federal income tax due from the owner of the FASIT's single ownership interest.
As a result, if the proposal were to be enacted, the failure of the owner of the
ownership interest to pay taxes due could cause the holders of regular interests
to be adversely affected by reduced available funds for distribution by the
FASIT. It is unclear at this time whether the Clinton budget proposal will be
enacted.
TAX TREATMENT OF INVESTORS
FASIT interests will be classified as either FASIT regular interests,
as to which Winston & Strawn is of the opinion that they will be treated as debt
for federal income tax purposes, or a FASIT ownership interest, which is not
treated as debt for such purposes, but rather represents the residual equity
interest in a FASIT. The tax treatment of each type of interest is discussed
briefly below.
REGULAR INTERESTS. The terms of a FASIT regular interest generally must
satisfy the following requirements: (1) a stated maturity of no greater than 30
years, (2) a specified principal amount, (3) the issue price of the interest
does not exceed 125% of its stated principal amount, (4) the yield to maturity
of the interest is less than the applicable federal rate published by the
Internal Revenue Service for the
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month of issue plus five percentage points, and (5) if it pays interest, such
interest is payable at either (a) a fixed rate with respect to the principal
amount of the regular interest or (b) certain permissible variable rates with
respect to such principal amount. Regular interests which do not meet certain
of those requirements, referred to as "HIGH YIELD INTERESTS," may be issued
by a FASIT but are permitted to be held by only certain types of investors
such as domestic "C" corporations and other FASITs. Certain other limitations
also apply to high yield interests, such as limits on the amount of FASIT
interest income able to be offset by non-FASIT losses and deductions
otherwise available to the owner of the interest.
FASIT regular interests generally will be subject to the same federal
income tax treatment as applies to debt instruments generally. See "--OWNER
TRUSTS--TAX TREATMENT OF INVESTORS IN NOTES" in this prospectus. One significant
difference, however, is that the holder of a FASIT regular interest must report
income from its interest under the accrual method of accounting, even if it
otherwise uses the cash receipts and disbursement method. The sale or other
disposition of a FASIT regular interest generally will be subject to the same
rules as apply to debt instruments generally.
OWNERSHIP INTEREST. One interest issued by a trust electing to be
treated as a FASIT will be designated as the sole ownership interest in the
FASIT. The ownership interest need not have any particular economic
characteristics. However, the ownership interest must be held directly at all
times by an "ELIGIBLE CORPORATION" which includes a domestic "C" corporation
that is subject to tax and is not a pass-through entity for tax purposes such as
a regulated investment company, real estate investment trust, real estate
mortgage investment conduit, or cooperative.
Because the ownership interest represents the residual equity interest
in a FASIT, the holder of a FASIT ownership interest determines its taxable
income by taking into account all assets, liabilities, and items of income,
gain, deduction, loss and credit of the related FASIT. In general the character
of the income to the holder of a FASIT ownership interest will be the same as
the character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT ownership interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
ownership interest must use a constant yield methodology and an accrual method
of accounting and generally will be subject to the same rules of taxation for
original issue discount, market discount, and amortizable premium as apply to
debt instruments generally. See "--OWNER TRUSTS--TAX TREATMENT OF INVESTORS IN
NOTES--PURCHASE AT A DISCOUNT" and "--PURCHASE AT A PREMIUM" in this prospectus.
In addition, a holder of a FASIT ownership interest is subject to the same
limitations on its ability to use non-FASIT losses and deductions to offset
income from the FASIT ownership interest as are holders of FASIT high-yield
regular interests.
Losses on dispositions of a FASIT ownership interest generally will be
disallowed as a deduction if within six months before or after the disposition,
the seller of the interest acquires any other FASIT ownership interest.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and some types of Keogh Plans (each a "Benefit Plan"), from engaging in
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to that
Benefit Plan. A violation of these "prohibited
94
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for those persons. 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) are not subject to
ERISA requirements nor to Section 4975 of the Code. However, governmental
plans may be subject to state or local laws that impose similar requirements.
In addition, governmental plans and church plans that are "qualified" under
Section 401(a) of the Code are subject to restrictions with respect to
prohibited transactions under Section 503(a)(1)(B) of the Code, the sanction
for violation being loss of "qualified" status.
Certain exemptions from the prohibited transaction rules could be
applicable to the purchase and holding of securities by a Benefit Plan depending
on the type and circumstances of the plan fiduciary making the decision to
acquire the securities. Potentially available exemptions would include, without
limitation, Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts
certain transactions involving insurance company pooled separate accounts; PTCE
95-60, which exempts certain transactions involving insurance company general
accounts; PTCE 91-38, which exempts certain transactions involving bank
collective investment funds; PTCE 84-14, which exempts certain transactions
effected on behalf of a plan by a "qualified professional asset manager"; and
PTCE 96-23, which exempts certain transactions effected on behalf of a plan by
an "in-house asset manager." Insurance company general accounts should also
discuss with their legal counsel the availability of exemptive relief under
Section 401(c) of ERISA. A purchaser of securities should be aware, however,
that even if the conditions specified in one or more exemptions are met, the
scope of the relief provided by the applicable exemption or exemptions might not
cover all acts that might be construed as prohibited transactions.
ERISA also imposes certain duties on persons who are fiduciaries of
Benefit Plans subject to ERISA, including the requirements of investment
prudence and diversification, and the requirement that such a Benefit Plan's
investments be made in accordance with the documents governing the Benefit Plan.
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 such Benefit Plan. Benefit Plan fiduciaries must determine whether
the acquisition and holding of securities and the operations of the trust would
result in prohibited transactions if Benefit Plans that purchase the securities
were deemed to own an interest in the underlying assets of the trust under the
rules discussed below. There may also be an improper delegation of the
responsibility to manage Benefit Plan assets if Benefit Plans that purchase the
securities are deemed to own an interest in the underlying assets of the trust.
Some transactions involving a trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased notes or certificates 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 a 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. The likely treatment in this
context of notes and certificates of a given series will be discussed in your
prospectus supplement. However, it is anticipated that the certificates will be
considered equity interests in the trust for purposes of the Plan Assets
Regulation, and that the assets of the trust may therefore constitute plan
assets if certificates are acquired by Benefit Plans. In such event, the
fiduciary and prohibited transaction restrictions of ERISA and section 4975 of
the Code would apply to transactions
95
involving the assets of the trust. As a result, except in the case of senior
certificates with respect to which the Exemption is available (as described
below), certificates generally shall not be transferred and the trustee shall
not register any proposed transfer of certificates unless it receives (i) a
representation substantially to the effect that the proposed transferee is
not a Benefit Plan and is not acquiring the certificates on behalf of or with
the assets of a Benefit Plan (including assets that may be held in an
insurance company's separate or general accounts where assets in such
accounts may be deemed "plan assets" for purposes of ERISA), or (ii) an
opinion of counsel in form and substance satisfactory to the trustee and the
depositor that the purchase or holding of the certificates by or on behalf of
a Benefit Plan will not constitute a prohibited transaction, will not result
in the assets of the trust being deemed to be "plan assets" and subject to
the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of ERISA and the Code or any similar law or and will
not subject any trustee, the certificate administrator or the depositor to
any obligation in addition to those undertaken in the trust agreement.
SENIOR CERTIFICATES ISSUED BY TRUSTS
Unless otherwise specified in your prospectus supplement, the following
discussion applies only to nonsubordinated certificates (referred to here in as
"senior certificates") issued by a trust.
The U.S. Department of Labor (the "DOL") has granted to the lead
underwriter named in your prospectus supplement an exemption (the "Exemption")
from certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale by Benefit Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include motor vehicle installment sales contracts like those contained
in the trust. The Exemption may apply to the acquisition, holding and resale of
the senior certificates by a Benefit Plan, provided that certain conditions
(certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the senior certificates are the following:
(1) The acquisition of the senior certificates by a Benefit
Plan is on terms (including the price for the senior certificates) that
are at least as favorable to the Benefit Plan as they would be in an
arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by the senior
certificates acquired by the Benefit Plan are not subordinated to the
rights and interests evidenced by other certificates of the trust;
(3) The senior certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from either Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies, Inc. or
Moody's Investors Service, Inc.;
(4) The trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the underwriters in
connection with the distribution of the senior certificates represents
not more than reasonable compensation for underwriting the senior
certificates; the sum of all payments made to and retained by the
seller
96
pursuant to the sale of the receivables to the trust represents not
more than the fair market value of such receivables; and the sum of
all payments made to and retained by any servicer represents not more
than reasonable compensation for that servicer's services under the
sale and servicing agreement or pooling and servicing agreement and
reimbursement of the servicer's reasonable expenses in connection
therewith; and
(6) The Benefit Plan investing in senior certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of
1933.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the Exemption, which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables supporting payments to
certificateholders, and having a value equal to no more than twenty-five percent
(25%) of the total principal amount of the certificates being offered by the
trust, to be transferred to the trust within a 90-day or three-month period
following the closing date, instead of requiring that all such receivables be
either identified or transferred on or before the closing date. The relief is
available when certain conditions are met.
The Exemption would also provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the fiduciary (or its affiliate) is an obligor on receivables held in the trust
only if, among other requirements, (i) in the case of the acquisition of senior
certificates in connection with the initial issuance, at least fifty (50)
percent of the senior certificates are acquired by persons independent of the
Restricted Group (as defined below), (ii) such fiduciary (or its affiliate) is
an obligor with respect to five (5) percent or less of the fair market value of
the obligations contained in the trust, (iii) the Benefit Plan's investment in
senior certificates of any class does not exceed twenty-five (25) percent of all
of the senior certificates of that class outstanding at the time of the
acquisition, and (iv) immediately after the acquisition, no more than
twenty-five (25) percent of the assets of any Benefit Plan with respect to which
the fiduciary has discretionary authority or renders investment advice are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does not
apply to Benefit Plans sponsored by the seller, any underwriter, the trustee,
any servicer, any obligor with respect to receivables included in the trust
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the trust, or any affiliate of such parties (the
"Restricted Group").
Your prospectus supplement for each series of securities will indicate
the classes of securities, if any, offered thereby to which it is expected that
the Exemption will apply.
Due to the complexities of the "prohibited transaction" rules and the
penalties imposed upon persons involved in prohibited transactions, it is
important that the fiduciary of any Benefit Plan considering the purchase of
securities consult with its tax and/or legal advisors regarding whether the
assets of the related trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences. Moreover, each Benefit Plan fiduciary should
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the securities is appropriate for the
Benefit Plan, taking into account the overall investment policy of the Benefit
Plan and the composition of the Benefit Plan's investment portfolio.
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RATINGS OF THE SECURITIES
No trust will sell securities under this prospectus unless one or more
nationally recognized statistical rating organizations rate the offered
securities in one of the four highest rating categories. Any rating that is made
may be lowered or withdrawn by the assigning rating agency at any time if, in
its judgment, circumstances so warrant. If a rating or ratings of securities is
qualified, reduced or withdrawn, no person or entity will be obligated to
provide any additional credit enhancement with respect to the securities so
qualified, reduced or withdrawn.
The ratings of the securities should be evaluated independently from
similar ratings on other types of securities. A rating is not a recommendation
to buy, sell or hold securities, inasmuch as a rating does not comment as to
market price or suitability for a particular investor. The ratings of the
securities do not address the likelihood of payment of principal on any class of
securities prior to the stated maturity date of the securities, or the
possibility of the imposition of United States withholding tax with respect to
non-United States persons.
PLAN OF DISTRIBUTION
Each trust may sell securities to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell securities directly to other purchasers or
through agents. The depositor intends to offer the securities through these
various methods from time to time.
The seller, the depositor and certain of its affiliates may agree to
indemnify the underwriters and agents who participate in the distribution of the
securities against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the underwritten
may be required to make.
Funds in cash collateral accounts and the trust accounts may, from time
to time, be invested in certain investments acquired from the underwriters.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, will provide a legal opinion
relating to the securities in its capacity as special counsel to the trust, the
depositor, the seller and the servicer. In addition, certain United States
federal income tax matters will be passed upon for the related trust by Winston
& Strawn. Other legal matters for underwriters will be passed upon by counsel to
underwriters.
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WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with
the Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You can also read and copy the reports, proxy statements
and other information at the following regional offices of the Securities and
Exchange Commission:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for more information about the public reference rooms or visit Securities and
Exchange Commission's web site at http://www.sec.gov to access available
filings.
The Securities and Exchange Commission allows offerors of securities to
incorporate by reference some of the information they file with it. This means
that offerors can disclose important information to you by referring you to
those documents. Documents incorporated by reference will be filed under the
depositor's name. The information that the depositor incorporates by reference
is considered to be part of this prospectus, and later information that the
depositor files with the Securities and Exchange Commission will automatically
update and supersede this information.
All documents filed by the depositor, on behalf of a respective trust,
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
after the date of this prospectus and prior to the termination of the offering
of the securities will be incorporated by reference into this prospectus.
If you are a beneficial owner of the securities to whom a prospectus
has been delivered, the depositor will, on request, send you a copy of the
information that has been incorporated by reference in this prospectus. The
depositor will provide this information at no cost to you. Please address
requests to the depositor: c/o Harley-Davidson Credit Corp., 150 South Wacker
Drive, Chicago, Illinois 60606.
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UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$366,000,000
HARLEY-DAVIDSON MOTORCYCLE TRUST 2001-1
$221,000,000 4.65% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$126,700,000 5.27% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$18,300,000 5.29% HARLEY DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS B
HARLEY-DAVIDSON CREDIT CORP.
SELLER AND SERVICER
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
DEPOSITOR
---------------
PROSPECTUS SUPPLEMENT
APRIL 18, 2001
---------------
SALOMON SMITH BARNEY
FIRST UNION SECURITIES, INC.