<Page>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-37550
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 8, 2002)
HARLEY-DAVIDSON MOTORCYCLE TRUST 2002-1
ISSUER
$348,000,000 3.02% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$208,700,000 4.50% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$29,300,000 4.36% 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-14 IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 10 OF THE PROSPECTUS.
The notes will represent obligations of the Harley-Davidson Motorcycle
Trust 2002-1 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:
<Table>
<Caption>
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 ............ $ 348,000,000 $ 208,700,000 $ 29,300,000 $ 586,000,000
Interest Rate ............... 3.02% 4.50% 4.36%
First Payment Date.......... May 15, 2002 May 15, 2002 May 15, 2002
Final Scheduled Payment
Date ...................... September 2006 January 2010 January 2010
Price to Public ............. 99.99232% 99.97507% 99.99655% $ 585,920,234
Underwriting Discount Per
Note ...................... 0.180% 0.235% 0.600% $ 1,292,645
Proceeds to Issuer .......... 99.81232% 99.74007% 99.39655% $ 584,627,589
</Table>
Credit Enhancement:
- Reserve fund with an initial deposit of $3,809,417.86.
- 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
BANC ONE CAPITAL MARKETS, INC.
WACHOVIA SECURITIES
Prospectus Supplement Dated April 8, 2002
<Page>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<Table>
<Caption>
PAGE
----
Prospectus Supplement Summary....................................................S-1
Risk Factors....................................................................S-14
The Trust.......................................................................S-18
The Seller and Servicer.........................................................S-20
Use of Proceeds.................................................................S-20
The Contracts...................................................................S-20
Yield and Prepayment Considerations.............................................S-29
The Depositor...................................................................S-30
Description of the Notes........................................................S-30
General...................................................................S-30
Interest..................................................................S-31
Principal.................................................................S-31
Optional Redemption.......................................................S-32
Mandatory Redemption Following the Funding Period.........................S-32
Voting Rights.............................................................S-32
Notices...................................................................S-32
Certain Information Regarding the Notes.........................................S-33
The Accounts..............................................................S-33
Determination of Outstanding Principal Balances...........................S-36
Payments and Distributions on the Notes...................................S-37
Material Federal Income Tax Consequences........................................S-40
ERISA Considerations............................................................S-40
Legal Proceedings...............................................................S-41
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 2002-1 Balance Sheet as of April 8, 2002.......S-56
Notes to Balance Sheet..........................................................S-56
</Table>
i
<Page>
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:
- prospectus -- provides general information, some of which may not apply
to the notes; and
- 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
<Page>
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 2002-1.
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 trust
company. The indenture trustee will also act as
paying agent under the indenture and the trust
agreement.
Closing Date................... On or about April 16, 2002.
Terms of the Notes............. The principal terms of the notes will be
described below:
<Table>
<Caption>
AGGREGATE PRINCIPAL
CLASS AMOUNT INTEREST RATE
----- ------ -------------
Class A-1 notes $ 348,000,000 3.02%
Class A-2 notes $ 208,700,000 4.50%
Class B notes $ 29,300,000 4.36%
</Table>
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
<Page>
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,
2002.
Record Dates................... The day immediately preceding the payment date.
Interest....................... INTEREST PERIODS:
Interest on the notes will accrue in the
following manner:
<Table>
<Caption>
DAY COUNT
FROM (INCLUDING) TO (EXCLUDING) CONVENTION
---------------- -------------- ----------
15th day of prior 15th day of current 30/360
month month
</Table>
The first interest period will begin on and
include the closing date and end on and include
May 14, 2002.
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
<Page>
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:
- the aggregate outstanding principal
balance of the contracts owned by the
trust as of the closing date; and
- the initial amount on deposit in the
pre-funding account.
S-3
<Page>
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., Buell Motorcycle
Company, a wholly-owned subsidiary of
Harley-Davidson, Inc., and certain other
manufacturers. See "OTHER MANUFACTURERS" in the
prospectus. The contracts were originated by
the seller indirectly through Harley-Davidson
motorcycle dealers. Included in the trust's
assets are security interests in the
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 transferred to the trust will be
selected from contracts in the seller'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, the U.S. Territories
and military bases.
On the closing date, pursuant to the sale and
servicing agreement, the depositor will
transfer, and the trust will acquire, initial
contracts with the characteristics set forth
below as of the close of business on April 3,
2002, the initial cutoff date.
S-4
<Page>
Following the closing date, pursuant to the
sale and servicing agreement, the depositor
will be obligated, subject only to the
availability thereof, to transfer, and the
trust will be obligated to acquire, 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
April 2009.
No contract (including any subsequent contract
sold to the trust after the closing date) will
have a scheduled maturity later than July 2009.
However, an obligor can generally prepay its
contract at any time without penalty.
COMPOSITION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<Table>
<Caption>
Aggregate Principal Balance.................. $380,941,785.63
Number of Contracts.................................... 28,568
Average Principal Balance..................... $ 13,334.56
Weighted Average Annual Percentage Rate................. 11.35%
(Range)................................... 4.99% to 22.99%
Weighted Average Original Term (in months).............. 75.77
(Range)......................................... 12 to 84
Weighted Average Calculated
Remaining Term (in months)......................... 73.35
(Range).......................................... 3 to 84
</Table>
S-5
<Page>
GEOGRAPHIC CONCENTRATION
(AS OF THE INITIAL CUTOFF DATE)
<Table>
<Caption>
PRINCIPAL BALANCE
STATE CONCENTRATION
----- -------------
California 10.51%
Texas 8.91%
Florida 8.60%
</Table>
No other state represented more than 5.00% of
the aggregate principal balance of the
contracts as of the initial cutoff date.
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
$3,809,417.86 (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) 2.25% 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.
S-6
<Page>
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.
Pre-Funding Account............ On the closing date, the trust depositor will
fund an account called the pre-funding account
by depositing $205,058,214.37 which will secure
our obligations to purchase subsequent
contracts from the seller and transfer 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 2002. 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."
S-7
<Page>
Interest Reserve
Account........................ On the closing date, the trust depositor will
fund an account called the interest reserve
account by depositing $565,802.33 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 acquire 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, funds 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 Moody's Investors Service, Inc.
as set forth below:
<Table>
<Caption>
STANDARD &
POOR'S MOODY'S
------ -------
Class A-1 AAA Aaa
Class A-2 AAA Aaa
Class B A A2
</Table>
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."
S-8
<Page>
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 Reacquisition 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 reacquire 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-9
<Page>
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:
- to the noteholders, the amount of any
mandatory redemption;
- reimbursement of servicer advances;
- servicing fee;
- indenture trustee's fee;
- interest on the Class A notes, PRO RATA;
- interest on the Class B notes;
- principal on the Class A notes and the
Class B notes, in the priority set forth
in "PRINCIPAL" above;
- to the reserve fund, the amount, if any,
needed to fund the reserve fund to the
required amount; and
- any remaining amounts to the depositor
as certificateholder under the trust
agreement.
S-10
<Page>
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-11
<Page>
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 that the notes will be characterized
as debt 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 in this prospectus supplement.
You should refer to "ERISA CONSIDERATIONS" in
the accompanying prospectus and in 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-12
<Page>
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-13
<Page>
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 10 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:
- 10.51% in California,
- 8.91% in Texas, and
- 8.60% in Florida.
The remaining states accounted for 71.98% of the initial aggregate principal
balance of the contracts, and none of these remaining states accounted for more
than 5.00% 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-14
<Page>
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-15
<Page>
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-16
<Page>
"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-17
<Page>
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 the certificate;
- making payments on the notes and the 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 and debt cancellation
agreements 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-18
<Page>
- 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 reacquisition
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:
<Table>
Class A-1 notes..............................................$ 348,000,000
Class A-2 notes..............................................$ 208,700,000
Class B notes................................................$ 29,300,000
Certificate..................................................$ 0
Cash.........................................................$ 1,000
-------------
Total......................................................$ 586,001,000
=============
</Table>
THE INDENTURE AND THE ADMINISTRATION AGREEMENT
Under an indenture between the trust and the indenture trustee, the trust
will pledge the trust assets to the indenture trustee to secure the payment of
the notes.
S-19
<Page>
Under an administration agreement among the trust, the indenture trustee,
the depositor and Harley-Davidson Credit Corp., as administrator, the
administrator will agree to perform certain of the trust's administrative
functions under the indenture and certain of the trustee's administrative
functions under the trust agreement.
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 trust company 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 depositor 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 depositor 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 certain other 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., Buell Motorcycle Company, a wholly-owned
subsidiary of Harley-Davidson, Inc., or certain other motorcycle manufacturers.
See "OTHER MANUFACTURERS" in the prospectus. The contracts were originated by
the seller indirectly through Harley-Davidson motorcycle dealers
S-20
<Page>
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 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 April 2009, 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
July 2009;
- the first scheduled payment date of contracts representing
approximately 99.73% of the aggregate principal balance of the initial
contracts as of the initial cutoff date is due no later than May 2002
and the first scheduled payment date of remaining contracts
representing approximately 0.27% of the aggregate principal balance of
the initial contracts as of the initial cutoff date is due no later
than August 2002;
- approximately 76.26% 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 23.74% is attributable to
loans to purchase motorcycles which were used at the time the related
contract was originated;
- approximately 97.05% of the principal balance of the initial contracts
as of the initial cutoff date is attributable to loans to purchase
motorcycles manufactured by Harley-Davidson or Buell and approximately
2.95% of the principal balance of the initial contracts as of the
initial cutoff date is attributable to loans to purchase motorcycles
not manufactured by Harley-Davidson or Buell;
- all initial contracts have a contractual rate of interest of at least
4.99% per annum and not more than 22.99% per annum and the weighted
average contractual rate of interest of the initial contracts as of
the initial cutoff date is approximately 11.35% 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 75.77 months, and a
weighted average term to scheduled maturity as of the initial cutoff
date of approximately 73.35 months (see Tables 2 and 3 below);
- the average principal balance per initial contract as of the initial
cutoff date was approximately $13,334.56 and the principal balances on
the initial contracts as of the initial cutoff date ranged from
$538.09 to $49,451.94 (see Table 4 below);
- the contracts arise (or will arise) from loans to obligors located in
50 states, the District of Columbia, the U.S. Territories and military
bases 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: 10.51% in California, 8.91% in Texas and 8.60% in Florida
(see Table 5
S-21
<Page>
below). No other geographic location 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
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
<Table>
<Caption>
DISTRIBUTION BY APR OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF
RATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE POOL BALANCE (1)
---- --------- ------------- ----------------- ----------------
4.990 to 5.000% 32 0.11% $ 539,689.28 0.14%
5.001 to 6.000% 358 1.25 5,858,208.79 1.54
6.001 to 7.000% 975 3.41 15,227,764.21 4.00
7.001 to 8.000% 2,610 9.14 39,368,243.69 10.33
8.001 to 9.000% 3,871 13.55 55,608,771.93 14.60
9.001 to 10.000% 4,384 15.35 61,891,278.44 16.25
10.001 to 11.000% 3,438 12.03 46,083,664.16 12.10
11.001 to 12.000% 2,534 8.87 32,653,831.15 8.57
12.001 to 13.000% 2,859 10.01 35,913,132.51 9.43
13.001 to 14.000% 1,926 6.74 23,365,040.93 6.13
14.001 to 15.000% 1,611 5.64 19,591,105.04 5.14
15.001 to 16.000% 705 2.47 7,091,276.35 1.86
16.001 to 17.000% 602 2.11 6,631,894.73 1.74
17.001 to 18.000% 1,199 4.20 13,652,686.48 3.58
18.001 to 19.000% 177 0.62 2,218,058.32 0.58
19.001 to 20.000% 494 1.73 5,873,512.56 1.54
20.001 to 21.000% 289 1.01 3,422,822.74 0.90
21.001 to 22.000% 500 1.75 5,911,063.22 1.55
22.001 to 22.990% 4 0.01 39,741.10 0.01
------ ------ --------------- ------
TOTALS: 28,568 100.00% $380,941,785.63 100.00%
====== ====== =============== ======
</Table>
(1) Percentages may not add to 100.00% because of rounding.
S-22
<Page>
TABLE 2
DISTRIBUTION BY CALCULATED REMAINING TERM
OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<Table>
<Caption>
CALCULATED PERCENT OF
REMAINING NUMBER OF OF NUMBER OF TOTAL OUTSTANDING PERCENT OF
TERM (MONTHS) CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE POOL BALANCE (1)
------------- --------- ------------- ----------------- ----------------
3 to 12 411 1.44% $ 836,924.57 0.22%
13 to 24 1,234 4.32 6,057,127.47 1.59
25 to 36 684 2.39 5,173,971.22 1.36
37 to 48 1,173 4.11 11,215,844.89 2.94
49 to 60 2,771 9.70 31,674,690.16 8.31
61 to 72 11,227 39.30 134,447,227.10 35.29
73 to 84 11,068 38.74 191,536,000.22 50.28
------ ------ ---------------- ------
TOTALS: 28,568 100.00% $ 380,941,785.63 100.00%
====== ====== ================ ======
</Table>
(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)
<Table>
<Caption>
PERCENT OF
ORIGINAL NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
TERM (MONTHS) CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
------------- --------- ------------- ----------------- ---------------
1 to 12 17 0.06% $ 136,649.67 0.04%
13 to 24 212 0.74 1,438,748.36 0.38
25 to 36 545 1.91 4,490,791.48 1.18
37 to 48 1,073 3.76 10,014,259.27 2.63
49 to 60 2,989 10.46 30,630,464.65 8.04
61 to 72 12,497 43.74 140,836,132.75 36.97
73 to 84 11,235 39.33 193,394,739.45 50.77
------ ------ ---------------- ------
TOTALS: 28,568 100.00% $ 380,941,785.63 100.00%
====== ====== ================ ======
</Table>
(1) Percentages may not add to 100.00% because of rounding.
S-23
<Page>
TABLE 4
DISTRIBUTION BY CURRENT BALANCE OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<Table>
<Caption>
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
CURRENT BALANCE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
--------------- --------- ------------- ----------------- -----------
$ 538.09 to 1,000.00 83 0.29% $ 66,871.17 0.02%
$ 1,000.01 to 2,000.00 276 0.97 424,710.79 0.11
$ 2,000.01 to 3,000.00 406 1.42 1,021,128.77 0.27
$ 3,000.01 to 4,000.00 536 1.88 1,888,816.10 0.50
$ 4,000.01 to 5,000.00 825 2.89 3,744,234.86 0.98
$ 5,000.01 to 6,000.00 1,087 3.80 6,006,122.94 1.58
$ 6,000.01 to 7,000.00 1,348 4.72 8,796,744.61 2.31
$ 7,000.01 to 8,000.00 1,438 5.03 10,780,254.70 2.83
$ 8,000.01 to 9,000.00 1,419 4.97 12,085,197.78 3.17
$ 9,000.01 to 10,000.00 1,595 5.58 15,205,167.90 3.99
$ 10,000.01 to 11,000.00 1,299 4.55 13,609,489.68 3.57
$ 11,000.01 to 12,000.00 1,138 3.98 13,104,962.44 3.44
$ 12,000.01 to 13,000.00 1,320 4.62 16,531,940.80 4.34
$ 13,000.01 to 14,000.00 1,495 5.23 20,225,297.21 5.31
$ 14,000.01 to 15,000.00 1,792 6.27 26,021,240.97 6.83
$ 15,000.01 to 16,000.00 1,935 6.77 30,024,218.65 7.88
$ 16,000.01 to 17,000.00 2,192 7.67 36,198,181.20 9.50
$ 17,000.01 to 18,000.00 2,224 7.78 38,941,330.99 10.22
$ 18,000.01 to 19,000.00 1,909 6.68 35,269,864.00 9.26
$ 19,000.01 to 20,000.00 1,425 4.99 27,762,835.05 7.29
$ 20,000.01 to 21,000.00 964 3.37 19,750,338.91 5.18
$ 21,000.01 to 22,000.00 626 2.19 13,437,255.56 3.53
$ 22,000.01 to 23,000.00 450 1.58 10,109,696.28 2.65
$ 23,000.01 to 24,000.00 278 0.97 6,521,340.83 1.71
$ 24,000.01 to 25,000.00 182 0.64 4,451,887.89 1.17
$ 25,000.01 to 26,000.00 116 0.41 2,956,610.43 0.78
$ 26,000.01 to 27,000.00 73 0.26 1,928,929.97 0.51
$ 27,000.01 to 28,000.00 61 0.21 1,675,071.74 0.44
$ 28,000.01 to 29,000.00 17 0.06 483,731.69 0.13
$ 29,000.01 to 30,000.00 19 0.07 560,533.80 0.15
$ 30,000.01 to 31,000.00 10 0.04 305,139.44 0.08
$ 31,000.01 to 32,000.00 3 0.01 94,242.00 0.02
$ 32,000.01 to 33,000.00 8 0.03 258,944.13 0.07
$ 33,000.01 to 34,000.00 4 0.01 133,717.50 0.04
$ 34,000.01 to 35,000.00 2 0.01 68,728.51 0.02
$ 35,000.01 to 36,000.00 3 0.01 106,980.53 0.03
$ 36,000.01 to 37,000.00 3 0.01 108,858.35 0.03
$ 37,000.01 to 38,000.00 3 0.01 112,639.92 0.03
$ 38,000.01 to 39,000.00 1 0.00 38,619.75 0.01
$ 39,000.01 to 40,000.00 1 0.00 39,090.41 0.01
$ 41,000.01 to 42,000.00 1 0.00 41,365.44 0.01
$ 45,000.01 to 49,451.94 1 0.00 49,451.94 0.01
------ ----- ---------------- ------
TOTALS: 28,568 100.00% $ 380,941,785.63 100.00%
====== ====== ================ ======
</Table>
(1) Percentages may not add to 100.00% because of rounding.
S-24
<Page>
TABLE 5
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(AS OF THE INITIAL CUTOFF DATE)
<Table>
<Caption>
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
STATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- --------- ------------- ----------------- -----------
ALABAMA 423 1.48% $ 6,081,482.29 1.60%
ALASKA 54 0.19 762,365.19 0.20
ARIZONA 836 2.93 11,718,647.87 3.08
ARKANSAS 143 0.50 1,903,446.93 0.50
CALIFORNIA 2,900 10.15 40,021,561.90 10.51
COLORADO 553 1.94 8,133,284.85 2.14
CONNECTICUT 455 1.59 5,980,922.77 1.57
DELAWARE 147 0.51 1,888,059.56 0.50
DISTRICT OF COLUMBIA 13 0.05 170,695.18 0.04
FLORIDA 2,402 8.41 32,778,277.12 8.60
GEORGIA 992 3.47 14,648,246.42 3.85
HAWAII 183 0.64 2,015,630.30 0.53
IDAHO 114 0.40 1,486,358.10 0.39
ILLINOIS 897 3.14 11,862,499.97 3.11
INDIANA 711 2.49 9,323,959.28 2.45
IOWA 301 1.05 4,066,716.98 1.07
KANSAS 227 0.79 2,958,282.39 0.78
KENTUCKY 321 1.12 4,071,964.97 1.07
LOUISIANA 445 1.56 6,104,576.03 1.60
MAINE 74 0.26 987,122.06 0.26
MARYLAND 652 2.28 8,502,434.20 2.23
MASSACHUSETTS 431 1.51 5,252,252.62 1.38
MICHIGAN 772 2.70 10,185,732.14 2.67
MINNESOTA 440 1.54 6,359,886.19 1.67
MISSISSIPPI 145 0.51 2,101,946.97 0.55
MISSOURI 448 1.57 6,174,087.98 1.62
MONTANA 94 0.33 1,286,991.30 0.34
NEBRASKA 124 0.43 1,546,258.28 0.41
NEVADA 315 1.10 4,358,478.16 1.14
NEW HAMPSHIRE 210 0.74 2,480,264.45 0.65
NEW JERSEY 869 3.04 10,857,704.81 2.85
NEW MEXICO 353 1.24 4,779,609.96 1.25
NEW YORK 880 3.08 10,542,341.08 2.77
NORTH CAROLINA 1,073 3.76 14,381,644.16 3.78
NORTH DAKOTA 24 0.08 325,653.28 0.09
OHIO 1,416 4.96 18,078,334.11 4.75
OKLAHOMA 240 0.84 3,113,340.21 0.82
OREGON 327 1.14 4,009,221.20 1.05
PENNSYLVANIA 1,590 5.57 18,981,639.02 4.98
</Table>
S-25
<Page>
TABLE 5
GEOGRAPHIC DISTRIBUTION OF THE INITIAL CONTRACTS
(CONTINUED)
<Table>
<Caption>
PERCENT OF
NUMBER OF NUMBER OF TOTAL OUTSTANDING PERCENT OF POOL
STATE CONTRACTS CONTRACTS (1) PRINCIPAL BALANCE BALANCE (1)
----- --------- ------------- ----------------- -----------
RHODE ISLAND 69 0.24 822,280.14 0.22
SOUTH CAROLINA 445 1.56 6,374,474.96 1.67
SOUTH DAKOTA 104 0.36 1,412,093.63 0.37
TENNESSEE 582 2.04 8,125,822.54 2.13
TEXAS 2,469 8.64 33,944,652.10 8.91
UTAH 98 0.34 1,271,000.84 0.33
VERMONT 42 0.15 470,807.61 0.12
VIRGINIA 745 2.61 9,693,422.68 2.54
WASHINGTON 706 2.47 9,560,096.67 2.51
WEST VIRGINIA 239 0.84 2,983,630.60 0.78
WISCONSIN 342 1.20 4,295,698.28 1.13
WYOMING 70 0.25 943,433.66 0.25
OTHER (2) 63 0.22 762,451.64 0.20
------ ------ ---------------- ------
TOTALS: 28,568 100.00% $ 380,941,785.63 100.00%
====== ====== ================ ======
</Table>
(1) Percentages may not add to 100.00% because of rounding.
(2) Includes U.S. Territories and military bases.
S-26
<Page>
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.
<Table>
<Caption>
DELINQUENCY EXPERIENCE(1)/
(DOLLARS IN THOUSANDS)
AT DECEMBER 31,
---------------------------------------------------------------------------------------------------
2001 2000 1999 1998
---- ---- ---- ----
Number Number Number Number
of of of of
Contracts Amount Contracts Amount Contracts Amount Contracts Amount
--------- ------ --------- ------ --------- ------ --------- ------
Portfolio.................. 158,254 $1,663,819.7 117,884 $1,185,300.1 91,556 $914,545.5 67,137 $ 651,248.7
Period of Delinquency(2)/
30-59 Days.......... 5,141 50,995.6 4,334 $ 42,325.0 2,868 $ 28,307.9 1,970 $ 17,768.1
60-89 Days.......... 1,571 15,620.1 1,395 13,517.4 983 9,424.3 745 6,153.9
90 Days or more..... 800 8,325.9 518 5,255.6 371 3,569.9 304 2,591.0
------- ------------ ------- ------------ ------ ---------- ------ -----------
Total Delinquencies........ 7,512 $ 74,901.7 6,247 $ 61,098.0 4,222 $ 41,302.1 3,019 $ 26,513.0
Total Delinquencies as a
Percent of Total Portfolio. 4.75% 4.50% 5.30% 5.15% 4.61% 4.52% 4.50% 4.07%
</Table>
<Table>
<Caption>
DELINQUENCY EXPERIENCE(1)/
(DOLLARS IN THOUSANDS)
AT DECEMBER 31,
----------------------------------
1997
----
Number
of
Contracts Amount
--------- ------
Portfolio.................. 45,258 $ 434,890.7
Period of Delinquency(2)/
30-59 Days.......... 1,264 11,454.6
60-89 Days.......... 559 5,112.1
90 Days or more..... 269 2,196.5
------ ------------
Total Delinquencies........ 2,092 $ 18,763.2
Total Delinquencies as a
Percent of Total Portfolio. 4.62% 4.31%
</Table>
------------------
(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
is contractually past due (assuming 30-day months). Consequently,
a payment 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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<Page>
LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
Year Ended
December 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Principal Balance of All Contracts
Serviced(1)/.................... $1,671,144.6 $1,190,184.2 $ 918,481.6 $ 653,836.0 $ 436,771.0
Contract Liquidations(2)/........... 2.05% 1.75% 1.59% 1.54% 1.42%
Net Losses:
Dollars(3)/..................... $ 13,905.6 $ 8,707.8 $ 5,875.0 $ 5,245.3 $ 3,781.1
Percentage(4)/.................. 0.83% 0.73% 0.64% 0.80% 0.87%
</Table>
------------------
(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.
S-28
<Page>
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 included in the trust will be similar to that set
forth above.
Changes in the net loss and delinquency experience of the portfolio have
generally been driven by the growth and seasoning of the portfolio, improvements
in collection procedures and fluctuations in the general economic environment.
In particular, in 2001 delinquencies decreased from 2000 as a result of improved
collection processes and procedures, additional collections staff and improved
overall credit quality of the portfolio due to the tiered pricing program as
discussed below. In addition, liquidations and net losses increased in 2000 and
2001 and delinquencies increased in 2000 as a result of a downturn in the
general economic environment. Between 1997 and 1999, delinquencies and
liquidations increased primarily due to the growth of the Delta (non-prime) loan
program. Net losses, as a percentage of the outstanding principal amount of
contracts, decreased between 1998 and 1999 primarily due to more stringent
collection procedures implemented by the servicer. Overall, the portfolio size
increased during the period from 1997 through December 31, 2001 primarily due to
increases in Harley-Davidson motorcycle production and the servicer's market
share penetration of units financed.
In addition, beginning in February 2001, the servicer implemented a tiered
pricing program which tightened the range of available credit in an effort to
better match customer risk with contract rates and improve the quality of its
portfolio. The contracts included in the trust were originated under the tiered
pricing program and may perform differently than the servicer's entire portfolio
during the periods described in the foregoing tables during which the tiered
pricing program was not in place for all originations. There is no assurance
that contracts included in the trust and originated under the tiered pricing
program will perform as expected under current or other economic conditions. In
addition, if the general downturn in the economic environment continues, we
expect that delinquencies and net loss rates for the portfolio may increase.
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, reacquisitions 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. Reacquisitions 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 reacquire 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:
- the aggregate outstanding principal balance of the contracts owned by
the trust as of the closing date; and
- the initial amount on deposit in the pre-funding account.
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<Page>
Any prepayments and reacquisitions 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 and debt cancellation agreements). 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 beneficial owner 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 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 Class A-1 notes and 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.
S-30
<Page>
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.
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 reacquired 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.
S-31
<Page>
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:
- the aggregate outstanding principal balance of the contracts owned by
the trust as of the closing date; and
- 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
The notes 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 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.
S-32
<Page>
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 $205,058,214.37 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 2002. 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".
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 $3,809,417.86, 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
S-33
<Page>
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 servicer, or the
depositor 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.
CALCULATION OF RESERVE FUND REQUIRED AMOUNT
On the closing date, the depositor will deposit a total of $3,809,417.86
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) 2.25% 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.
S-34
<Page>
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 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 acquire 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
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<Page>
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:
- 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;
- 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
- 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:
- the original denomination of the class of notes you own; and
- 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.
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<Page>
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:
- 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;
- the acquisition price paid by the depositor in reacquiring 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;
- 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
- 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.
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 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.
The servicer will also be entitled to retain any late payment fees,
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<Page>
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:
- amounts received by the servicer from the obligors on account of the
related delinquent contract payments;
- the proceeds, net of expenses incurred by the servicer, of the sale of
the repossessed financed motorcycles securing the related delinquent
contracts; and
- 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;
(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;
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<Page>
(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:
- 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;
- 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;
- any amounts remaining to the Class A notes, pro rata, until the Class A
notes have been paid in full; and
- 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:
- 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;
- any amounts remaining to the Class A notes, PRO RATA, until the Class A
notes have been paid in full;
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- 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
- 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.
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
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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.
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:
<Table>
<Caption>
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. .............. $ 116,000,000 $ 70,100,000 $ 10,100,000
Banc One Capital Markets, Inc. $ 116,000,000 $ 69,300,000 $ 9,600,000
First Union Securities, Inc.(1)......... $ 116,000,000 $ 69,300,000 $ 9,600,000
-------------- ------------- ------------
Total.............................. $ 348,000,000 $ 208,700,000 $ 29,300,000
============== ============= ============
</Table>
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.
<Table>
<Caption>
SELLING CONCESSION REALLOWANCE
CLASS NOT TO EXCEED NOT TO EXCEED
- ----- ------------- -------------
Class A-1 notes....................................... 0.108% 0.065%
Class A-2 notes....................................... 0.141% 0.085%
Class B notes......................................... 0.360% 0.216%
</Table>
- ----------
(1) Operating under the trade name of Wachovia Securities.
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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 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
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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.
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 Sidley Austin Brown & Wood LLP, New York,
New York.
EXPERTS
The balance sheet of Harley-Davidson Motorcycle Trust 2002-1 at
April 8,2002, 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
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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.
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 in 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 issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-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 WITH EFFECTIVELY CONNECTED INCOME (FORM
W-8ECI). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form W-8ECI (Certificate of
Foreign Person's Claim for Exemption from Withholding on Income Effectively
Connected with the Conduct of a Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM W-8BEN). Non-U.S. Persons that are 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:
- all amounts allocable to scheduled interest payments on the contracts;
- the interest component of all prepayments of contracts;
- the interest component of all proceeds of repossessed financed motorcycles
and other proceeds of defaulted contracts;
- the interest component of the purchase price paid by the depositor in
reacquiring 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;
- all amounts received in respect of carrying charges transferred from the
interest reserve account;
- all amounts received in respect of interest, dividends, gains, income and
earnings on investment of funds in the trust accounts;
- 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
- 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:
- all amounts allocable to scheduled principal payments on the contracts;
- the principal component of all prepayments of contracts;
- the principal component of all proceeds of repossessed motorcycles and
other proceeds of defaulted contracts;
- the principal component of the purchase price paid by the depositor in
reacquiring 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
- 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
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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 reacquired 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.
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UNITED STATES PERSONS means:
- A citizen or resident of the United States;
- A corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia;
- An estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source; or
- 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.
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REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying balance sheet of Harley-Davidson
Motorcycle Trust 2002-1 as of April 8, 2002. 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
2002-1 at April 8, 2002, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
April 8, 2002
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<Page>
HARLEY-DAVIDSON MOTORCYCLE TRUST 2002-1
BALANCE SHEET AS OF APRIL 8, 2002
<Table>
Assets--Cash...................................... $ 1,000
Liabilities....................................... $ 0
-------
Beneficial Equity................................. $ 1,000
=======
</Table>
NOTES TO THE BALANCE SHEET
Harley-Davidson Motorcycle Trust 2002-1 is a limited purpose business trust
established under the laws of the State of Delaware. It was formed on April 3,
2002 under a trust agreement dated as of April 1, 2002 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 8, 2002, 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.
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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:
- 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;
- will be paid only from the assets of the related trust;
- will be rated in one of the four highest rating categories by at least
one nationally recognized statistical rating organization;
- may have one or more forms of credit enhancement; and
- 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 10 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 April 8, 2002
<Page>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
Important Notice About Information Presented in this Prospectus
and the Accompanying Prospectus Supplement...............................ii
Prospectus Summary..........................................................1
Risk Factors...............................................................10
Harley-Davidson Motorcycles................................................19
Other Manufacturers........................................................19
Harley-Davidson Financial Services, Inc....................................20
The Seller and Servicer....................................................20
The Depositor..............................................................23
The Trusts.................................................................23
Use of Proceeds............................................................25
The Trustee................................................................25
Weighted Average Lives of the Securities...................................26
Factors and Trading Information............................................27
Description of the Notes and Indenture.....................................27
Description of the Certificates............................................36
Information Regarding the Securities.......................................39
Description of the Transfer and Servicing Agreements.......................52
Legal Aspects of the Contracts.............................................69
Material Federal Income Tax Consequences...................................77
ERISA Considerations......................................................102
Ratings of the Securities.................................................105
Plan of Distribution......................................................106
Legal Matters.............................................................106
Where You Can Find More Information.......................................107
</Table>
i
<Page>
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:
- this prospectus - which provides general information, some of which
may not apply to a particular series of securities including your
series, and
- 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
<Page>
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.
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Administrator................. Harley-Davidson Credit Corp. will provide
notices and perform other administrative
functions of each trust.
The Securities................ A series of securities may include:
- one or more of classes of notes which
will be issued pursuant to an indenture;
and/or
- 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:
- the stated principal amount of each
class of notes and the stated
certificate balance of each class of
certificates; and
- 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:
- timing and priority of payments;
- seniority;
- allocations of losses;
- interest rate or formula for calculating
the interest rate;
- amount of interest or principal
payments;
- whether interest or principal will be
payable to holders of the class if
specified events occur;
2
<Page>
- the right to receive collections from
designated portions of the contracts
owned by the trust;
- scheduled final payment date; and
- the ability of holders of a class of
notes or certificates to direct the
indenture trustee or the 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:
- security interests in the financed
motorcycles;
- proceeds from claims on insurance
policies and debt cancellation
agreements covering the financed
motorcycles or the obligors;
- certain rebates of premiums and other
amounts relating to insurance policies
and other items financed under the
contracts;
- the rights of the depositor in the
agreements identified in your prospectus
supplement;
- amounts deposited in bank accounts
specified in your prospectus supplement;
and
- proceeds from liquidated assets,
including repossessed motorcycles.
3
<Page>
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:
- the initial aggregate principal balance
of the contracts transferred to the
trust;
- the number of contracts;
- the average contract principal balance;
- the geographical distribution of the
contracts;
- the distribution of the contracts by
annual percentage rate;
- the remaining term of the contracts;
- the weighted average remaining term of
the contracts; and
- 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.
4
<Page>
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:
- a cash collateral account;
- a spread account;
- subordination of one or more other
classes of securities;
- one or more reserve funds;
- over-collateralization;
- letters of credit or other credit or
liquidity facilities;
- surety bonds;
- guaranteed investment contracts;
- repurchase obligations;
- yield supplement agreements;
- cash deposits;
- swap or other interest rate protection
agreements;
- third party payments or other support;
or
- other arrangements which may become
suitable in light of credit enhancement
practices or developments in the future.
5
<Page>
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:
- yield supplement agreements;
- liquidity facilities;
- cash deposits;
- third party payments or other support;
or
- 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 PAYMENT OF EXPENSES" in this prospectus.
6
<Page>
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:
- 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
- each certificateholder will be treated
as the owner of a pro rata undivided
interest in the income and assets of the
trust.
7
<Page>
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:
- 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;
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.
8
<Page>
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:
- notes issued by an "owner trust"; and
- certificates of a class issued by a
"grantor trust" that are not
subordinated to any other class.
Unless your prospectus supplement specifies
otherwise, employee benefit plans and
individual retirement accounts may not
purchase:
- subordinated classes of certificates
issued by a "grantor trust"; or
- 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.
9
<Page>
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
10
<Page>
contracts owned by the trust as of the closing date and (ii) the initial amount
on deposit in the pre-funding account, if any.
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:
- changes in customer requirements;
- the level of interest rates;
- the level of casualty losses; and
- 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.
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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 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.
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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.
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.
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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:
- 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
- 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
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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 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 substantively 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
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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.
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.
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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 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
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"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. 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.
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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.
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
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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.
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,
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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 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, debt cancellation agreements, 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
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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 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.
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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 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:
- 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;
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- 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;
- 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 physical damage, or other
insurance policies and debt cancellation agreements covering the
financed motorcycles or the obligors;
- 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 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;
- the trust's rights against the servicer under the sale and
servicing agreement or the pooling and servicing agreement;
- credit or cash flow enhancement for the securities specified in
the prospectus supplement; and
- 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:
- issuing notes and/or ownership interests in the trust;
- purchasing contracts, security interests in the related financed
motorcycles and related property;
- holding and dealing with assets of the trust;
- making payments on the securities it issued;
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- 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
- 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 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
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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 and debt cancellation agreements.
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 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.
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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.
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.
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Your prospectus supplement will provide additional information specific to
your notes.
PAYMENTS
Your prospectus supplement will describe as to your class of notes:
- the timing and priority of payments of principal and interest;
- the amount and method of determining payments of principal and
interest;
- the priority of the application of the trust's available funds to
its expenses and payments on its securities; and
- 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 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
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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:
- the unpaid principal balance of the contracts as of that payment
date;
- accrued but unpaid interest on the securities to that payment
date;
- unreimbursed servicer advances;
- accrued but unpaid fees to the trustee and the indenture trustee;
and
- 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:
- to correct or amplify the description of any property at any time
subject to the lien of the indenture;
- to evidence the succession of another person to the trust and the
assumption by any such successor of the covenants of the trust;
- to add to the covenants of the trust or to surrender any right or
power conferred upon the trust in the indenture;
- to convey, transfer, assign, mortgage or pledge any property to
or with the indenture trustee;
- to cure any ambiguity, to correct or supplement any provision in
the indenture which may be inconsistent with any other provision
in the indenture;
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- 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;
- 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
- 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:
- reduce the principal amount or interest rate or change the due
date of any payment;
- modify the manner of application of collections in respect of the
contracts to payment on the notes;
- impair your right to sue to enforce payment provisions of the
indenture;
- reduce the percentage of the aggregate principal amount of the
notes to amend certain sections of the indenture or certain other
related agreements;
- permit the creation of any lien on collateral under the indenture
ranking prior to or on a parity with the lien of the indenture;
- adversely affect the manner of determining notes outstanding for
voting purposes;
- 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
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- 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:
- a default for five days or more in the payment of interest due on
any note;
- failure to pay the unpaid principal amount of any class of notes
when due and payable;
- 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;
- 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
- 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:
- the trust has made all payments of principal and interest then
due on the notes (assuming the notes had not been accelerated);
and
- the trust has paid all amounts then owing to the indenture
trustee.
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If the notes of a series have been declared to be due and payable following
an event of default, the indenture trustee may:
- institute proceedings to collect amounts due or foreclose on the
trust assets;
- exercise remedies as a secured party; or
- 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:
- the holders of all the outstanding notes consent to the sale;
- 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
- 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:
- the holder previously has given to the indenture trustee written
notice of a continuing event of default;
- 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;
- the holder or holders offer the indenture trustee reasonable
indemnity;
- the indenture trustee has for 60 days failed to institute the
proceeding; and
- 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:
- 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;
- 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;
- no event of default shall have occurred and be continuing
immediately after the merger or consolidation;
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- 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;
- 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;
- any action as is necessary to maintain the lien and security
interest of the indenture trustee shall have been taken; and
- 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:
- 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;
- 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;
- dissolve or liquidate in whole or in part;
- 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
- 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:
- its eligibility and qualification to continue as indenture
trustee under the related indenture;
- amounts, if any, advanced by it under the indenture;
- the amount, interest rate and maturity date of certain
indebtedness owing by the trust to the indenture trustee in its
individual capacity;
- the property and funds physically held by the indenture trustee;
and
- 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:
- organized under the laws of the United States or any state or any
domestic branch of a foreign bank;
- the deposits of which are insured by the Federal Deposit
Insurance Corporation; and
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- 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 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:
- the timing and priority of distributions on account of principal
and interest;
- the amount and method of determining distributions on account of
principal and interest;
- the priority of the application of the trust's available funds to
its expenses and distributions on its securities;
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- allocation of losses on the contracts among the classes of
certificates; and
- 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.
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:
- the unpaid principal balance of the contracts as of that payment
date;
- accrued but unpaid interest on the certificates to the payment
date;
- unreimbursed servicer advances;
- accrued but unpaid fees to the trustee; and
- 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.
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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.
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:
- reduce the principal amount or pass-through rate or change the
due date of any distribution;
- modify the manner of application of collections in respect of the
contracts to distributions in respect of the certificates;
- impair your right to sue to enforce payment provisions of the
pooling and servicing agreement;
- reduce the percentage of the aggregate certificate balance of the
certificates needed for consents of certificateholders;
- 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;
- adversely affect the manner of determining certificates
outstanding for voting purposes; or
- 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.
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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:
- organized under the laws of the United States or any state or any
domestic branch of a foreign bank;
- the deposits of which are insured by the Federal Deposit
Insurance Corporation; and
- 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
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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:
- London interbank offered rate;
- commercial paper rates;
- Treasury rate;
- federal funds rate;
- negotiable certificates of deposit rate; or
- 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
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:
- a maximum limitation, or ceiling, on the rate at which interest
may accrue during any interest period; and
- a minimum limitation, or floor, on the rate at which interest may
accrue during any interest period.
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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:
- 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
- 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 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
- 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.
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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:
- 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
- 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
- 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:
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:
- 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
- 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
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- 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
- 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
- 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.
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.
- If at least two of those quotations are provided, LIBOR will
be the arithmetic mean of those quotations.
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- 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:
- 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,
- 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
- 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 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
- 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
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- 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.
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:
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- subordination of one or more classes of securities;
- spread account;
- reserve fund;
- over-collateralization;
- letter of credit;
- credit or liquidity facility;
- financial guaranty insurance policy;
- surety bond;
- guaranteed investment contract or other interest rate protection
agreement;
- repurchase obligation;
- yield supplement agreement;
- swap or other interest rate protection agreement;
- other agreements with respect to third party payments or other
support; or
- 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.
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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:
- the underwriters offering the securities to you;
- securities brokers and dealers;
- banks;
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- trust companies; and
- clearing corporations, and may include other organizations.
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:
- DTC to direct participants;
- by direct participants to indirect participants; and
- 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
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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.
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.
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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., 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
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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.
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.
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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.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
This section summarizes the material terms of the following agreements:
- 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;
- 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;
- 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
- 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.
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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:
- 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;
- the rights to proceeds from claims on theft, physical damage,
credit life and disability insurance policies and debt
cancellation agreements 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; and
- 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:
- all property acquired by the depositor from the seller under the
transfer and sale agreement;
- 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;
- 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
- 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
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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:
- the sale and assignment of the contracts and the security
interests in the financed motorcycles by the originating dealers
to the seller;
- 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;
- 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
- 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 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:
- the seller will sell, transfer, assign, set over and otherwise convey
the initial contracts and related assets to the depositor;
- 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
- 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
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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:
- each such subsequent contract satisfies the eligibility criteria
specified in the transfer and sale agreement and the related
subsequent purchase agreement executed thereunder;
- 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
- 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;
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(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;
(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);
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(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.
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
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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:
- all payments made by the obligors under the contracts;
- all proceeds of the contracts and the financed motorcycles; and
- 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 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.
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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:
- first, to accrued interest;
- second, to pay any expenses and late or extension fees owing; and
- 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:
- reviewing the contract files in the normal course of business;
- monitoring and tracking any property and sales taxes to be paid
by obligors;
- billing, collecting and recording payments from obligors;
- communicating with and providing billing records to obligors;
- depositing funds into the collection account;
- receiving payments as the trust's agent on the insurance policies
maintained by the obligors and communicating with insurers;
- issuing reports to the trustee and indenture trustee, if any,
specified in the relevant transfer and servicing agreements;
- repossessing and remarketing financed motorcycle following
obligor defaults; and
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- 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.
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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
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:
- 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;
- 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;
- 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;
- 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;
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- 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;
- 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
- 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 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
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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 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.
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Compensation to the servicer will include a base monthly fee equal:
- 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
- late fees;
- prepayment charges, if any;
- documentation fees;
- extension fees and other administrative charges; and
- 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. 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:
- 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;
- the amount of the payment allocable to interest on each
class of securities of that series;
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- the amount of the distribution allocable to the yield
supplement deposit, if any;
- the aggregate principal balance of the contracts as of the
close of business on the last day of the preceding month;
- the amount of base servicing fees paid to the servicer and
fees payable to the trustees;
- 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;
- 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;
- 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;
- 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;
- 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;
- during the funding period, the remaining amount on deposit
in the pre-funding account on the last day of the preceding
month;
- the amount, if any, of any mandatory redemption payment;
- the number and aggregate principal balance of contracts
delinquent computed as of the end of the related due period;
- 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;
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- average and cumulative loss and delinquency information as
of such payment date;
- 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);
- 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
- 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 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
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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.
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.
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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 notes
outstanding, the holders of more than 50% of the aggregate certificate
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balance of the certificates or the class or classes of the certificates
described in your prospectus supplement, except that no amendment:
- that reduces the amount or changes the timing of any collections
on any contracts or payments required to be distributed on any
security;
- that changes the interest rate on any security, that adversely
affects the priority of payment of principal or interest to the
securityholders; or
- 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
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contracts and the security interests in the motorcycles and the related property
by the seller to the depositor and by the depositor to 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
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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 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.
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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.
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.
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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 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
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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 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.
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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 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.
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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 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
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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 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
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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.
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
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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. 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, even if certificates issued by the trust are at all
times owned by a single person, 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 taxable as a corporation. That opinion is 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 taxable as a
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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 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
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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 38.6%.
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 note's principal amount or other stated redemption price at maturity
multiplied by the number of full 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
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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 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 38.6%, 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
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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.
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.
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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 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 30% 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, any state thereof or the District of Columbia,
(3) an estate the income of which is includible in gross income for U.S.
federal income tax purposes, regardless of its source,
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(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.
If a partnership (including for this purpose any entity treated as a
partnership for federal income tax purposes) is a beneficial owner of a note,
the treatment of a partner in the partnership will generally depend upon the
status of the partner and upon the activities of the partnership. A noteholder
that is a partnership and partners in such partnership should consult their tax
advisors about the federal income tax consequences of holding and disposing of a
note, as the case may be.
Interest paid or accrued to a foreign investor holding a note on its own
behalf 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 or a bank extending credit pursuant to a loan
agreement entered into in the ordinary course of its trade or business.
Additionally, the foreign investor must provide or have a financial institution
provide on its behalf to the trust or paying agent an appropriate statement or
Form W-8BEN (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. Additional reporting
requirements may apply to interest payments made to a foreign investor that is
not an individual or corporation (or an entity treated as a corporation for
federal income tax purposes) holding the note on its own behalf. If the
information provided in this statement changes, the foreign investor must
provide a new Form W-8BEN (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 W-8BEN (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
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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 W-8ECI (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.
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 30% 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 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
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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 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.
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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--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.
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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.
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
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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.
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 30% if, in general, the
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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 38.6% 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-8BEN, 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-8BEN (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, 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 would 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.
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
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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 debt
cancellation agreements and 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.
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
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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, the debt
cancellation agreements, and other rights the 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.
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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 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
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period and reduced by the amount of any payment on the stripped contracts (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
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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.
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
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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. 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
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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 or a bank extending credit pursuant to a loan agreement
entered into in the ordinary course of its trade or business and (2) the foreign
holder fulfills certain certification requirements. Under those requirements,
the holder must certify, under penalty of perjury, that it is not a "UNITED
STATES PERSON" and provide its name and address on Form W-8BEN (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, any state
thereof or the District of Columbia, (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
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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, 30% 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.
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
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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 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
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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.
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 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.
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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 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
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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 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.
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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 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.
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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.
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
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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.
$586,000,000
HARLEY-DAVIDSON MOTORCYCLE TRUST 2002-1
$348,000,000 3.02% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-1
$208,700,000 4.50% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS A-2
$29,300,000 4.36% HARLEY-DAVIDSON MOTORCYCLE CONTRACT BACKED NOTES, CLASS B
HARLEY-DAVIDSON CREDIT CORP.
SELLER AND SERVICER
HARLEY-DAVIDSON CUSTOMER FUNDING CORP.
DEPOSITOR
PROSPECTUS SUPPLEMENT
APRIL 8, 2002
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SALOMON SMITH BARNEY
BANC ONE CAPITAL MARKETS, INC.
WACHOVIA SECURITIES