Filed Pursuant to Rule 424(B)(5)
Registration No. 333-56303
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 14, 2001
$542,700,000
DISTRIBUTION FINANCIAL SERVICES RV/MARINE TRUST 2001-1
DEUTSCHE RECREATIONAL ASSET
FUNDING CORPORATION
DEPOSITOR
DEUTSCHE FINANCIAL SERVICES CORPORATION
SERVICER
The Trust will issue the classes of Notes listed below. Interest and
principal on the Notes will be payable monthly, on the 15th of the month or the
first business day after the 15th of the month, to the extent described herein.
The Notes represent obligations of the Trust only and do not represent
obligations of or interests in, and are not guaranteed by, Deutsche Recreational
Asset Funding Corporation, Deutsche Financial Services Corporation, Ganis Credit
Corporation, Deutsche Bank AG or any other person or entity.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. YOU SHOULD CONSIDER THE
DISCUSSION OF "RISK FACTORS" BEGINNING ON PAGE S-17 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 12 OF THE ACCOMPANYING PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<Table>
<Caption>
UNDERWRITING
PRINCIPAL INTEREST DISCOUNTS AND PROCEEDS TO
AMOUNT RATE STATED MATURITY DATE PRICE TO PUBLIC COMMISSIONS DEPOSITOR(1)
------------ -------- -------------------- --------------- ------------- ---------------
Class A-1 Notes...... $189,000,000 2.82% November 17, 2008 99.999047% 0.150% 99.849047%
Class A-2 Notes...... $ 54,000,000 4.05% August 16, 2010 99.995098% 0.200% 99.795098%
Class A-3 Notes...... $ 90,000,000 4.74% May 15, 2013 99.986687% 0.250% 99.736687%
Class A-4 Notes...... $ 95,000,000 5.67% January 17, 2017 99.959702% 0.300% 99.659702%
Class A-5 Notes...... $ 72,350,000 6.19% November 15, 2022 99.953308% 0.350% 99.603308%
Class B Notes........ $ 19,830,000 6.43% November 15, 2022 99.947596% 0.450% 99.497596%
Class C Notes........ $ 9,270,000 6.86% November 15, 2022 99.968917% 0.550% 99.418917%
Class D Notes........ $ 13,250,000 7.73% November 15, 2022 99.954108% 0.650% 99.304108%
------------ --------------- ------------- ---------------
Total................ $542,700,000 $542,592,151.49 $1,381,070.00 $541,211,081.49
</Table>
- ------------
(1) Before deducting expenses estimated to be $790,000.
The Notes are offered subject to prior sale, when, as and if issued to and
accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that delivery of the Notes will be made in
book-entry form only through the facilities of The Depository Trust Company,
Clearstream, Luxembourg, and Euroclear, on or about November 27, 2001.
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
JPMORGAN
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 20, 2001
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We tell you about the Notes in two separate documents that progressively
provide more detail: (a) the accompanying Prospectus, which provides general
information, some of which may not apply to the Notes; and (b) this Prospectus
Supplement, which describes the specific terms of the Notes.
IF THE TERMS OF THE NOTES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT VARY FROM
THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
We include cross-references in this Prospectus Supplement and in the
accompanying Prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents provides the pages
on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus Supplement are defined under the caption "Index of Terms" beginning
on page S-67 in this Prospectus Supplement and under the caption "Index of
Terms" beginning on page 80 in the accompanying Prospectus.
THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL TO OFFER AND SELL THESE
SECURITIES. THIS PROSPECTUS SUPPLEMENT MAY BE USED TO OFFER AND SELL THE NOTES
ONLY IF ACCOMPANIED BY THE PROSPECTUS. WE DO NOT CLAIM THE ACCURACY OF THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AS OF
ANY DATE OTHER THAN THE DATES STATED ON THEIR RESPECTIVE COVERS.
After the initial distribution of the Notes by the Underwriters, the
Prospectus and Prospectus Supplement may be used by Deutsche Banc Alex. Brown
Inc., an affiliate of the Transferor, the Servicer and the Depositor, in
connection with market making transactions in the Notes. Deutsche Banc Alex.
Brown Inc. may act as principal or agent in such transactions. Such transactions
will be at prices related to prevailing market prices at the time of sale.
S-2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<Table>
<Caption>
PAGE
----
REPORTS TO NOTEHOLDERS...................................... S-5
SUMMARY OF TERMS............................................ S-6
STRUCTURAL SUMMARY.......................................... S-9
RISK FACTORS................................................ S-17
THE TRUST................................................... S-24
THE RECEIVABLES POOL........................................ S-25
MANAGEMENT'S DISCUSSION AND ANALYSIS........................ S-36
THE TRANSFEROR.............................................. S-37
UNDERWRITING PROCEDURES AND GUIDELINES...................... S-37
THE SERVICER................................................ S-39
WEIGHTED AVERAGE LIFE OF THE NOTES.......................... S-40
DESCRIPTION OF THE NOTES.................................... S-49
DESCRIPTION OF THE RESIDUAL INTEREST........................ S-54
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS........ S-55
FEDERAL INCOME TAX CONSEQUENCES............................. S-58
STATE AND LOCAL TAX CONSEQUENCES............................ S-58
ERISA CONSIDERATIONS........................................ S-58
UNDERWRITING................................................ S-59
LEGAL OPINIONS.............................................. S-61
GLOSSARY OF TERMS........................................... S-62
INDEX OF TERMS.............................................. S-67
PROSPECTUS
AVAILABLE INFORMATION....................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
SUMMARY OF TERMS............................................ 4
RISK FACTORS................................................ 12
THE TRUSTS.................................................. 22
THE TRUSTEE................................................. 23
THE BOAT MORTGAGE TRUST..................................... 23
THE RECEIVABLES POOLS....................................... 24
WEIGHTED AVERAGE LIFE OF THE SECURITIES..................... 26
POOL FACTORS AND TRADING INFORMATION........................ 27
USE OF PROCEEDS............................................. 28
THE DEPOSITOR............................................... 28
THE TRANSFEROR.............................................. 28
UNDERWRITING PROCEDURES AND GUIDELINES...................... 29
THE SERVICER................................................ 29
DESCRIPTION OF THE NOTES.................................... 29
DESCRIPTION OF THE CERTIFICATES............................. 34
CERTAIN INFORMATION REGARDING THE SECURITIES................ 35
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS........ 43
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................... 54
FEDERAL INCOME TAX CONSEQUENCES............................. 63
</Table>
S-3
<Table>
<Caption>
PAGE
----
TRUSTS THAT ARE STRUCTURED AS OWNER TRUSTS.................. 64
TRUSTS TREATED AS GRANTOR TRUSTS............................ 71
STATE AND LOCAL TAX CONSEQUENCES............................ 75
ERISA CONSIDERATIONS........................................ 76
PLAN OF DISTRIBUTION........................................ 79
LEGAL OPINIONS.............................................. 79
INDEX OF TERMS.............................................. 80
ANNEX I: GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES................................................ I-1
</Table>
S-4
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, monthly and annual unaudited
reports containing information concerning the Receivables will be prepared by
the Servicer and sent on behalf of the Trust only to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Notes. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Reports to Securityholders" in the accompanying Prospectus
(the "Prospectus"). Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
Depositor, as originator of the Trust, will file with the Securities and
Exchange Commission (the "Commission") such periodic reports as are required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder.
S-5
SUMMARY OF TERMS
The following summary is a short description of certain terms of the
offering of the Notes. For that reason, this summary does not contain all of the
information that may be important to you. To fully understand the terms of the
offering of the Notes, you will need to read both this Prospectus Supplement and
the attached Prospectus, each in its entirety.
TRUST......................... Distribution Financial Services RV/Marine Trust
2001-1.
NOTES......................... The Trust will issue the following Notes (the
"Notes"):
- $189,000,000 Class A-1 2.82% Asset Backed
Notes
- $ 54,000,000 Class A-2 4.05% Asset Backed
Notes
- $ 90,000,000 Class A-3 4.74% Asset Backed
Notes
- $ 95,000,000 Class A-4 5.67% Asset Backed
Notes
- $ 72,350,000 Class A-5 6.19% Asset Backed
Notes
- $ 19,830,000 Class B 6.43% Asset Backed
Notes
- $ 9,270,000 Class C 6.86% Asset Backed
Notes
- $ 13,250,000 Class D 7.73% Asset Backed
Notes
DEPOSITOR..................... Deutsche Recreational Asset Funding
Corporation. The principal executive office of
the Depositor is located at 655 Maryville
Centre Drive, St. Louis, Missouri 63141,
telephone number (314) 523-3000.
TRANSFEROR.................... Ganis Credit Corporation.
SERVICER...................... Deutsche Financial Services Corporation.
INDENTURE TRUSTEE............. HSBC Bank USA.
OWNER TRUSTEE................. Wells Fargo Bank Minnesota, National
Association.
CLOSING DATE.................. The Trust expects to issue the Notes on or
about November 27, 2001.
MONTHLY PAYMENT DATES......... With respect to each calendar month (each, a
"Collection Period"), the "Monthly Payment
Date" will be the 15th day of the following
month or, if the 15th day is not a business
day, the next business day.
FIRST MONTHLY PAYMENT DATE.... The first Monthly Payment Date will be December
17, 2001.
STATED MATURITY DATES......... The Trust is required to pay the outstanding
principal amount of each class of Notes, to the
extent not previously paid, in full on the
respective Stated Maturity Date (with respect
to each class of Notes, its "Stated Maturity
Date") for that class of Notes specified in the
cover page of this Prospectus Supplement or, if
such date is not a business day, on the next
succeeding business day.
INTEREST RATES................ The Trust will pay interest on each class of
Notes at the rates specified on the cover of
this Prospectus Supplement.
S-6
INTEREST ACCRUAL.............. "30/360", accrued from and including the 15th
day of the preceding calendar month (or, in the
case of the first Monthly Payment Date, from
and including the Closing Date) to and
including the day preceding the 15th day of the
current calendar month.
This means that, if there are no outstanding
shortfalls in the payment of interest, the
interest due on each Monthly Payment Date for
each class of Notes will be the product of:
- the applicable outstanding principal balance
of such class of Notes;
- the applicable interest rate; and
- for all classes of Notes, one-twelfth (or, in
the case of the first Monthly Payment Date,
18 divided by 360).
For a more detailed description of the payment
of interest, you should refer to the section of
this Prospectus Supplement titled "Description
of the Notes--Payments of Interest."
OPTIONAL REDEMPTION........... The Notes will be redeemed in whole on any
Monthly Payment Date if the Servicer exercises
its option to purchase the Receivables from the
Trust. The Servicer may exercise this option
only if:
- the Pool Balance is less than 10% of the
Initial Pool Balance; and
- the resulting distribution to the Noteholders
on the applicable Monthly Payment Date is
sufficient to pay the sum of the outstanding
principal balances of all Notes, plus accrued
and unpaid interest thereon.
See "Description of the Notes--Optional
Redemption" in this Prospectus Supplement.
SUBORDINATION................. To the extent described herein, the Class B
Notes are subordinated to the Class A Notes,
the Class C Notes are subordinated to the Class
A Notes and Class B Notes, and the Class D
Notes are subordinated to the Class A Notes and
Class B Notes and Class C Notes. See
"Description of the Transfer and Servicing
Agreements--Distributions" in this Prospectus
Supplement.
TAX STATUS.................... In the opinion of Mayer, Brown & Platt, special
counsel to the Depositor, for federal income
tax purposes, the Notes will be characterized
as debt and the Trust will not be characterized
as a separate entity that is an association (or
a publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance
of a Note, will agree to treat the Notes as
indebtedness. See "Federal Income Tax
Consequences" and "State and Local Tax
Consequences" in this Prospectus Supplement
S-7
and "Federal Income Tax Consequences" and
"State and Local Tax Consequences" in the
Prospectus.
ERISA CONSIDERATIONS.......... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Notes may be eligible for
purchase by employee benefit plans. See "ERISA
Considerations" in this Prospectus Supplement
and "ERISA Considerations" in the Prospectus.
ABSENCE OF MARKET............. The Notes will be a new issue of securities
with no established trading market. The Trust
does not expect to apply for listing of the
Notes on any securities exchange or quote the
Notes in the automated quotation system of a
registered securities association. The
Underwriters may assist in resales of the
Notes, but they are not required to do so. See
"Risk Factors--Noteholders May Be Unable To
Resell Notes" in this Prospectus Supplement.
RISK FACTORS.................. Investors should recognize that there are
material risks associated with an investment in
the Notes. See "Risk Factors" in this
Prospectus Supplement and "Risk Factors" in the
Prospectus.
RATINGS....................... It is a condition of the issuance of the Notes
that the:
- Class A-1 Notes, Class A-2 Notes, Class A-3
Notes, Class A-4 Notes and Class A-5 Notes be
rated in the "AAA" rating category or its
equivalent by at least two nationally
recognized rating agencies;
- Class B Notes be rated in the "AA" rating
category or its equivalent by at least one
nationally recognized rating agency;
- Class C Notes be rated in the "A" rating
category or its equivalent by at least one
nationally recognized rating agency; and
- Class D Notes be rated in the "BBB" rating
category or its equivalent by at least one
nationally recognized rating agency.
See "Risk Factors--Ratings Are Not
Recommendations" in this Prospectus Supplement.
CUSIP NUMBERS................. - Class A-1 Notes: 254934 AA 0
- Class A-2 Notes: 254934 AB 8
- Class A-3 Notes: 254934 AC 6
- Class A-4 Notes: 254934 AD 4
- Class A-5 Notes: 254934 AE 2
- Class B Notes: 254934 AF 9
- Class C Notes: 254934 AG 7
- Class D Notes: 254934 AH 5
S-8
STRUCTURAL SUMMARY
This summary briefly describes certain structural components of the Trust.
To fully understand the terms of the Trust, you will need to read both this
Prospectus Supplement and the attached Prospectus, each in its entirety.
PROPERTY OF THE TRUST......... The primary assets of the Trust will be the
Receivables, which are (i) recreational vehicle
and (ii) marine (consisting of sport boat,
power boat and yacht) installment sales
contracts or installment loans originated by
DFS or acquired by DFS from Dealers or from an
Affiliated Originator ("DFS Receivables") and
(i) recreational vehicle and (ii) marine
installment sales contracts or installment
loans originated by the Transferor or acquired
by the Transferor from Dealers or from an
Affiliated Originator or acquired by the
Transferor from DFS prior to the Closing Date
(the "Transferor Receivables"). On the Closing
Date, DFS will transfer the DFS Receivables to
the Transferor (to the extent not previously
transferred by DFS to the Transferor), the
Transferor will transfer the DFS Receivables
and the Transferor Receivables to the
Depositor, and the Depositor will transfer all
of such Receivables to the Trust.
The assets of the Trust will also include:
- all monies received under the Receivables
after October 31, 2001 (the "Cutoff Date");
- security interests in the Financed Assets
created pursuant to the Receivables (other
than Federally Documented Boats, the
security interests in which will be assigned
to the Boat Mortgage Trustee as described
under "The Boat Mortgage Trust" in the
Prospectus);
- any proceeds from certain related insurance
policies;
- amounts on deposit in the Trust Accounts,
including the Reserve Account; and
- all rights of the Trust under the Transfer
and Servicing Agreement.
See "The Receivables Pool" in this Prospectus
Supplement and "The Receivables Pools" and
"Description of the Transfer and Servicing
Agreements" in the Prospectus.
The Receivables to be acquired by the Trust on
the Closing Date are expected to have an
aggregate Principal Balance of $529,467,226.64
as of the Cutoff Date (the "Initial Pool
Balance").
S-9
SERVICING FEE;
SERVICER ADVANCES........... The Servicer will be entitled to receive a
monthly Servicing Fee and other compensation as
described under "Description of the Transfer
and Servicing Agreement--Servicing Compensation
and Payment of Expenses" and "--Distributions"
in this Prospectus Supplement.
The Servicer will advance any interest
shortfall with respect to the Receivables to
the extent that the Servicer, in its sole
discretion, expects to recoup the advance from
subsequent payments on or with respect to the
Receivables (a "Servicer Advance"). The
Servicer will be entitled to reimbursement of
Servicer Advances from subsequent payments on
or with respect to the Receivables. Such
reimbursements will be made out of available
funds prior to the deposit of such funds in the
Collection Account. See "Description of the
Transfer and Servicing Agreements--Servicer
Advances" in the Prospectus.
PRIORITY OF DISTRIBUTIONS..... From the Total Distribution Amount and, in the
event of a shortfall in meeting the payments
described in clauses (1) through (9) below,
from amounts withdrawn from the Reserve
Account, the Trust will pay the following
amounts on each Monthly Payment Date in the
following order of priority:
(1) to the Servicer, the Servicing Fee and all
unpaid Servicing Fees from prior Collection
Periods;
(2) to Class A Noteholders, accrued interest on
the Class A Notes;
(3) to the Principal Distribution Account, the
First Priority Principal Distribution
Amount, which will be the amount, if any,
equal to the excess of (a) the principal
balances of the Class A Notes over (b) the
Pool Balance as of the end of the
Collection Period preceding such Monthly
Payment Date;
(4) to the Class B Noteholders, accrued
interest on the Class B Notes;
(5) to the Principal Distribution Account, the
Second Priority Principal Distribution
Amount, which will be the amount, if any,
equal to the excess of (a) the sum of the
principal balances of the Class A Notes and
Class B Notes over (b) the Pool Balance as
of the end of such Collection Period, less
the amounts previously deposited to the
Principal Distribution Account in
accordance with clause (3) above;
(6) to the Class C Noteholders, accrued
interest on the Class C Notes;
S-10
(7) to the Principal Distribution Account the
Third Priority Principal Distribution
Amount, which will be the amount, if any,
equal to the excess of (a) the sum of the
principal balances of the Class A Notes,
Class B Notes and Class C Notes over (b)
the Pool Balance as of the end of such
Collection Period, less the amounts
previously deposited to the Principal
Distribution Account in accordance with
clauses (3) and (5) above;
(8) to the Class D Noteholders, accrued
interest on the Class D Notes;
(9) to the Principal Distribution Account, the
Regular Principal Distribution Amount,
which will be the amount, if any, equal to
the decrease in the Pool Balance during
such Collection Period, provided that this
amount will be reduced by any amounts
previously deposited to the Principal
Distribution Account in accordance with
clauses (3), (5) and (7) above;
(10) to the Principal Distribution Account, an
amount sufficient to cause the outstanding
principal balance of the Notes (after
giving effect to all payments on the
Monthly Payment Date) to equal the Pool
Balance as of the end of such Collection
Period;
(11) to the Reserve Account, an amount
sufficient to cause the amount on deposit
in the Reserve Account to equal the amount
required to be on deposit in the Reserve
Account; and
(12) to the Residual Interestholder, any
amounts remaining in the Collection
Account.
See "Description of the Transfer and Servicing
Agreements--Distributions" in this Prospectus
Supplement.
DISTRIBUTIONS FROM THE
PRINCIPAL DISTRIBUTION
ACCOUNT..................... From deposits made to the Principal
Distribution Account, the Trust will generally
pay principal on the Notes in the manner and
priority set forth below:
Sequentially to the Notes commencing with the
Class A-1 Notes until each class of Notes is
paid in full if either (1) the Monthly Payment
Date is prior to the Monthly Payment Date in
December 2005 (the "Crossover Date"), or (2) a
Trigger Event is in effect; and
On and after the Crossover Date so long as a
Trigger Event is not in effect:
- to the Class A Notes, the amount required to
reduce the principal amount thereof to an
amount equal to the product of (1) (a) the
principal amount of the Class A Notes
immediately preceding the Crossover Date (or
if a Trigger Event is in effect on the
S-11
Crossover Date, on the first Monthly Payment
Date after the Crossover Date that a Trigger
Event is not in effect) divided by (b) the
Pool Balance as of the last day of the
second Collection Period preceding the
Crossover Date (or if a Trigger Event is in
effect on the Crossover Date, the first
Monthly Payment Date after the Crossover
Date that a Trigger Event is not in effect)
and (2) the Pool Balance as of the last day
of the preceding Collection Period, in the
following order of priority:
- first to the Class A-1 Notes until paid
in full;
- second to the Class A-2 Notes until paid
in full;
- third to the Class A-3 Notes until paid
in full;
- fourth to the Class A-4 Notes until paid
in full; and
- fifth to the Class A-5 Notes until paid
in full;
- to the Class B Notes, the amount required to
reduce the principal amount thereof to an
amount equal to the product of (1) (a) the
principal amount of the Class B Notes
immediately preceding the Crossover Date (or
if a Trigger Event is in effect on the
Crossover Date, on the first Monthly Payment
Date after the Crossover Date that a Trigger
Event is not in effect) divided by (b) the
Pool Balance as of the last day of the
second Collection Period preceding the
Crossover Date (or if a Trigger Event is in
effect on the Crossover Date, the first
Monthly Payment Date after the Crossover
Date that a Trigger Event is not in effect)
and (2) the Pool Balance as of the last day
of the preceding Collection Period;
- to the Class C Notes, the amount required to
reduce the principal amount thereof to an
amount equal to the product of (1) (a) the
principal amount of the Class C Notes
immediately preceding the Crossover Date (or
if a Trigger Event is in effect on the
Crossover Date, on the first Monthly Payment
Date after the Crossover Date that a Trigger
Event is not in effect) divided by (b) the
Pool Balance as of the last day of the
second Collection Period preceding the
Crossover Date (or if a Trigger Event is in
effect on the Crossover Date, the first
Monthly Payment Date after the Crossover
Date that a Trigger Event is not in effect)
and (2) the Pool Balance as of the last day
of the preceding Collection Period;
- to the Class D Notes, the amount required to
reduce the principal amount thereof to an
amount equal to the product of (1) (a) the
principal amount of the Class D Notes
immediately preceding the Crossover Date (or
if a Trigger Event is in effect on the
Crossover Date, on the first Monthly Payment
Date
S-12
after the Crossover Date that a Trigger
Event is not in effect) divided by (b) the
Pool Balance as of the last day of the
second Collection Period preceding the
Crossover Date (or if a Trigger Event is in
effect on the Crossover Date, the first
Monthly Payment Date after the Crossover
Date that a Trigger Event is not in effect)
and (2) the Pool Balance as of the last day
of the preceding Collection Period; and
- to the Residual Interestholder, any funds
remaining.
A "Trigger Event" will be in effect for a
Monthly Payment Date commencing with the
Crossover Date if one of the following
conditions occur:
- the average sixty-day delinquency ratio as
of the last day of the related Collection
Period exceeds 5.00%;
- the cumulative realized losses as of the
last day of the related Collection Period
exceeds the following percentages of the
original Pool Balance for the specified
Monthly Payment Date:
December 2005 through November 2006....3.50%
December 2006 through November 2007....4.25%
December 2007 and after...............5.00%;
- the amount on deposit in the Reserve Account
for any two prior consecutive Monthly
Payment Dates is less than the amount
required to be on deposit in the Reserve
Account provided that the Trigger Event will
no longer be in effect if the amount on
deposit in the Reserve Account for three
consecutive Monthly Payment Dates thereafter
equals the amount required to be on deposit
therein; or
- the aggregate outstanding principal amount
of the Notes immediately preceding the
Monthly Payment Date is greater than the
Pool Balance as of the last day of the
second Collection Period preceding the
Monthly Payment Date.
The average sixty-day delinquency ratio is, in
general, the ratio of the aggregate principal
balances of Receivables delinquent 60 days or
more for the preceding three Collection Periods
to the average Pool Balance for this period.
Cumulative realized losses are, in general, the
aggregate realized losses incurred in respect
of defaulted loans since the Cutoff Date.
For a more detailed description of the priority
of distributions and the allocation of funds on
each Monthly Payment Date, you should refer to
"Description of the Notes--Payments of
Principal" in this Prospectus Supplement.
S-13
CHANGE IN PRIORITY OF PAYMENTS
FOLLOWING EVENTS OF DEFAULT
AND ACCELERATION OF THE
NOTES....................... If an Event of Default occurs and the Notes are
accelerated following the occurrence of an
Event of Default, the Trust will make no
distributions of principal or interest on the
Class B Notes until payment in full of
principal and interest on the Class A Notes, no
distributions of principal or interest on the
Class C Notes until payment in full of
principal and interest on the Class A Notes and
the Class B Notes, and no distributions of
principal or interest on the Class D Notes
until payment in full of principal and interest
on the Class A Notes, the Class B Notes and the
Class C Notes. In addition, payments of
principal on the Class A Notes will be made pro
rata to the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Notes.
For a more detailed description of the Events
of Default and the rights of investors in such
circumstance, you should refer to "Description
of the Notes--The Indenture --Events of
Default; Rights Upon Event of Default" in the
Prospectus. For a more detailed description of
the priority of distributions and allocation of
funds following an Event of Default and the
acceleration of the Notes, you should refer to
"Description of the Notes--Priority of Payments
Following an Event of Default Under the
Indenture" in this Prospectus Supplement.
CREDIT ENHANCEMENT............ The credit enhancement described in this
Prospectus Supplement provides protection for
the Class A Notes, the Class B Notes, the Class
C Notes and the Class D Notes against losses
and delays in payment.
The credit enhancement for the Notes will be as
follows:
Class A Notes................. Subordination of the Class B Notes, the Class C
Notes and the Class D Notes, and the Reserve
Account;
Class B Notes................. Subordination of the Class C Notes and the
Class D Notes, and the Reserve Account;
Class C Notes................. Subordination of the Class D Notes, and the
Reserve Account; and
Class D Notes................. The Reserve Account.
SUBORDINATION OF PRINCIPAL AND
INTEREST.................... As long as the Class A Notes remain
outstanding:
- payments of interest on the Class B Notes,
the Class C Notes and the Class D Notes will
be subordinated to payments of interest on
the Class A Notes, and, in certain
circumstances, payments of principal on the
Class A Notes; and
- payments of principal on the Class B Notes,
the Class C Notes and the Class D Notes will
be
S-14
subordinated to payments of interest and
principal on the Class A Notes.
As long as the Class A Notes or Class B Notes
remain outstanding:
- payments of interest on the Class C Notes
and Class D Notes will be subordinated to
payments of interest on the Class A Notes
and the Class B Notes and, in certain
circumstances, payments of principal on the
Class A Notes and the Class B Notes; and
- payments of principal on the Class C Notes
and Class D Notes will be subordinated to
payments of interest and principal on the
Class A Notes and the Class B Notes.
As long as the Class A Notes or Class B Notes
or Class C Notes remain outstanding:
- payments of interest on the Class D Notes
will be subordinated to payments of interest
on the Class A Notes, the Class B Notes and
the Class C Notes and, in certain
circumstances, payments of principal on the
Class A Notes, the Class B Notes and the
Class C Notes; and
- payments of principal on the Class D Notes,
will be subordinated to payments of interest
and principal on the Class A Notes, the
Class B Notes and the Class C Notes.
For a more detailed discussion of the
subordination of the Notes and the priority of
distributions, you should refer to "Description
of the Notes--The Indenture" and "Description
of the Transfer and Servicing
Agreement--Distributions" in this Prospectus
Supplement.
RESERVE ACCOUNT............... On the Closing Date, the Depositor will deposit
or cause to be deposited $1,323,668 into the
Reserve Account.
On or before each Monthly Payment Date, if
collections on the Receivables are insufficient
to satisfy clauses (1) through (9) listed in
"--Priority of Distributions" above, the
Servicer will instruct the Indenture Trustee to
withdraw from the Reserve Account, and deposit
in the Collection Account, to the extent of the
funds in the Reserve Account, the amounts
necessary to make distributions of interest,
the First Priority Principal Distribution
Amount, the Second Priority Principal
Distribution Amount, the Third Priority
Principal Distribution Amount and the Regular
Principal Distribution Amount and, on the
Stated Maturity Date for any class of Notes,
its outstanding principal balance.
The balance required to be on deposit in the
Reserve Account (the "Reserve Account Required
Amount") with respect to any Monthly Payment
Date will be the lesser of
S-15
$3,971,004 and the outstanding principal
balance of the Notes.
On each Monthly Payment Date, the Trust will
distribute funds on deposit in the Reserve
Account in excess of the required balance in
accordance with the priority of payments
described in "--Priority of Distributions"
above.
On each Monthly Payment Date, the Trust will
deposit in the Reserve Account, to the extent
necessary to cause the amount on deposit in the
Reserve Account to equal the Reserve Account
Required Amount, any part of the Total
Distribution Amount remaining after the first
ten clauses listed in "--Priority of
Distributions" above are satisfied.
For a more detailed description of the Reserve
Account, you should refer to "Description of
the Transfer and Servicing Agreements--Reserve
Account" in this Prospectus Supplement.
UNDERCOLLATERALIZATION........ Initially, the principal balance of the Notes
will exceed the Pool Balance by approximately
2.5% of the Pool Balance. Such
undercollateralization amount will be reduced
to the extent of distributions pursuant to
clause (10) under "--Priority of Distributions"
in this Prospectus Supplement.
S-16
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, you should consider the following risk factors
and the risk factors set forth in the Prospectus in deciding whether to purchase
Notes.
Noteholders May Be Unable to
Resell Notes There is currently no secondary market for the
Notes. The Underwriters may assist in resales
of the Notes, but they are not required to do
so. If a secondary market does develop, it
might not continue or it might not be
sufficiently liquid to allow you to resell any
of your Notes. There have been times in the
past where there have been very few buyers of
asset-backed securities (i.e., there has been a
lack of liquidity), and there may be these
times in the future. As a result, you may not
be able to sell your notes when you want to do
so or you may not be able to obtain the price
that you wish to receive.
Possible Payment Delays or
Losses Resulting From
Geographic Concentration Economic conditions in states where Obligors
reside may affect the delinquency, loan loss
and repossession experience of the Trust with
respect to the Receivables. Lack of
geographically diverse Obligors may cause
losses on the related Receivables to be higher
than they would be if the Obligors were more
geographically diverse. As of the Cutoff Date,
the mailing addresses of Obligors of
Receivables representing, by Principal Balance,
21.92%, 12.15%, 8.02% and 7.49% of the Initial
Pool Balance were located in California, Texas,
New York and Florida, respectively. No other
state, by billing address, constituted more
than 4.50% of the aggregate Principal Balance
of the Receivables as of the Cutoff Date. An
economic downturn in one or more of states
where concentrations of Obligors reside could
adversely affect the performance of the Trust
as a whole (even if national economic
conditions remain unchanged or improve) as
Obligors in such state or states experience the
effects of such a downturn and face greater
difficulty in making payments on the
Receivables.
In general, economic factors such as
unemployment, interest rates, the rate of
inflation and consumer perceptions may affect
the rate of prepayment and defaults on the
Receivables and could reduce or delay payments
to you. See "The Receivables Pool" in this
Prospectus Supplement.
Possible Payment Delays or
Losses as a Result of
Differences
Among the Classes If you hold Notes of a class that are paid
principal later than another class, you bear
more risk of loss than holders of classes of
Notes that are paid earlier and you could
experience delays or reductions in payments.
See "Description of the Notes--Payments of
Interest," "--Payments of Principal,"
"--Priority of Payments Following an Event of
Default under the Indenture" and
S-17
"Description of the Transfer and Servicing
Agreements--Distributions" in this Prospectus
Supplement.
Ratings Are Not
Recommendations Any rating of your Notes by a rating agency
indicates the rating agency's view on the
likelihood of the ultimate payment of principal
and the timely payment of interest at the
applicable interest rate on your Notes.
Among the things a rating will not indicate
are:
- the likelihood that principal will be paid
on a scheduled date;
- the likelihood that an Event of Default
under the Indenture will occur
- whether or not the discussion under "Federal
Income Tax Consequences" or "State and Local
Tax Consequences" in this Prospectus
Supplement or the Prospectus is adequate, or
the likelihood that a United States
withholding tax will be imposed on non-U.S.
investors in Notes;
- whether or not the discussion under "ERISA
Considerations" in this Prospectus
Supplement or the Prospectus is adequate, or
whether a "prohibited transaction" will
occur;
- the marketability of your Notes;
- the market price of your Notes; or
- whether your Notes are an appropriate
investment for you or any other investor.
A rating is not a recommendation to buy, sell,
or hold your Notes. A rating may be lowered or
withdrawn at any time. You should evaluate each
rating independently of any other rating.
See "Ratings are Not Recommendations; There is
No Assurance That a Rating Will Remain in
Effect" in the Prospectus.
Possible Delays and Reductions
in
Payments on The Notes Due to
Limited Assets of the Trust The Trust will not have any significant assets
or sources of funds other than the Receivables.
Notes will be payable only from the assets of
the Trust. You must rely for repayment upon
payments on the Receivables and, if and to the
extent available, amounts on deposit in the
Reserve Account. However, amounts to be
deposited in the Reserve Account are limited in
amount and the balance of the Reserve Account
may be reduced from time to time as described
herein. The Notes represent obligations of the
Trust only and do not represent an interest in
or an obligation of, and are not insured or
guaranteed by, the Transferor, the Depositor,
DFS, Ganis Credit Corporation, Deutsche Bank AG
or any other person or entity. You will have no
recourse to the Transferor, the Depositor, DFS,
Ganis Credit Corporation,
S-18
Deutsche Bank AG or any other person or entity
in the event that proceeds of the assets of the
Trust are insufficient or otherwise unavailable
to make payments on the Notes.
If losses or delinquencies occur with respect
to Receivables which are not covered by
payments on other Receivables or by the Reserve
Account, or if the initial
undercollateralization amount is not reduced to
zero, you may experience delays and reductions
in payments on your Notes.
Possible Losses Due to Payment
Prior to Maturity The actual maturity of any class of Notes could
occur significantly earlier than the Stated
Maturity Date for such class of Notes. See
"Risk Factors--Possible Losses Resulting From
Payment Prior to Maturity" in the Prospectus,
and "Weighted Average Life of the Notes" and
"Description of the Notes--Optional Redemption"
in this Prospectus Supplement. You will bear
the risk of being able to reinvest principal
received on Notes at a yield at least equal to
the yield on such Notes. If you acquire a Note
at a premium, repayment of principal at a rate
that is faster than you anticipated will result
in a yield that is lower than you anticipated.
If you acquire a Note at a discount, repayment
of principal at a rate that is slower than you
anticipated will result in a yield that is
lower than you anticipated.
Amount of Advance with Respect
to Financed Assets May Be
Greater Than Value of Financed
Assets The amount advanced on a Financed Asset may
exceed the value of the Financed Asset at the
time the loan is initially made or at any
subsequent time, including at the time of
foreclosure or repossession of the Financed
Asset. This may have the effect of increasing
the amount of loss in the event that a
Receivable defaults, which could in turn result
in delays or reductions in payments on your
Notes. See "Underwriting Procedures and
Guidelines" in the Prospectus.
Forward-Looking Statements Some statements contained or incorporated in
this Prospectus Supplement or the Prospectus
are forward-looking statements concerning
operations, economic performance and financial
condition of the Receivables and the Trust and
other parties. These statements involve risks
and uncertainties and actual results may differ
materially from those expressed or implied in
those statements.
Possible Delays and Reductions
in
Payments Due on Notes Due to
Subordination of Notes The Class B Notes bear greater risk than the
Class A Notes because payments of interest and
principal on the Class B Notes are
subordinated, to the extent described in this
Prospectus Supplement, to payments of interest
and principal on the Class A Notes. The Class C
Notes bear greater credit risk than the Class A
Notes and the Class B Notes because payments of
interest and principal on the Class C Notes are
subordinated, to the extent
S-19
described in this Prospectus Supplement, to
payments of interest and principal on the Class
A Notes and the Class B Notes. The Class D
Notes bear greater credit risk than the Class A
Notes, the Class B Notes and the Class C Notes
because payments of interest and principal on
the Class D Notes are subordinated, to the
extent described in this Prospectus Supplement,
to payments of interest and principal on the
Class A Notes, the Class B Notes and the Class
C Notes.
For a more detailed description of such
principal payment circumstances, see
"Description of the Transfer and Servicing
Agreements--Distributions--Priority of
Payments" in this Prospectus Supplement. The
payment sequence changes, however, following an
acceleration of the Notes upon some events of
default under the indenture. See "Description
of the Notes--Priority of Payments Following an
Event of Default Under the Indenture" in this
Prospectus Supplement.
Possible Delays and Reductions
In
Payments on Notes Due to
Limited Credit Enhancement The amount of credit enhancement for the Notes
is limited and may be reduced from time to time
as described herein. If the amount available
under such credit enhancement is reduced to
zero, you will bear directly the credit and
other risks associated with your investment in
the Notes and will be more likely to experience
delays and reductions in payments on your
Notes. See "Description of the Transfer and
Servicing Agreement--Distributions",
"Description of the Transfer and Servicing
Agreement--Reserve Account", "Description of
the Notes" and "Risk Factors--Possible Payment
Delays or Losses as a Result of Priority
Differences Among the Classes" in this
Prospectus Supplement.
Possible Failure to Make Final
Payment on Stated Maturity
Date It is expected that final payment of each class
of Notes will occur on or prior to the
respective stated maturity dates. Failure to
make final payment of any class of Notes on or
prior to the respective stated maturity dates
would constitute an event of default under the
indenture. However, no assurance can be given
that sufficient funds will be available to pay
each class of Notes in full on or prior to the
stated maturity date. If sufficient funds are
not available, final payment of any class of
Notes could occur later than the stated
maturity date for that class. See "The
Indenture--Events of Default; Rights Upon Event
of Default" in the Prospectus.
Possible Losses Due to Limited
Control Over Actions of the
Trust
and Conflicts Between Classes
of
Notes Because the Trust has pledged the property of
the Trust to the indenture trustee to secure
payment on the Notes, the indenture trustee
may, and at the direction of the required
percentage of the Controlling Class will, take
one or more of the other actions specified in
the indenture relating to the property of the
Trust, including a sale of the Receivables. The
Controlling Class will be the Class A Notes for
so long as any Class A Notes are
S-20
outstanding, the Class B Notes after the Class
A Notes have been paid in full, the Class C
Notes after the Class B Notes have been paid in
full and the Class D Notes after the Class C
Notes have been paid in full. In addition, the
holders of a majority of the Class A Notes,
under some circumstances, have the right to
waive events of servicing termination or
terminate the Servicer without consideration of
the effect such waiver or termination would
have on the holders of the Class B Notes, the
Class C Notes or the Class D Notes. The holders
of the Class B Notes will not have the ability
to waive events of servicing termination or to
remove the Servicer until the Class A Notes
have been paid in full. The holders of the
Class C Notes will not have the ability to
waive any such events or to remove the Servicer
until the Class B Notes have been paid in full.
The holders of the Class D Notes will not have
the ability to waive any such events or to
remove the Servicer until the Class C Notes
have been paid in full.
See "Certain Matters Regarding the
Servicer--Servicer Defaults" in the Prospectus.
Failure to Pay Interest on the
Subordinated Classes of Notes
is
Not an Event of Default The indenture provides that failure to pay
interest when due on any outstanding
subordinated class or classes of Notes--for
example, for so long as any of the Class A
Notes are outstanding, the Class B Notes, the
Class C Notes or the Class D Notes--will not be
an event of default under the indenture. Under
these circumstances, the holders of any
outstanding subordinated Notes will not have
any right to declare an event of default, to
cause the maturity of the Notes to be
accelerated or to direct or consent to any
action under the indenture.
Prepayments and Potential
Losses
May Result From an Event of
Default Under the Indenture An event of default under the indenture may
result in payments on the Notes being
accelerated. As a result:
- you may suffer losses on your Notes if the
assets of the Trust are insufficient to pay
the amounts owed on the Notes;
- payments on your Notes may be delayed until
more senior classes of Notes are repaid; and
- your Notes may be repaid earlier than
scheduled, which may require you to reinvest
your principal at a lower rate of return.
The Occurrence of an Event of
Default Under the Indenture
May
Delay Payments on the Class B
Notes, the Class C Notes and
the
Class D Notes The Trust will not make any distributions of
principal or interest on a subordinate class of
Notes until payment in full of principal and
interest on the senior classes of Notes
following:
- an event of default under the indenture
relating to the payment of principal on any
Note or the payment of interest on the
controlling class of Notes which has
resulted in acceleration of the Notes;
S-21
- an event of default under the indenture
relating to an insolvency event or a
bankruptcy with respect to the Trust which
has resulted in an acceleration of the
Notes; or
- a liquidation of the Trust assets following
any event of default under the indenture.
This may result in a delay or default in making
payments on the Class B Notes, the Class C
Notes or the Class D Notes.
Subordinated Noteholders May
Not Be Able to Direct the
Indenture Trustee Upon an
Event
of Default Under the Indenture If an event of default occurs under the
indenture, only the holders of the Controlling
Class of Notes may waive such event of default,
accelerate the maturity dates of the Notes or
direct or consent to any action under the
indenture. The holders of any outstanding
subordinated class or classes of Notes will not
have any rights to direct or to consent to any
action until each of the more senior class or
classes of Notes has been repaid in full.
The Indenture Trustee May Sell
the Receivables in an Event of
Default If the final payment dates of the Notes are
accelerated following an event of default under
the indenture, the indenture trustee may, under
some circumstances, sell the Receivables and
prepay the Notes. Upon a sale of the
Receivables following an event of default:
- no amounts will be distributed to the Class
B Noteholders until all interest and
principal due on the Class A Notes have been
paid in full;
- no amounts will be distributed to the Class
C Noteholders until all interest and
principal due on the Class A Notes and Class
B Notes have been paid in full; and
- no amounts will be distributed to the Class
D Noteholders until all interest and
principal due on the Class A Notes, Class B
Notes and Class C Notes have been paid in
full.
So long as the Class A Notes are the
Controlling Class, the holders of the Class B
Notes, Class C Notes and Class D Notes will not
have any right to vote on waivers of an event
of default or to direct the indenture trustee
to accelerate the Notes following an event of
default and will have the right to vote on the
sale of the Receivables following an event of
default and acceleration in only limited
circumstances.
So long as the Class B Notes are the
Controlling Class, the holders of the Class C
Notes and Class D Notes will not have any right
to vote on waivers of an event of default or to
direct the indenture trustee to accelerate the
Notes following an event of default and will
have the right to vote on the sale of the
Receivables following an
S-22
event of default and acceleration in only
limited circumstances.
So long as the Class C Notes are the
Controlling Class, the holders of the Class D
Notes will not have any right in vote on
waivers of an event of default or to direct the
indenture Trustee to accelerate the Notes
following an event of default and will have the
right to vote on the sale of the Receivables
following an event of default and acceleration
in only limited circumstances.
See "Description of the Notes--The
Indenture--Events of Default; Rights Upon Event
of Default" in the Prospectus.
The Notes are Not Suitable
Investments for all Investors The Notes may not be a suitable investment if
you require a regular or predictable schedule
of payments or payment on any specific date.
The Notes are complex investments that should
be considered only by investors who, either
alone or with their financial, tax and legal
advisors, have the expertise to analyze the
prepayment, reinvestment, default and market
risk of an investment, the tax consequences of
an investment, and the interaction of these
factors.
Effects of Recent Terrorist
Attacks Any effect that the terrorist attacks on the
World Trade Center and on the Pentagon in the
United States on September 11, 2001 and related
military action may have on the performance of
the Receivables is unclear, but there could be
an adverse effect on general economic
conditions, consumer confidence and general
market liquidity. Investors should consider the
possible effects on delinquency, default and
prepayment experience of the Receivables. In
particular, under the Soldiers' and Sailors'
Civil Relief Act of 1940, members of the
military on active duty, including reservists,
who have entered into an obligation, such as a
retail installment sale contract relating to a
recreational vehicle, sport boat, power boat or
yacht, before entering into military service
may be entitled to reductions in interest rates
to 6% and a stay of foreclosure and similar
actions. In addition, pursuant to the Military
Reservist Relief Act of 1991, under certain
circumstances, California residents called into
active duty with the reserves can delay
payments on retail installment contracts,
including the Receivables, for a period not to
exceed 180 days, beginning with the order to
active duty and ending 30 days after release.
No information can be provided as to the number
of Receivables that may be affected. If an
obligor's obligation to repay a receivable is
reduced, adjusted or extended, the Servicer
will not be required to advance such amounts.
Any resulting shortfalls in interest or
principal will reduce the amount available for
distribution on the Notes.
S-23
THE TRUST
GENERAL
The Trust, Distribution Financial Services RV/Marine Trust 2001-1, is a
common law trust formed under the laws of the State of New York. The purpose of
the Trust is generally to engage in the following activities: (i) to acquire the
Receivables pursuant to the Transfer and Servicing Agreement; (ii) to issue the
Notes pursuant to the Indenture and to sell the Notes; (iii) with the proceeds
of the sale of the Notes to pay certain expenses of the Trust and to pay the
balance to the Depositor; (iv) to grant a security interest in the Receivables
pursuant to the Indenture; (v) to enter into and perform its obligations under
the documents to which it is to be a party; (vi) to engage in those activities,
including entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith;
and (vii) subject to compliance with the documents to which it is a party, to
engage in such other activities as may be required in connection with
conservation of the Receivables and other items and the making of distributions
to the Residual Interestholder and the Noteholders.
The net proceeds from the sale of the Notes will be distributed to the
Depositor.
If the credit enhancement provided (a) to the Class A Noteholders by the
subordination of the Class B Notes, Class C Notes, and Class D Notes, (b) to the
Class B Noteholders by the subordination of the Class C Notes and Class D Notes,
(c) to the Class C Noteholders by the subordination of the Class D Notes and (d)
to the Noteholders by the Reserve Account is insufficient, the Trust will look
only to the Obligors on the Receivables and the proceeds from the repossession
and sale of Financed Assets which secure defaulted Receivables. In such event,
certain factors, such as the Trust's not having first priority perfected
security interests in some of the Financed Assets, may affect the Trust's
ability to realize on the collateral securing the Receivables, and thus may
reduce the proceeds to be distributed to Noteholders with respect to the Notes.
See "Description of the Transfer and Servicing Agreements--Distributions" and
"--Reserve Account" in this Prospectus Supplement and "Risk Factors" and
"Certain Legal Aspects of the Receivables" in the Prospectus.
The Trust's principal offices are in Minneapolis, Minnesota, in care of
Wells Fargo Bank Minnesota, National Association, as Owner Trustee, at the
address listed below under "--The Owner Trustee".
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Notes in the respective amounts
set forth herein had taken place on such date:
<Table>
<Caption>
CAPITALIZATION OF
THE TRUST
-----------------
Class A-1 Notes............................................. $189,000,000
Class A-2 Notes............................................. $ 54,000,000
Class A-3 Notes............................................. $ 90,000,000
Class A-4 Notes............................................. $ 95,000,000
Class A-5 Notes............................................. $ 72,350,000
Class B Notes............................................... $ 19,830,000
Class C Notes............................................... $ 9,270,000
Class D Notes............................................... $ 13,250,000
------------
Total.................................................. $542,700,000
============
</Table>
S-24
THE OWNER TRUSTEE
Wells Fargo Bank Minnesota, National Association, is the Owner Trustee
under the Trust Agreement. Wells Fargo Bank Minnesota, National Association, is
a national banking association and its principal offices are located at Sixth &
Marquette, Minneapolis, Minnesota 55479-0070. The Depositor and its affiliates
may maintain normal commercial banking relations with the Owner Trustee and its
affiliates.
THE RECEIVABLES POOL
The pool of Receivables held by the Trust (the "Receivables Pool") will
include only the Receivables transferred by the Depositor to the Trust on the
Closing Date. Such Receivables will be acquired by the Depositor from the
Transferor on the Closing Date. The Transferor originated certain of such
Receivables prior to the Closing Date, acquired certain of such Receivables from
Dealers and Affiliated Originators prior to the Closing Date, and will have
acquired the rest of such Receivables from DFS on or prior to the Closing Date.
Such Receivables were selected from the Transferor's portfolio for transfer to
the Depositor, and were selected from the Depositor's portfolio for inclusion in
the Receivables Pool, by several criteria, some of which are set forth in the
Prospectus under "The Receivables Pools", as well as the requirement that, as of
the Cutoff Date, each Receivable (i) had a Principal Balance of at least $500,
(ii) had a remaining maturity of at least 12 months but not more than 240
months, (iii) had an APR of at least 5.99% and not more than 18.25% per annum,
and (iv) was not more than 29 days past due. All of such Receivables have fixed
rate APRs, provided that the APRs of Receivables representing approximately
0.44% of the Initial Pool Balance change to a new fixed rate one or more times
during the terms of such Receivables. As of the Cutoff Date, no Obligor on any
Receivable was noted in the records of the Servicer as being the subject of a
bankruptcy proceeding. As of the Cutoff Date, Receivables representing
approximately 1.31% of the Initial Pool Balance are secured by recreational
vehicles which are equipped with compartments designed to transport horses, or
which are designed solely to transport horses. As of the Cutoff Date, no single
Obligor on the Receivables in the Receivables Pool is an Obligor on more than
0.14% of the Initial Pool Balance. No selection procedures believed by the
Depositor to be adverse to Noteholders were used in selecting the Receivables.
All of the Receivables are Simple Interest Receivables, as described under
"The Receivables Pools--General" in the Prospectus.
A maximum of 5% (relative to the aggregate principal balance) of the
Receivables, as they will be constituted at the time of the Closing Date, may
deviate from certain characteristics of the Receivables as described in this
Prospectus Supplement.
Receivables representing approximately 8% of the Receivables Pool were
acquired by DFS or the Transferor from Thor Credit Corporation. Thor Credit
Corporation is a joint venture between DFS and Thor Industries, Inc., a
manufacturer of recreational vehicles. Although we make no representations
regarding the underwriting standards of Thor Credit Corporation, the
underwriting standards employed by Thor Credit Corporation were the same as used
by DFS.
Set forth in the following tables is information measured and determined as
of the Cutoff Date concerning: the composition, distribution by annual
percentage rate ("APR"), geographic distribution, remaining term, loan age, year
of origination and current balances of the Receivables expected to be included
in the Receivables Pool. Prior to the issuance of the Notes, Receivables not
exceeding five percent of the aggregate principal balance set forth below may be
removed from or added to the Receivables Pool. The percentages in the following
tables may not add to 100% because of rounding. Dollar amounts in the following
tables may not add to the totals indicated because of rounding.
S-25
COMPOSITION OF THE RECEIVABLES POOL
<Table>
<Caption>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AGGREGATE AVERAGE AVERAGE AVERAGE
APR OF PRINCIPAL NUMBER OF REMAINING ORIGINAL PRINCIPAL
RECEIVABLES BALANCE RECEIVABLES TERM TERM BALANCE
- ------------------- ------------ ----------- ------------------ ------------------ ------------
9.088% $529,467,227 10,713 177 Months 192 Months $49,423
(5.990% to 18.250%) (12 to 240 Months) (18 to 240 Months) ($582.38 to
$722,630.95)
</Table>
Recreational vehicle Receivables represented 59.7% of the Initial Pool
Balance, and marine Receivables represented 40.3% of the Initial Pool Balance.
Receivables representing approximately 58.6% of the Initial Pool Balance
were secured by new Financed Assets at the time such Receivables were
originated, and Receivables representing approximately 41.4% of the Initial Pool
Balance were secured by used Financed Assets at the time such Receivables were
originated.
DISTRIBUTION BY APR OF THE RECEIVABLES POOL
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF AGGREGATE AGGREGATE
APR (%) RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
------- ----------- ----------------- -----------------
5.001 - 6.000................................... 8 0.20% $ 1,046,224
6.001 - 7.000................................... 34 0.88 4,672,432
7.001 - 8.000................................... 1,035 22.60 119,678,855
8.001 - 9.000................................... 2,603 35.02 185,434,694
9.001 - 10.000.................................. 2,656 24.96 132,143,160
10.001 - 11.000.................................. 2,570 11.99 63,506,769
11.001 - 12.000.................................. 1,026 3.05 16,141,673
12.001 - 13.000.................................. 466 0.90 4,770,354
13.001 - 14.000.................................. 172 0.26 1,386,441
14.001 - 15.000.................................. 67 0.07 382,715
15.001 - 16.000.................................. 54 0.04 224,501
16.001 - 17.000.................................. 15 0.01 57,085
17.001 - 18.000.................................. 6 0.00 19,780
18.001 - 19.000.................................. 1 0.00 2,544
------ ------ ------------
Total:...................................... 10,713 100.00% $529,467,227
====== ====== ============
</Table>
S-26
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF AGGREGATE AGGREGATE
STATE(1) RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
-------- ----------- ----------------- -----------------
Alabama................................................. 156 1.07% $ 5,686,565
Alaska.................................................. 55 0.61 3,246,720
Arizona................................................. 328 3.46 18,304,111
Arkansas................................................ 213 1.04 5,509,558
California.............................................. 2,280 21.92 116,047,224
Colorado................................................ 147 1.08 5,739,366
Connecticut............................................. 118 1.17 6,208,381
Delaware................................................ 30 0.39 2,053,691
District of Columbia.................................... 6 0.08 434,406
Florida................................................. 743 7.49 39,634,161
Georgia................................................. 238 1.92 10,183,629
Hawaii.................................................. 4 0.03 145,678
Idaho................................................... 52 0.34 1,793,179
Illinois................................................ 135 1.08 5,720,615
Indiana................................................. 58 0.76 4,014,362
Iowa.................................................... 47 0.28 1,491,741
Kansas.................................................. 83 0.62 3,304,179
Kentucky................................................ 48 0.47 2,483,688
Louisiana............................................... 196 1.70 8,994,047
Maine................................................... 44 0.22 1,176,877
Maryland................................................ 195 2.12 11,247,836
Massachusetts........................................... 280 2.24 11,885,712
Michigan................................................ 80 0.89 4,700,534
Minnesota............................................... 267 1.51 8,010,906
Mississippi............................................. 106 0.63 3,352,960
Missouri................................................ 177 1.16 6,142,723
Montana................................................. 37 0.48 2,516,233
Nebraska................................................ 42 0.20 1,032,868
Nevada.................................................. 221 1.90 10,071,235
New Hampshire........................................... 62 0.52 2,746,365
New Jersey.............................................. 235 2.62 13,889,506
New Mexico.............................................. 107 0.66 3,496,043
New York................................................ 501 8.02 42,441,246
North Carolina.......................................... 269 2.16 11,430,469
North Dakota............................................ 12 0.04 210,580
Ohio.................................................... 83 1.00 5,296,389
Oklahoma................................................ 179 0.97 5,157,980
Oregon.................................................. 312 2.69 14,266,521
Pennsylvania............................................ 248 2.00 10,609,498
Puerto Rico............................................. 1 0.01 32,832
Rhode Island............................................ 51 0.33 1,762,678
South Carolina.......................................... 98 0.90 4,743,548
South Dakota............................................ 30 0.30 1,610,735
Tennessee............................................... 142 1.53 8,118,945
Texas................................................... 1,239 12.15 64,322,088
Utah.................................................... 38 0.45 2,381,472
Vermont................................................. 17 0.16 854,497
Virginia................................................ 174 1.43 7,568,072
Virgin Islands.......................................... 1 0.00 7,197
Washington.............................................. 418 4.34 22,954,002
West Virginia........................................... 16 0.07 379,243
Wisconsin............................................... 77 0.62 3,302,352
Wyoming................................................. 17 0.14 751,786
------ ------ ------------
Total:.............................................. 10,713 100.00% $529,467,227
====== ====== ============
</Table>
- ------------
(1) Based on billing addresses of the Obligors, as reflected in the Servicer's
records as of the Cutoff Date.
S-27
DISTRIBUTION BY REMAINING TERM OF THE RECEIVABLES POOL
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF AGGREGATE AGGREGATE
REMAINING TERM IN MONTHS RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------ ----------- ----------------- -----------------
1 - 12........................................... 6 0.00% $ 14,530
13 - 24........................................... 87 0.09 474,776
25 - 36........................................... 193 0.21 1,099,424
37 - 48........................................... 293 0.71 3,770,273
49 - 60........................................... 341 0.75 3,958,978
61 - 72........................................... 275 0.58 3,045,901
73 - 84........................................... 343 0.81 4,294,145
85 - 96........................................... 479 1.51 7,977,493
97 - 108.......................................... 977 3.67 19,414,419
109 - 120.......................................... 1,170 4.47 23,690,751
121 - 132.......................................... 1,138 4.62 24,467,462
133 - 144.......................................... 906 4.30 22,784,382
145 - 156.......................................... 714 7.64 40,435,218
157 - 168.......................................... 1,611 18.11 95,882,202
169 - 180.......................................... 794 10.32 54,640,331
181 - 192.......................................... 40 0.55 2,932,668
193 - 204.......................................... 38 0.79 4,202,937
205 - 216.......................................... 311 9.05 47,900,421
217 - 228.......................................... 590 17.79 94,218,277
229 - 240.......................................... 407 14.03 74,262,640
------ ------ ------------
Total:........................................ 10,713 100.00% $529,467,227
====== ====== ============
</Table>
DISTRIBUTION BY AGE OF THE RECEIVABLES POOL
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF AGGREGATE AGGREGATE
AGE IN MONTHS RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- ----------- ----------------- -----------------
0................................................. 6 0.13% $ 685,951
1 - 6............................................. 2,733 24.41 129,233,654
7 - 12............................................ 1,767 16.96 89,813,737
13 - 18............................................ 3,709 28.96 153,352,395
19 - 24............................................ 1,074 13.74 72,727,702
25 and greater..................................... 1,424 15.80 83,653,788
------ ------ ------------
Total:........................................ 10,713 100.00% $529,467,227
====== ====== ============
</Table>
DISTRIBUTION BY ORIGINATION YEAR OF THE RECEIVABLES POOL
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF AGGREGATE AGGREGATE
ORIGINATION YEAR RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- ----------- ----------------- -----------------
1997............................................... 2 0.11% $ 569,768
1998............................................... 14 0.15 774,044
1999............................................... 2,011 23.19 122,791,327
2000............................................... 4,609 39.42 208,704,186
2001............................................... 4,077 37.14 196,627,901
------ ------ ------------
Total:........................................ 10,713 100.00% $529,467,227
====== ====== ============
</Table>
S-28
DISTRIBUTION BY CURRENT BALANCE OF THE RECEIVABLES POOL
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF AGGREGATE AGGREGATE
CURRENT BALANCE ($) RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------- ----------- ----------------- -----------------
500.01 - 25,000.00............................... 5,618 14.48% $ 76,655,671
25,000.01 - 50,000.00............................ 2,201 14.79 78,310,616
50,000.01 - 100,000.00........................... 1,465 19.57 103,631,357
100,000.01 - 150,000.00.......................... 664 15.27 80,839,835
150,000.01 - 200,000.00.......................... 343 11.26 59,596,372
200,000.01 - 250,000.00.......................... 161 6.79 35,925,961
250,000.01 - 300,000.00.......................... 104 5.41 28,631,767
300,000.01 - 350,000.00.......................... 58 3.58 18,958,005
350,000.01 - 400,000.00.......................... 26 1.85 9,780,490
400,000.01 - 450,000.00.......................... 26 2.09 11,042,075
450,000.01 - 500,000.00.......................... 12 1.09 5,771,568
500,000.01 - 550,000.00.......................... 12 1.19 6,296,215
550,000.01 - 600,000.00.......................... 14 1.52 8,032,520
600,000.01 - 650,000.00.......................... 4 0.48 2,526,264
650,000.01 - 700,000.00.......................... 3 0.38 2,033,667
700,000.01 - 725,000.00.......................... 2 0.27 1,434,843
------ ------ ------------
Total:...................................... 10,713 100.00% $529,467,227
====== ====== ============
</Table>
DELINQUENCIES AND NET LOSSES
Set forth below is certain information concerning the experience of the
Transferor and DFS pertaining to marine and recreational vehicle receivables
originated or acquired by the Transferor and DFS and secured by new or used
boats and recreational vehicles. See "The Transferor" and "Underwriting
Procedures and Guidelines" in the Prospectus and "Management's Discussion and
Analysis" below.
The tables below do not include information as to marine and recreational
vehicle receivables following the sale of such receivables by DFS or the
Transferor in Servicing Released Sale Transactions. "Servicing Released Sale
Transactions" are transactions in which (a) marine or recreational vehicle
receivables are sold by DFS or the Transferor to a bank or other institution and
(b) after the sale of such receivables, neither DFS nor the Transferor services
such receivables. Since June 1999, the Transferor and DFS have sold $300.6
million of marine receivables and $832.9 million of recreational vehicle
receivables in Servicing Released Sale Transactions. The tables below include
information as to marine and recreational vehicle receivables previously sold by
DFS or the Transferor whereby DFS continued to service such receivables after
such sales.
The data presented in the tables below are for illustrative purposes only.
There is no assurance that the delinquency and loss experience of the Trust with
respect to the receivables to be transferred to it will be similar to that set
forth below. The percentages in the tables below have not been adjusted to
eliminate the effect of the growth of the Servicer's portfolio. The percentages
do not in any way reflect the past performance of the Receivables. Accordingly,
the delinquency and loss percentages may be lower than those shown if a group of
receivables were isolated at a period in time and the delinquency and loss data
showed the activity only for that isolated group of receivables over the period
indicated.
S-29
DELINQUENCY EXPERIENCE OF DFS AND THE TRANSFEROR(1)
MANAGED RECREATIONAL VEHICLE AND MARINE RECEIVABLES PORTFOLIO
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
AT SEPTEMBER 30,
--------------------------------------------------
2001 2000
----------------------- -----------------------
NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ----------
Portfolio.................................... 75,170 $3,357,321 64,925 $2,876,532
Period of Delinquency
30-59 Days................................. 687 28,468 396 14,195
60-89...................................... 217 8,664 140 5,320
90+........................................ 118 4,041 97 3,385
Total Delinquencies.......................... 1,022 $ 41,173 633 $ 22,900
Total as % of Portfolio...................... 1.36% 1.23% 0.97% 0.80%
</Table>
<Table>
<Caption>
AT DECEMBER 31,
--------------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ---------- --------- ----------
Portfolio................. 66,451 $2,953,042 70,743 $3,059,178 50,506 $2,190,487
Period of Delinquency
30-59 Days.............. 516 18,522 445 15,844 282 8,035
60-89................... 161 6,692 105 4,014 53 1,994
90+..................... 128 4,722 72 2,537 62 2,720
Total Delinquencies....... 805 $ 29,936 622 $ 22,395 397 $ 12,749
Total as % of Portfolio... 1.21% 1.01% 0.88% 0.73% 0.79% 0.58%
</Table>
- ------------
(1) All amounts and percentages are based on the gross amount scheduled to be
paid on each contract. The Servicer treats a receivable as delinquent if any
part of a scheduled payment is not received when due.
S-30
DELINQUENCY EXPERIENCE OF DFS AND THE TRANSFEROR(1)
MANAGED MARINE RECEIVABLES PORTFOLIO
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
AT SEPTEMBER 30,
--------------------------------------------------
2001 2000
----------------------- -----------------------
NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ----------
Portfolio.................................... 20,358 $1,143,352 17,534 $1,025,305
Period of Delinquency
30-59 Days................................. 201 10,447 132 5,353
60-89...................................... 70 3,178 34 1,294
90+........................................ 27 1,171 19 700
Total Delinquencies.......................... 298 $ 14,796 185 $ 7,347
Total as % of Portfolio...................... 1.46% 1.29% 1.06% 0.72%
</Table>
<Table>
<Caption>
AT DECEMBER 31,
---------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- ---------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ---------- --------- --------
Portfolio............... 17,868 $1,045,859 18,849 $1,007,533 11,922 $722,254
Period of Delinquency
30-59 Days............ 156 6,564 137 5,918 81 3,208
60-89................. 35 1,767 33 1,153 15 583
90+................... 28 1,108 21 842 15 813
Total Delinquencies..... 219 $ 9,439 191 $ 7,913 111 $ 4,604
Total as % of
Portfolio............. 1.23% 0.90% 1.01% 0.79% 0.93% 0.64%
</Table>
- ------------
(1) All amounts and percentages are based on the gross amount scheduled to be
paid on each contract. The Servicer treats a receivable as delinquent if any
part of a scheduled payment is not received when due.
S-31
DELINQUENCY EXPERIENCE OF DFS AND THE TRANSFEROR(1)
MANAGED RECREATIONAL VEHICLE RECEIVABLES PORTFOLIO
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
AT SEPTEMBER 30,
--------------------------------------------------
2001 2000
----------------------- -----------------------
NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ----------
Portfolio.................................... 54,812 $2,213,969 47,391 $1,851,227
Period of Delinquency
30-59 Days................................. 486 18,021 264 8,842
60-89...................................... 147 5,486 106 4,026
90+........................................ 91 2,870 78 2,685
Total Delinquencies.......................... 724 $ 26,377 448 $ 15,553
Total as % of Portfolio...................... 1.32% 1.19% 0.95% 0.84%
</Table>
<Table>
<Caption>
AT DECEMBER 31,
--------------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ---------- --------- ----------
Portfolio................. 48,583 $1,907,183 51,894 $2,051,645 38,584 $1,468,233
Period of Delinquency
30-59 Days.............. 360 11,958 308 9,926 201 4,827
60-89................... 126 4,925 72 2,861 38 1,411
90+..................... 100 3,614 51 1,695 47 1,907
Total Delinquencies....... 586 $ 20,497 431 $ 14,482 286 $ 8,145
Total as % of Portfolio... 1.21% 1.07% 0.83% 0.71% 0.74% 0.55%
</Table>
- ------------
(1) All amounts and percentages are based on the gross amount scheduled to be
paid on each contract. The Servicer treats a receivable as delinquent if any
part of a scheduled payment is not received when due.
S-32
CREDIT LOSS EXPERIENCE OF DFS AND THE TRANSFEROR(1)
MANAGED RECREATIONAL VEHICLE AND MARINE RECEIVABLES PORTFOLIO
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
9 MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
2001 2000 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Average Amount Outstanding During
the Period..................... $3,150,674 $3,296,680 $3,201,835 $2,645,210 $1,871,934
Average Number of Contracts
Outstanding During the Period.. 70,992 75,957 73,411 61,068 44,127
Net Losses....................... $ 15,583 $ 12,337 $ 18,938 $ 9,031 $ 6,449
Net Losses as a Percent of
Average Amount
Outstanding(2)(3)(4)........... 0.49% 0.37% 0.59% 0.34% 0.34%
</Table>
- ------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract.
(2) The Dealer Agreements provide for recourse to Dealers with respect to
receivables acquired by the Transferor or DFS from Dealers. In the event of
(i) a breach of a warranty by the Dealer in the Dealer Agreement or (ii) a
rescission or attempted rescission by an obligor, the contract is required
to be repurchased by the Dealer for an amount generally equal to all amounts
due and unpaid thereunder. As a result, any losses under such contract are
incurred by the Dealer and are not indicated in the net loss figures set
forth above.
(3) Net losses are equal to the aggregate of the balances of all contracts which
are determined to be uncollectible in the period, less any recoveries on
contracts charged off in the period or any prior periods, including any
losses resulting from disposition expenses and excluding any proceeds of
repurchases by Dealers.
(4) The percentages for 9 months ended September, 2001 and 2000 are not
annualized percentages.
S-33
CREDIT LOSS EXPERIENCE OF DFS AND THE TRANSFEROR(1)
MANAGED MARINE RECEIVABLES PORTFOLIO
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
9 MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------
2001 2000 2000 1999 1998
---------- ---------- ---------- -------- --------
Average Amount Outstanding During
the Period........................ $1,095,795 $1,103,505 $1,086,405 $875,105 $611,389
Average Number of Contracts
Outstanding During the Period..... 19,212 20,701 19,954 15,871 9,872
Net Losses.......................... $ 4,054 $ 2,807 $ 4,334 $ 2,478 $ 1,580
Net Losses as a Percent of Average
Amount Outstanding(2)(3)(4)....... 0.37% 0.25% 0.40% 0.28% 0.26%
</Table>
- ------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract.
(2) The Dealer Agreements provide for recourse to Dealers with respect to
receivables acquired by the Transferor or DFS from Dealers. In the event of
(i) a breach of a warranty by the Dealer in the Dealer Agreement or (ii) a
rescission or attempted rescission by an obligor, the contract is required
to be repurchased by the Dealer for an amount generally equal to all amounts
due and unpaid thereunder. As a result, any losses under such contract are
incurred by the Dealer and are not indicated in the net loss figures set
forth above.
(3) Net losses are equal to the aggregate of the balances of all contracts which
are determined to be uncollectible in the period, less any recoveries on
contracts charged off in the period or any prior periods, including any
losses resulting from disposition expenses and excluding any proceeds of
repurchases by Dealers.
(4) The percentages for 9 months ended September, 2001 and 2000 are not
annualized percentages.
S-34
CREDIT LOSS EXPERIENCE OF DFS AND THE TRANSFEROR(1)
MANAGED RECREATIONAL VEHICLE RECEIVABLES PORTFOLIO
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
9 MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
2001 2000 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Average Amount Outstanding During
the Period..................... $2,054,879 $2,193,175 $2,115,430 $1,770,105 $1,260,545
Average Number of Contracts
Outstanding During the Period.. 51,780 55,256 53,457 45,197 34,255
Net Losses....................... $ 11,529 $ 9,530 $ 14,604 $ 6,553 $ 4,869
Net Losses as a Percent of
Average Amount
Outstanding(2)(3)(4)........... 0.56% 0.43% 0.69% 0.37% 0.39%
</Table>
- ------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract.
(2) The Dealer Agreements provide for recourse to Dealers with respect to
receivables acquired by the Transferor or DFS from Dealers. In the event of
(i) a breach of a warranty by the Dealer in the Dealer Agreement or (ii) a
rescission or attempted rescission by an obligor, the contract is required
to be repurchased by the Dealer for an amount generally equal to all amounts
due and unpaid thereunder. As a result, any losses under such contract are
incurred by the Dealer and are not indicated in the net loss figures set
forth above.
(3) Net losses are equal to the aggregate of the balances of all contracts which
are determined to be uncollectible in the period, less any recoveries on
contracts charged off in the period or any prior periods, including any
losses resulting from disposition expenses and excluding any proceeds of
repurchases by Dealers.
(4) The percentages for 9 months ended September, 2001 and 2000 are not
annualized percentages.
S-35
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Trust was formed for the purposes described under "The Trust" herein.
As of the date of this Prospectus Supplement, the Trust had no operating
history.
CAPITAL RESOURCES AND LIQUIDITY
The Trust's primary sources of capital are expected to be the net proceeds
from the sale of the Notes and amounts deposited in the Reserve Account. The net
proceeds from the sale of the Notes will be distributed to the Depositor.
The Trust's primary sources of liquidity will be payments on the
Receivables and amounts on deposit in the Reserve Account.
RESULTS OF OPERATIONS
The Trust is newly formed and, accordingly, has no results of operations as
of the date of this Prospectus Supplement. The income generated from the
Receivables, the interest costs of the Notes and related operating expenses will
determine the Trust's results of operations in the future. The principal
operating expense of the Trust is expected to be the Servicing Fee.
The ability of the Trust to realize proceeds on the Receivables in amounts
sufficient to pay interest and principal on the Notes will depend, in part, on
the amount of delinquencies and credit losses on the Receivables. For
information on the delinquency and loss experience of DFS and the Transferor
pertaining to receivables secured by new and used boats and recreational
vehicles, including receivables previously sold which DFS continues to service,
refer to "The Receivables Pool--Delinquencies and Net Losses."
Total marine receivables at September 30, 2001 of $1.143 billion reflect
substantially all boat receivables originated or acquired by the Transferor and
DFS since June, 1997 (other than, with respect to receivables sold in Servicing
Released Sale Transactions, for the period of time commencing with the sale
thereof) which remained outstanding at September 30, 2001 (the "Managed Marine
Receivables Portfolio"). Total recreational vehicle receivables at September 30,
2001 of $2.214 billion reflect substantially all recreational vehicle
receivables originated or acquired by the Transferor and DFS since June, 1997
(other than, with respect to receivables sold in Servicing Released Sale
Transactions, for the period of time commencing with the sale thereof) which
remained outstanding at September 30, 2001 (the "Managed Recreational Vehicle
Receivables Portfolio"). The tables included in "The Receivables Pool--
Delinquencies and Net Losses" in this Prospectus Supplement reflect the
delinquency and loss experience with respect to the Managed Marine Receivables
Portfolio and the Managed Recreational Vehicle Receivables Portfolio.
The increased level of delinquencies at September 30, 2001 (1.23% of the
combined portfolio) was in part caused by disruptions in mail service resulting
from the terrorist attacks of September 11, 2001. At October 31, 2001,
delinquencies were 1.02% of the combined portfolio.
Net losses on the receivables in the Managed Marine Receivables Portfolio
were $4.334 million in 2000 or 0.40% of average receivables outstanding in the
Managed Marine Receivables Portfolio during 2000, as compared to $2.478 million
in 1999 or 0.28% of average receivables outstanding in the Managed Marine
Receivables Portfolio during 1999. Net losses on the receivables in the Managed
Marine Receivables Portfolio for the first nine months of 2001 were $4.054
million. As a percent of average receivables outstandings in the Managed Marine
Receivables Portfolio, losses for the first nine months of 2001 in the Managed
Marine Receivables Portfolio were higher than the experience of the first nine
months of the prior
S-36
year. Net losses on the receivables in the Managed Recreational Vehicle
Receivables Portfolio were $14.604 million in 2000 or 0.69% of average
receivables outstanding in the Managed Recreational Vehicle Receivables
Portfolio during 2000, as compared to $6.553 million in 1999 or 0.37% of average
receivables outstanding in the Managed Recreational Vehicle Receivables
Portfolio during 1999. Net losses on the receivables in the Managed Recreational
Vehicle Receivables Portfolio for the first nine months of 2001 were $11.529
million. As a percent of average receivables outstanding in the Managed
Recreational Vehicle Receivables Portfolio, losses for the first nine months of
2001 in the Managed Recreational Vehicle Receivables Portfolio were higher than
the experience of the prior three years.
Delinquency and loss experience may be influenced by a variety of economic,
social and geographic conditions and other factors beyond the control of DFS or
the Transferor. There is no assurance that future delinquency and loss
experience will be similar to that set forth in the tables above.
THE TRANSFEROR
Ganis Credit Corporation ("Ganis" or the "Transferor"), a Delaware
corporation headquartered in Costa Mesa, California, is a wholly-owned
subsidiary of DFS. Ganis was founded in 1980 and provides financing to
recreational vehicle and marine consumers nationwide. In February 1995,
BankBoston, N.A. ("BankBoston") acquired Ganis. Following such acquisition,
Ganis originated loans exclusively for the portfolio of BankBoston. In June
1997, BankBoston sold Ganis to DFS.
UNDERWRITING PROCEDURES AND GUIDELINES
DFS engages in indirect consumer lending through its "recreation end user"
headquarters in Costa Mesa, California and its regional offices in Clearwater,
Florida and Harrisburg, Pennsylvania. Ganis engages in direct consumer lending
through its headquarters and its district offices. "Direct lending" refers to
financing or refinancing provided directly to an Obligor. "Indirect lending"
refers to acquisitions of Receivables from Dealers and from Originators (which
Originators may be Affiliated Originators).
Each dealer who seeks to enter into financing arrangements with DFS is
required to submit an application and provide, among other things, evidence of
licenses by appropriate state agencies, financial information and resumes of key
personnel. DFS investigates the creditworthiness, licensing and general business
reputation of the Dealer prior to entering into a financing arrangement with
such Dealer. The regional offices of DFS maintain relationships with the Dealers
and coordinate the underwriting and settlement process relating to Receivables
originated by such Dealers.
Credit applications are initially reviewed by an underwriter located at the
consumer headquarters or in one of the regional offices of DFS or, if
applicable, located at the headquarters or in one of the district offices of
Ganis. Such review of an application is intended to determine the customer's
overall creditworthiness based upon the customer's willingness and ability to
repay and the adequacy of the underlying collateral. Credit applicants are
required to provide information pertaining to their income, employment history,
financial liabilities, personal status and a description of the asset for which
the loan is requested. In addition, DFS or Ganis, as the case may be, requires
one or more credit reports on each credit applicant from a national reporting
company. Once a loan request passes a preliminary review, the underwriter, where
appropriate, seeks verification of, among other things, income, employment,
outstanding debt and the value of the asset for which the loan is requested.
Loans outside of an underwriter's authority require approval by a more senior
credit underwriting employee.
S-37
DFS or Ganis, as the case may be, has and has had certain minimum
requirements, as described below. DFS or Ganis' management, as the case may be,
does not believe these minimum requirements are themselves generally sufficient
to warrant credit approval of a credit applicant. There were and are no
requirements which allow automatic approval or declination of the applicant
without review by a credit officer. Based on credit risk factors and credit
bureau score, each applicant is either approved, declined or, if necessary,
referred to the appropriate senior credit officer level for review.
DFS or Ganis, as the case may be, typically looks for stability of
employment and residence measured by a minimum of 2 years in the job or industry
and residence, a debt ratio (the ratio of total installment and revolving debt
and housing expenses to gross monthly income) of 42% or less, a down payment of
at least 10% of the purchase price of the asset for which the loan is requested,
and overall favorable credit profile. Approval of retail applicants who do not
meet the above referenced general guidelines is considered on a case-by-case
basis by appropriate senior level credit officers. Approvals granted in such
instances may be based on the applicant's job and residential stability factors,
ability to pay and past payment performance. On an occasional basis, a cosigner
or guarantor may be considered in determining the credit decision being made.
With respect to recreational vehicle Receivables, the maximum amount DFS or
Ganis, as the case may be, will have advanced to an Obligor is (i) in the case
of a new vehicle, up to 110% to the manufacturer's invoice price of the vehicle
securing any such Receivable (on an exception basis and approved at the
appropriate senior credit officer level, a discretionary credit approval may
permit advances up to 120% of manufacturer's invoice price) plus taxes, fees and
insurance, and (ii) in the case of a used vehicle, up to 105% of the wholesale
value of the vehicle securing any such Receivable as reported in the used
recreational vehicle guidebooks of the National Automobile Dealers Association
("NADA") or in the Kelly guidebook (on an exception basis and approved at the
appropriate senior credit officer level, a discretionary credit approval may
permit advances up to 120% of the aforementioned value) plus taxes, fees and
insurance. Funding of the contract is authorized subsequent to verifications of
the stipulations of approval, confirmation of the advance and satisfactory
delivery of the related collateral.
With respect to marine Receivables, the maximum amount DFS or Ganis, as the
case may be, will have advanced to an Obligor is (i) in the case of a new boat,
up to 110% to the manufacturer's invoice price of the boat securing any such
Receivable (on an exception basis and approved at the appropriate senior credit
officer level, a discretionary credit approval may permit advances up to 120% of
manufacturer's invoice price) plus taxes, fees and insurance, and (ii) in the
case of a used boat, up to 105% of the average retail value of the boat as
reported in the used boat guide of the NADA or as reported in the "BUC" guide,
or based on a marine survey or appraisal of the boat (on an exception basis and
approved at the appropriate senior credit officer level, a discretionary credit
approval may permit advances up to 120% of the aforementioned value) plus taxes,
fees and insurance. Funding of the contract is authorized subsequent to
verifications of the stipulations of approval, confirmation of the advance and
satisfactory delivery of the related collateral.
The amount advanced on a Financed Asset may exceed the value of the
Financed Asset at the time the loan is initially made or at any subsequent time,
including at the time of foreclosure or repossession of the Financed Asset. This
may have the effect of increasing the amount of loss in the event that a
Receivable defaults, which could in turn result in delays or reductions in
payments on your Notes.
S-38
THE SERVICER
GENERALLY
Deutsche Financial Services Corporation ("DFS" or the "Servicer") was
incorporated in Nevada in 1969. It is an indirect, wholly-owned subsidiary of
Deutsche Bank AG. DFS was formerly known as ITT Commercial Finance Corp. DFS is
a financial services company which provides inventory financing, retail
financing, accounts receivable financing and asset based financing to dealers,
distributors and manufacturers of consumer and commercial durable goods.
Industries served by DFS include, but are not limited to: computers and computer
products, manufactured housing, recreational vehicles, boats and boat motors,
consumer electronics and appliances, keyboards and other musical instruments,
industrial and agricultural equipment, office automation products, snowmobiles,
and motorcycles. DFS also is in the business of providing equipment loans and
leases, franchisee loans, vendor finance programs and private label retail
finance programs. DFS also provides financing to recreational vehicle and boat
customers nationwide, directly and through Ganis, its wholly-owned subsidiary.
We cannot assure you that DFS will continue to be a wholly-owned subsidiary
of Deutsche Bank AG. We cannot assure you that Ganis will continue to be a
wholly-owned subsidiary of DFS. We cannot assure you that the Depositor will
continue to be a wholly-owned subsidiary of Ganis.
Deutsche Bank AG is exploring opportunities to reduce its equity interest
in DFS. There can be no assurance that any transaction or other opportunity will
occur or be pursued, and there can be no assurance as to what form any
transaction or other opportunity may take or as to the timing of any transaction
or other opportunity.
DFS has offices in several areas of the United States. Its principal
executive offices are located at 655 Maryville Centre Drive, St. Louis, Missouri
63141-5832. The telephone number of such office is (314) 523-3000.
SERVICING OPERATIONS; COLLECTION ACTIVITIES
The Servicer's servicing operations are conducted from its servicing
centers in Costa Mesa, California and Bannockburn, Illinois.
The Servicer generally commences collections activities by phone or written
correspondence with respect to delinquent contracts when payment is more than 10
days past due. At 45 days past due, collection personnel issue notices of intent
to repossess unless a secured payment promise is obtained. The Servicer
continues to work the account until the account is 65 days past due, at which
time the repossession process is initiated for those accounts which remain
delinquent. The collateral is generally disposed of 75 to 90 days following
repossession. In the case of recreational vehicles, the Servicer's benchmark for
recovery values is 85% of the average retail value of the vehicle as reported in
the Kelly guidebook or in the used vehicle guidebooks of the National Automobile
Dealers Association ("NADA") on a gross basis, with expenses ranging up to 5%
depending on the type of collateral. In the case of boats, the Servicer's
benchmark for recovery values is 85% of the average retail value as reported in
the NADA used boat guide or as reported in the "BUC" guide for the collateral on
a gross basis, with expenses ranging up to 5% depending on the type of
collateral. Delinquent contracts, including those due to bankruptcies, are
generally charged-off by the Servicer at 120 days delinquent. For a discussion
of collection procedures with respect to the Receivables, see "Description of
the Transfer and Servicing Agreements--Servicing Procedures" in the Prospectus.
S-39
WEIGHTED AVERAGE LIFE OF THE NOTES
Information regarding certain maturity and prepayment considerations with
respect to the Notes is set forth under "Weighted Average Life of the
Securities" in the Prospectus. If the Notes are accelerated upon the occurrence
and during the continuation of an Event of Default under the Indenture:
- principal payments will be made on the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes and the Class A-5 Notes
ratably until the Outstanding Amount of all of the classes of the Class
A Notes have been paid in full;
- no principal payments will be made on the Class B Notes until the
Outstanding Amounts of the Class A Notes have been paid in full;
- no principal payments will be made on the Class C Notes until the
Outstanding Amount of the Class A Notes and the Outstanding Amount of
the Class B Notes have been paid in full; and
- no principal payments will be made on the Class D Notes until the
Outstanding Amount of the Class A Notes, the Outstanding Amount of the
Class B Notes and the Outstanding Amount of the Class C Notes have been
paid in full.
See "Description of the Notes--Payments of Principal" in this Prospectus
Supplement. As the rate of payment of principal of each class of Notes depends
primarily on the rate of payment (including prepayments) of the principal
balance of the Receivables, the final payment of any class of the Notes could
occur significantly earlier than its Stated Maturity Date. Noteholders will bear
the risk of being able to reinvest principal payments on the Notes at yields at
least equal to the yields on their respective Notes. The final payment on any
class of Notes could also occur later than its Stated Maturity Date.
As of the Cutoff Date, a portion of the Receivables are at least one
scheduled monthly payment paid-ahead. There can be no assurance as to the number
of Receivables which may become Paid-Ahead Receivables, the number or the
principal amount of the scheduled payments which may be paid-ahead or what
effect the Paid-Ahead Receivables may have on the Weighted Average Life of the
Notes. See "The Receivables Pools--Paid-Ahead Receivables" and "Weighted Average
Life of the Securities" in the attached Prospectus.
Prepayments on recreational vehicle and marine receivables can be measured
relative to a prepayment standard or model. The model used in this prospectus
supplement assumes that the outstanding principal balance of a pool of loans
prepays at a specified constant annual rate ("CPR"). In generating monthly cash
flows, this rate is converted to an equivalent constant monthly rate. To assume
the series of CPR percentages assumed herein or any other CPR percentage is to
assume that the stated percentage of the outstanding principal balance of the
pool is prepaid over the course of a year. CPR does not purport to be an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of receivables, including the
receivables to be transferred to the trust.
S-40
The following tables were prepared on the basis of the assumptions that (i)
scheduled interest and principal payments on the Receivables are received on the
applicable due dates, there are no delinquencies or losses on the Receivables
and prepayments in full are received at the applicable percentages of CPR set
forth in each table, (ii) each scheduled payment includes thirty days of accrued
interest, (iii) there are no prepayment interest shortfalls, (iv) there are no
substitutions or repurchases of Receivables, (v) there is no optional redemption
of the Notes (except with respect to the weighted average life with optional
redemption set forth below in each table), (vi) there are no investment earnings
on amounts in the Reserve Account, (vii) payments are made on the Notes on the
15th day of each month, commencing December 15, 2001, (viii) the Notes are
issued on November 27, 2001 and (ix) there are 5 groups of Receivables having
the following weighted average characteristics:
<Table>
<Caption>
OUTSTANDING GROSS NET AGE MONTHS TO
BALANCE COUPON COUPON (MONTHS) MATURITY
- ------------ ------- ------ -------- ---------
$ 5,359,003 10.672% 9.922% 16 39
$ 19,276,516 10.209% 9.459% 15 78
$ 90,357,013 9.776% 9.026% 13 122
$193,890,419 9.221% 8.471% 14 164
$220,584,275 8.553% 7.803% 15 224
</Table>
Such assumptions are made solely for the purpose of the tables set forth
below. The actual characteristics and performance of the Receivables will differ
from such assumptions. In particular, it can be expected that there will be
delinquencies in payment and losses with respect to the Receivables, and it is
highly unlikely that prepayments of the Receivables will be received at the
constant rates indicated in the following tables, or at any constant rate. The
following tables are hypothetical in nature and are provided only to give a
general sense of how the principal cash flows might behave under varying
prepayment scenarios.
Subject to the foregoing assumptions and qualifications, the following
tables indicate the weighted average lives of the Notes and set forth the
percentage of the initial aggregate principal amount of each Class of Notes that
would be outstanding after each of the Monthly Payment Dates shown at various
percentages of CPR.
The weighted average life of a Class of Notes is determined by (i)
multiplying the net reduction, if any, of the applicable initial principal
amount by the number of years from the date of issuance of the Notes to the
related Monthly Payment Date, (ii) adding the results and (iii) dividing the sum
by the aggregate of the net reductions of initial principal amount described in
(i) above.
S-41
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS A-1
--------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ --- --- --- --- --- ---
Initial Percentage................................ 100 100 100 100 100 100
November 2002..................................... 68 55 41 33 28 14
November 2003..................................... 44 20 0 0 0 0
November 2004..................................... 21 0 0 0 0 0
November 2005..................................... 0 0 0 0 0 0
November 2006..................................... 0 0 0 0 0 0
November 2007..................................... 0 0 0 0 0 0
November 2008..................................... 0 0 0 0 0 0
November 2009..................................... 0 0 0 0 0 0
November 2010..................................... 0 0 0 0 0 0
November 2011..................................... 0 0 0 0 0 0
November 2012..................................... 0 0 0 0 0 0
November 2013..................................... 0 0 0 0 0 0
November 2014..................................... 0 0 0 0 0 0
November 2015..................................... 0 0 0 0 0 0
November 2016..................................... 0 0 0 0 0 0
November 2017..................................... 0 0 0 0 0 0
November 2018..................................... 0 0 0 0 0 0
November 2019..................................... 0 0 0 0 0 0
November 2020..................................... 0 0 0 0 0 0
Weighted Average Life (Years) (Without Optional
Redemption)..................................... 1.8 1.2 0.9 0.8 0.7 0.6
Weighted Average Life (Years) (With Optional
Redemption)..................................... 1.8 1.2 0.9 0.8 0.7 0.6
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
S-42
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS A-2
--------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ --- --- --- --- --- ---
Initial Percentage................................ 100 100 100 100 100 100
November 2002..................................... 100 100 100 100 100 100
November 2003..................................... 100 100 93 48 19 0
November 2004..................................... 100 64 0 0 0 0
November 2005..................................... 95 0 0 0 0 0
November 2006..................................... 30 0 0 0 0 0
November 2007..................................... 0 0 0 0 0 0
November 2008..................................... 0 0 0 0 0 0
November 2009..................................... 0 0 0 0 0 0
November 2010..................................... 0 0 0 0 0 0
November 2011..................................... 0 0 0 0 0 0
November 2012..................................... 0 0 0 0 0 0
November 2013..................................... 0 0 0 0 0 0
November 2014..................................... 0 0 0 0 0 0
November 2015..................................... 0 0 0 0 0 0
November 2016..................................... 0 0 0 0 0 0
November 2017..................................... 0 0 0 0 0 0
November 2018..................................... 0 0 0 0 0 0
November 2019..................................... 0 0 0 0 0 0
November 2020..................................... 0 0 0 0 0 0
Weighted Average Life (Years) (Without Optional
Redemption)..................................... 4.7 3.1 2.3 2.0 1.8 1.5
Weighted Average Life (Years) (With Optional
Redemption)..................................... 4.7 3.1 2.3 2.0 1.8 1.5
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
S-43
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS A-3
--------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ --- --- --- --- --- ---
Initial Percentage.............................. 100 100 100 100 100 100
November 2002................................... 100 100 100 100 100 100
November 2003................................... 100 100 100 100 100 70
November 2004................................... 100 100 80 48 28 0
November 2005................................... 100 81 17 0 0 0
November 2006................................... 100 38 0 0 0 0
November 2007................................... 80 0 0 0 0 0
November 2008................................... 44 0 0 0 0 0
November 2009................................... 10 0 0 0 0 0
November 2010................................... 0 0 0 0 0 0
November 2011................................... 0 0 0 0 0 0
November 2012................................... 0 0 0 0 0 0
November 2013................................... 0 0 0 0 0 0
November 2014................................... 0 0 0 0 0 0
November 2015................................... 0 0 0 0 0 0
November 2016................................... 0 0 0 0 0 0
November 2017................................... 0 0 0 0 0 0
November 2018................................... 0 0 0 0 0 0
November 2019................................... 0 0 0 0 0 0
November 2020................................... 0 0 0 0 0 0
Weighted Average Life (Years) (Without Optional
Redemption)................................... 6.9 4.8 3.5 3.0 2.7 2.2
Weighted Average Life (Years) (With Optional
Redemption)................................... 6.9 4.8 3.5 3.0 2.7 2.2
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
S-44
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS A-4
---------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ ---- --- --- --- --- ---
Initial Percentage............................. 100 100 100 100 100 100
November 2002.................................. 100 100 100 100 100 100
November 2003.................................. 100 100 100 100 100 100
November 2004.................................. 100 100 100 100 100 83
November 2005.................................. 100 100 100 84 65 23
November 2006.................................. 100 100 76 47 29 0
November 2007.................................. 100 100 43 16 1 0
November 2008.................................. 100 68 16 0 0 0
November 2009.................................. 100 41 0 0 0 0
November 2010.................................. 79 16 0 0 0 0
November 2011.................................. 48 0 0 0 0 0
November 2012.................................. 25 0 0 0 0 0
November 2013.................................. 3 0 0 0 0 0
November 2014.................................. 0 0 0 0 0 0
November 2015.................................. 0 0 0 0 0 0
November 2016.................................. 0 0 0 0 0 0
November 2017.................................. 0 0 0 0 0 0
November 2018.................................. 0 0 0 0 0 0
November 2019.................................. 0 0 0 0 0 0
November 2020.................................. 0 0 0 0 0 0
Weighted Average Life (Years) (Without Optional
Redemption).................................. 10.1 7.7 5.9 5.0 4.5 3.6
Weighted Average Life (Years) (With Optional
Redemption).................................. 10.1 7.7 5.9 5.0 4.5 3.6
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
S-45
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS A-5
-----------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ ---- ---- ---- --- --- ---
Initial Percentage............................ 100 100 100 100 100 100
November 2002................................. 100 100 100 100 100 100
November 2003................................. 100 100 100 100 100 100
November 2004................................. 100 100 100 100 100 100
November 2005................................. 100 100 100 100 100 100
November 2006................................. 100 100 100 100 100 91
November 2007................................. 100 100 100 100 100 63
November 2008................................. 100 100 100 91 74 43
November 2009................................. 100 100 93 67 53 29
November 2010................................. 100 100 69 48 37 19
November 2011................................. 100 92 50 33 25 12
November 2012................................. 100 71 36 23 17 8
November 2013................................. 100 53 25 16 11 5
November 2014................................. 76 37 17 10 7 3
November 2015................................. 54 24 10 6 4 2
November 2016................................. 42 18 7 4 3 1
November 2017................................. 30 12 5 3 2 1
November 2018................................. 19 7 3 1 1 0
November 2019................................. 7 3 1 0 0 0
November 2020................................. 0 0 0 0 0 0
Weighted Average Life (Years) (Without
Optional Redemption)........................ 14.8 12.7 10.7 9.5 8.8 7.3
Weighted Average Life (Years) (With Optional
Redemption)................................. 13.2 11.1 9.1 8.1 7.4 6.1
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
S-46
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS B
-----------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ ---- ---- ---- --- --- ---
Initial Percentage............................ 100 100 100 100 100 100
November 2002................................. 100 100 100 100 100 100
November 2003................................. 100 100 100 100 100 100
November 2004................................. 100 100 100 100 100 100
November 2005................................. 100 100 100 100 100 100
November 2006................................. 89 84 79 76 75 70
November 2007................................. 77 70 62 58 55 48
November 2008................................. 67 57 48 43 40 33
November 2009................................. 57 46 37 32 29 22
November 2010................................. 48 36 27 23 20 15
November 2011................................. 38 28 20 16 14 9
November 2012................................. 31 21 14 11 9 6
November 2013................................. 24 16 10 8 6 4
November 2014................................. 18 11 7 5 4 2
November 2015................................. 13 7 4 3 2 1
November 2016................................. 10 5 3 2 1 1
November 2017................................. 7 4 2 1 1 0
November 2018................................. 4 2 1 1 0 0
November 2019................................. 2 1 0 0 0 0
November 2020................................. 0 0 0 0 0 0
Weighted Average Life (Years) (Without
Optional Redemption)........................ 9.3 8.4 7.6 7.3 7.1 6.6
Weighted Average Life (Years) (With Optional
Redemption)................................. 9.0 7.9 7.0 6.6 6.3 5.7
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
S-47
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS C
--------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ --- --- --- --- --- ---
Initial Percentage.............................. 100 100 100 100 100 100
November 2002................................... 100 100 100 100 100 100
November 2003................................... 100 100 100 100 100 100
November 2004................................... 100 100 100 100 100 100
November 2005................................... 100 100 100 100 100 100
November 2006................................... 89 84 79 76 75 70
November 2007................................... 77 70 62 58 55 48
November 2008................................... 67 57 48 43 40 33
November 2009................................... 57 46 37 32 29 22
November 2010................................... 48 36 27 23 20 15
November 2011................................... 38 28 20 16 14 9
November 2012................................... 31 21 14 11 9 6
November 2013................................... 24 16 10 8 6 4
November 2014................................... 18 11 7 5 4 2
November 2015................................... 13 7 4 3 2 1
November 2016................................... 10 5 3 2 1 1
November 2017................................... 7 4 2 1 1 0
November 2018................................... 4 2 1 1 0 0
November 2019................................... 2 1 0 0 0 0
November 2020................................... 0 0 0 0 0 0
Weighted Average Life (Years) (Without Optional
Redemption)................................... 9.3 8.4 7.6 7.3 7.1 6.6
Weighted Average Life (Years) (With Optional
Redemption)................................... 9.0 7.9 7.0 6.6 6.3 5.7
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
S-48
PERCENTAGE OF INITIAL AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR(1)
<Table>
<Caption>
CLASS D
--------------------------------------
PAYMENT DATE 5% 10% 15% 18% 20% 25%
- ------------ --- --- --- --- --- ---
Initial Percentage.............................. 100 100 100 100 100 100
November 2002................................... 100 100 100 100 100 100
November 2003................................... 100 100 100 100 100 100
November 2004................................... 100 100 100 100 100 100
November 2005................................... 100 100 100 100 100 100
November 2006................................... 89 84 79 76 75 70
November 2007................................... 77 70 62 58 55 48
November 2008................................... 67 57 48 43 40 33
November 2009................................... 57 46 37 32 29 22
November 2010................................... 48 36 27 23 20 15
November 2011................................... 38 28 20 16 14 9
November 2012................................... 31 21 14 11 9 6
November 2013................................... 24 16 10 8 6 4
November 2014................................... 18 11 7 5 4 2
November 2015................................... 13 7 4 3 2 1
November 2016................................... 10 5 3 2 1 1
November 2017................................... 7 4 2 1 1 0
November 2018................................... 4 2 1 1 0 0
November 2019................................... 2 1 0 0 0 0
November 2020................................... 0 0 0 0 0 0
Weighted Average Life (Years) Without Optional
Redemption.................................... 9.3 8.4 7.6 7.3 7.1 6.6
Weighted Average Life (Years) (With Optional
Redemption)................................... 9.0 7.9 7.0 6.6 6.3 5.7
</Table>
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the Notes.
The following summary describes certain terms of the Notes and the Indenture.
The summary does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Notes and the
Indenture. The following summary supplements, and to the extent inconsistent
therewith, replaces the description of the general terms and provisions of the
Notes of any given series and the related Indenture set forth in the Prospectus,
to which description reference is hereby made. HSBC Bank USA, a New York banking
corporation, will be the Indenture Trustee under the Indenture.
PAYMENTS OF INTEREST
The Notes will constitute Fixed Rate Securities, as such term is defined
under "Certain Information Regarding the Securities--Fixed Rate Securities" in
the Prospectus. Interest on the principal amounts of the Notes will accrue at
the respective per annum interest rates for the various classes of Notes set
forth on the cover of this Prospectus Supplement and will be payable to the
Noteholders on each Monthly Payment Date commencing on the date set forth
S-49
under "Summary of Terms--First Monthly Payment Date" herein. The Trust will make
payments to the Noteholders which were Noteholders as of the preceding Record
Date.
Calculation of Interest. Interest will accrue during each Interest Accrual
Period and will be calculated on the various classes of Notes as follows:
- 30/360. Interest on the Notes will be calculated on the basis of a
360-day year of twelve 30-day months.
- Unpaid Interest Accrues. Interest accrued as of any Monthly Payment
Date, but not paid on such Monthly Payment Date, will be due on the next
Monthly Payment Date, together with interest on such amount at the
applicable interest rate (to the extent lawful).
The Trust Will Pay Interest Pro Rata to Class A Noteholders if it Does Not
Have Enough Funds Available to Pay All Interest Due. The amount available for
interest payments on the Class A Notes could be less than the amount of interest
payable on the Class A Notes on any Monthly Payment Date. In that event, the
Class A-1 Noteholders, the Class A-2 Noteholders, the Class A-3 Noteholders, the
Class A-4 Noteholders and the Class A-5 Noteholders will receive their ratable
share of the aggregate amount available to be distributed in respect of interest
on the Class A Notes. The ratable share of each such class of the amount
available to pay interest will be based on the amount of interest due on such
class relative to the total amount of interest due to the Class A Noteholders.
Interest Paid on the Class B Notes, the Class C Notes and the Class D Notes
is Subordinate to Interest Paid on the Class A Notes. Interest on the Class B
Notes will not be paid on any Monthly Payment Date until interest payments on
the Class A Notes have been paid in full and the First Priority Principal
Distribution Amount, if any, has been allocated. If the amount available for
interest payments on the Class B Notes is less than the amount of interest
payable on the Class B Notes on any Monthly Payment Date, each Class B
Noteholder will receive its ratable share (based upon the total amount of
interest due to the Class B Noteholders) of the aggregate amount available to be
distributed in respect of interest on the Class B Notes. Interest on the Class C
Notes will not be paid on any Monthly Payment Date until interest payments on
the Class A Notes have been paid in full, the First Priority Principal
Distribution Amount, if any, has been allocated, interest payments on the Class
B Notes have been paid in full and the Second Priority Principal Distribution
Amount, if any, has been allocated. If the amount available for interest
payments on the Class C Notes is less than the amount of interest payable on the
Class C Notes on any Monthly Payment Date, each Class C Noteholder will receive
its ratable share (based upon the total amount of interest due to the Class C
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Class C Notes. Interest on the Class D Notes will not be paid on
any Monthly Payment Date until interest payments on the Class A Notes have been
paid in full, the First Priority Principal Distribution Amount, if any, has been
allocated, interest payments on the Class B Notes have been paid in full, the
Second Priority Principal Distribution Amount, if any, has been allocated,
interest payments on the Class C Notes have been paid in full and the Third
Priority Principal Distribution Amount, if any, has been allocated. If the
amount available for interest payments on the Class D Notes is less than the
amount of interest payable on the Class D Notes on any Monthly Payment Date,
each Class D Noteholder will receive its ratable share (based upon the total
amount of interest due to the Class D Noteholders) of the aggregate amount
available to be distributed in respect of interest on the Class D Notes. See
"Description of the Transfer and Servicing Agreements--Distributions" in this
Prospectus Supplement.
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Event of Default Regarding the Payment of Interest. An Event of Default
under the Indenture will occur if the full amount of interest due on the
Controlling Class of Notes is not paid within five days of the related Monthly
Payment Date. The failure to pay interest on any other Class of Notes within
five days of the related Monthly Payment Date will not be an Event of Default.
See "The Indenture--Events of Default; Rights Upon Event of Default" in this
Prospectus Supplement.
PAYMENTS OF PRINCIPAL
The Trust will generally make principal payments to the Noteholders on each
Monthly Payment Date in an amount equal to the Principal Distribution Amount.
The "Principal Distribution Amount" with respect to any Monthly Payment Date
equals the sum of:
- the First Priority Principal Distribution Amount;
- the Second Priority Principal Distribution Amount;
- the Third Priority Principal Distribution Amount;
- the Regular Principal Distribution Amount; and
- the Parity Principal Distribution Amount.
See "Description of the Transfer and Servicing Agreements--Distributions"
in this Prospectus Supplement.
Priority of Principal Repayments. Principal payments on the Notes will
generally be made sequentially on each Monthly Payment Date from amounts on
deposit in the Principal Distribution Account, in the following order of
priority:
1. Prior to the Crossover Date, or if a Trigger Event is in effect,
sequentially to the Notes commencing with the Class A-1 Notes until the
Outstanding Amount of each class of Notes is reduced to zero.
2. On and after the Crossover Date so long as a Trigger Event is not in
effect:
- to the Class A Notes, the amount required to reduce the Outstanding
Amount thereof to an amount equal to the product of (1) (a) the
Outstanding Amount of the Class A Notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Monthly Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the Pool Balance as of
the last day of the second Collection Period preceding the Crossover
Date (or if a Trigger Event is in effect on the Crossover Date, the
first Monthly Payment Date after the Crossover Date that a Trigger Event
is not in effect) and (2) the Pool Balance as of the last day of the
preceding Collection Period, in the following order of priority:
- first to the Class A-1 Notes on account of principal until the
Outstanding Amount of the Class A-1 Notes is reduced to zero;
- second to the Class A-2 Notes on account of principal until the
Outstanding Amount of the Class A-2 Notes is reduced to zero;
- third to the Class A-3 Notes on account of principal until the
Outstanding Amount of the Class A-3 Notes is reduced to zero;
- fourth to the Class A-4 Notes on account of principal until the
Outstanding Amount of the Class A-4 Notes is reduced to zero; and
- fifth to the Class A-5 Notes on account of principal until the
Outstanding Amount of the Class A-5 Notes is reduced to zero;
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- to the Class B Notes, the amount required to reduce the Outstanding
Amount thereof to an amount equal to the product of (1) (a) the
Outstanding Amount of the Class B Notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Monthly Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the Pool Balance as of
the last day of the second Collection Period preceding the Crossover
Date (or if a Trigger Event is in effect on the Crossover Date, the
first Monthly Payment Date after the Crossover Date that a Trigger Event
is not in effect) and (2) the Pool Balance as of the last day of the
preceding Collection Period;
- to the Class C Notes, the amount required to reduce the Outstanding
Amount thereof to an amount equal to the product of (1) (a) the
Outstanding Amount of the Class C Notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Monthly Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the Pool Balance as of
the last day of the second Collection Period preceding the Crossover
Date (or if a Trigger Event is in effect on the Crossover Date, the
first Monthly Payment Date after the Crossover Date that a Trigger Event
is not in effect) and (2) the Pool Balance as of the last day of the
preceding Collection Period;
- to the Class D Notes, the amount required to reduce the Outstanding
Amount thereof to an amount equal to the product of (1) (a) the
Outstanding Amount of the Class D Notes immediately preceding the
Crossover Date (or if a Trigger Event is in effect on the Crossover
Date, on the first Monthly Payment Date after the Crossover Date that a
Trigger Event is not in effect) divided by (b) the Pool Balance as of
the last day of the second Collection Period preceding the Crossover
Date (or if a Trigger Event is in effect on the Crossover Date, the
first Monthly Payment Date after the Crossover Date that a Trigger Event
is not in effect) and (2) the Pool Balance as of the last day of the
preceding Collection Period; and
- any remaining amounts to the Residual Interestholder.
RECORD DATE
Payments of principal and interest on any Note on a Monthly Payment Date
will be made to the holder in whose name such Note is registered as of the close
of business on the applicable Record Date. The registered holder of any class of
Notes will be referred to herein as a "Holder" or a "Noteholder."
Notwithstanding any reference herein to the Holders or Noteholders of a
particular class of Notes, it is anticipated that the only registered holder of
each class of Notes will be Cede as nominee for DTC. See "Risk Factors--Risk of
Book-Entry Registration" in the Prospectus.
The "Record Date" with respect to any Monthly Payment Date will be the
close of business on the day immediately preceding such Monthly Payment Date or,
if Definitive Notes have been issued pursuant to the Indenture, the last day of
the Collection Period immediately preceding such Monthly Payment Date.
PRIORITY OF PAYMENTS FOLLOWING AN EVENT OF DEFAULT UNDER THE INDENTURE
Following the occurrence and during the continuation of an Event of Default
which has resulted in the acceleration of the Notes, the priority of payment on
the Notes changes. In
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particular, payments on the Notes on each Monthly Payment Date following such
acceleration of the Notes will be made in the following order of priority:
- interest on the Class A Notes, ratably;
- to the Outstanding Amount of the Class A-1 Notes, Class A-2 Notes, Class
A-3 Notes, Class A-4 Notes and Class A-5 Notes, ratably, until such
Outstanding Amount is paid in full;
- interest on the Class B Notes;
- to the Outstanding Amount of the Class B Notes until such Outstanding
Amount is paid in full;
- interest on the Class C Notes;
- to the Outstanding Amount of the Class C Notes until such Outstanding
Amount is paid in full;
- interest on the Class D Notes; and
- to the Outstanding Amount of the Class D Notes until such Outstanding
Amount is paid in full.
Following the occurrence of any Event of Default which has not resulted in
an acceleration of the Notes, the Trust will continue to pay interest and
principal on the Notes on each Monthly Payment Date in the manner set forth in
"Description of the Transfer and Servicing Agreements--Distributions" in this
Prospectus Supplement.
The occurrence of an Event of Default will not result in the acceleration
of the Notes unless there is a declaration by the Indenture Trustee, or by
Noteholders of a certain amount of the Controlling Class of Notes (as described
below), that all of the Notes are immediately due and payable. If an Event of
Default, other than a Payment Default, should occur and be continuing, then the
Indenture Trustee or Noteholders of the Controlling Class of Notes representing
not less than a majority of the Outstanding Amount of all of the Controlling
Class of Notes may declare all of the Notes to be immediately due and payable.
If an Event of Default which is a Payment Default should occur and be
continuing, then the Indenture Trustee or the Noteholders of the Controlling
Class of Notes representing not less than a majority of the Highest Priority
Notes may declare all of the Notes to be due and payable.
Upon such a declaration as described above, the unpaid principal of all of
the Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable.
See "The Indenture--Events of Default; Rights Upon Event of Default" in the
Prospectus.
OPTIONAL REDEMPTION
The Notes are subject to redemption in whole, but not in part, on any
Monthly Payment Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer will have the option to purchase all, but not less
than all, of the Receivables on any Monthly Payment Date occurring at any time
after the last day of a Collection Period as of which the Pool Balance has
declined to less than 10% of the Initial Pool Balance. The price at which the
Servicer will be required to purchase the Receivables in order to exercise such
option generally will be equal to the aggregate of the Purchase Amounts of the
Receivables as of the end of the related Collection Period. The Servicer will be
required to give not less than 50 days' notice to the Indenture Trustee of its
intention to exercise such option. The Servicer will not be permitted to
exercise such option unless the resulting distribution would be sufficient to
retire the Notes at a redemption price equal to the Outstanding Amount of the
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Notes plus accrued and unpaid interest thereon. See also "Description of the
Transfer and Servicing Agreements--Termination" in the Prospectus.
Appointment of Additional Indenture Trustees. Under the Trust Indenture
Act of 1939, the indenture trustee may be deemed to have a conflict of interest
and be required to resign as trustee for either the Class A notes, the Class B
notes, the Class C notes or the Class D notes if an Event of Default occurs
under the indenture. In these circumstances, the indenture will provide for a
successor trustee to be appointed for one or all of the Class A notes, the Class
B notes, the Class C notes and the Class D notes in order that there be separate
trustees for each of the Class A notes, the Class B notes, the Class C notes and
the Class D notes. In general, so long as any amounts remain unpaid with respect
to the Class A notes:
- only the indenture trustee for the Class A Noteholders will have the
right to exercise remedies under the indenture; and
- only the Class A Noteholders will have the right to direct or consent to
any action to be taken, including sale of the receivables.
In any case, the Class B Noteholders will be entitled to their respective shares
of any proceeds of enforcement, subject to the subordination of the Class B
Notes to the Class A Notes as described in this prospectus supplement. When the
Class A Notes are repaid in full, all rights to exercise remedies under the
indenture will transfer to the trustee for the Class B Notes. The Class C
Noteholders will be entitled to their respective shares of any proceeds of
enforcement, subject to the subordination of the Class C Notes to the Class A
Notes and the Class B Notes as described in this prospectus supplement. When the
Class A Notes and the Class B Notes are repaid in full, all rights to exercise
remedies under the indenture will transfer to the trustee for the Class C Notes.
The Class D Noteholders will be entitled to their respective shares of any
proceeds of enforcement, subject to the subordination of the Class D Notes to
the Class A Notes, the Class B Notes and the Class C Notes as described in this
prospectus supplement. When the Class A Notes, the Class B Notes and the Class C
Notes are repaid in full, all rights to exercise remedies under the indenture
will transfer to the trustee for the Class D notes.
If the indenture trustee relating to any class of notes resigns, its
resignation will become effective only after a successor indenture trustee for
that class of notes is appointed and the successor accepts the appointment.
DESCRIPTION OF THE RESIDUAL INTEREST
The Trust will not issue any class of Certificates. The undivided
beneficial ownership interest in the Trust (the "Residual Interest") will be
retained by the Depositor (in its capacity as the holder of the Residual
Interest, the "Residual Interestholder") pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Notes. The description of the Residual Interest in
this Prospectus Supplement does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the Trust
Agreement. The description of the Residual Interest in this Prospectus
Supplement supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Certificates and the
related Trust Agreement set forth in the Prospectus, to which description
reference is hereby made.
The Residual Interestholder generally will have the rights of the
Certificateholders as set forth in the Prospectus, except that the Residual
Interest will not be certificated, will not have a principal balance and will
not bear interest. For a description of distributions to the Residual Interest
on any Monthly Payment Date, see "Description of the Transfer and Servicing
Agreements--Distributions" herein.
The Residual Interest is not being offered hereby.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Transfer and Servicing
Agreement and the Trust Agreement pertaining to the Trust (collectively, the
"Transfer and Servicing Agreements"). Forms of the Transfer and Servicing
Agreements have been filed as exhibits to the Registration Statement. Copies of
the Transfer and Servicing Agreements will be filed with the Commission
following the issuance of the Notes. The summary does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all the
provisions of the Transfer and Servicing Agreements. The following summary
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Transfer and Servicing Agreements set
forth in the Prospectus, to which description reference is hereby made.
TRANSFER OF RECEIVABLES
Certain information regarding the transfer of the Receivables by DFS to the
Transferor, by the Transferor to the Depositor and by the Depositor to the Trust
is set forth in the Prospectus under "Description of the Transfer and Servicing
Agreements--Transfer of Receivables."
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The "Servicing Fee" for each Monthly Payment Date will equal the product of
(a) one-twelfth, (b) 0.75% and (c) the Pool Balance as of the first day of the
preceding Collection Period. The Servicer will also be entitled to keep all late
fees, prepayment charges and other administrative fees or similar charges
provided for under the Receivables or allowed by applicable law, in each case to
the extent not prohibited by applicable law, collected (from whatever source) on
the Receivables, plus amounts distributed from the Reserve Account to the
Servicer as described under "--Reserve Account" in this Prospectus Supplement.
See also "Description of the Transfer and Servicing Agreements--Servicing
Compensation and Payment of Expenses" in the Prospectus.
DISTRIBUTIONS
Deposits to the Collection Account. On or before each Monthly Payment
Date, the Servicer will cause the Total Distribution Amount to be deposited into
the Collection Account. On or before each Monthly Payment Date, the Servicer
will instruct the Indenture Trustee to make a withdrawal from the Reserve
Account and deposit into the Collection Account an amount equal to the lesser
of:
- the amount, if any, by which (a) the Total Required Payment exceeds (b)
the Total Distribution Amount for such Monthly Payment Date; and
- the amount of cash or other immediately available funds in the Reserve
Account on such Monthly Payment Date.
On each Determination Date, the Servicer will determine the amount in the
Collection Account for distribution on the related Monthly Payment Date and will
notify the Indenture Trustee in writing. Payments to Noteholders will be made on
each Monthly Payment Date in accordance with that determination.
Priority of Payments. On the Business Day preceding each Monthly Payment
Date, except as set forth above under "Description of the Notes--Priority of
Payments Following an Event of Default under the Indenture," the Servicer will
instruct the Indenture Trustee to make the following deposits and distributions,
from amounts on deposit in the Collection Account
S-55
on such Monthly Payment Date (including funds, if any, deposited into the
Collection Account from the Reserve Account) in the following order of priority:
(1) to the Servicer, the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods;
(2) to the Class A Noteholders:
(a) the aggregate amount of interest accrued for the related
Interest Accrual Period on the Class A Notes at their respective
interest rates on the Outstanding Amount of the Class A Notes as of the
previous Monthly Payment Date after giving effect to all payments of
principal to the Class A Noteholders on such previous Monthly Payment
Date; and
(b) the excess, if any, of the amount of interest payable to the
Class A Noteholders on prior Monthly Payment Dates over the amounts
actually paid to the Class A Noteholders in respect of interest on the
Class A Notes on those prior Monthly Payment Dates, plus interest on any
such shortfall to the extent permitted by law;
(3) to the Principal Distribution Account, the First Priority
Principal Distribution Amount, if any;
(4) to the Class B Noteholders:
(a) the aggregate amount of interest accrued for the related
Interest Accrual Period on the Class B Notes at the interest rate on
such Notes on the Outstanding Amount of the Class B Notes as of the
previous Monthly Payment Date after giving effect to all payments of
principal to the Class B Noteholders on such previous Monthly Payment
Date; and
(b) the excess, if any, of the amount of interest payable to the
Class B Noteholders on prior Monthly Payment Dates over the amounts
actually paid to the Class B Noteholders in respect of interest on the
Class B Notes on those prior Monthly Payment Dates, plus interest on any
such shortfall to the extent permitted by law;
(5) to the Principal Distribution Account, the Second Priority
Principal Distribution Amount, if any;
(6) to the Class C Noteholders:
(a) the aggregate amount of interest accrued for the related
Interest Period on the Class C Notes at the interest rate on such Notes
on the Outstanding Amount of the Class C Notes as of the previous
Monthly Payment Date after giving effect to all payments of principal to
the Class C Noteholders on the preceding Monthly Payment Date; and
(b) the excess, if any, of the amount of interest payable to the
Class C Noteholders on prior Monthly Payment Dates over the amounts
actually paid to the Class C Noteholders in respect of interest on the
Class C Notes on those prior Monthly Payment Dates, plus interest on any
such shortfall to the extent permitted by law;
(7) to the Principal Distribution Account, the Third Priority
Principal Distribution Amount, if any;
S-56
(8) to the Class D Noteholders:
(a) the aggregate amount of interest accrued for the related
Interest Accrual Period on the Class D Notes at the interest rate on
such Notes on the Outstanding Amount of the Class D Notes as of the
previous Monthly Payment Date after giving effect to all payments of
principal to the Class D Noteholders on the preceding Monthly Payment
Date; and
(b) the excess, if any, of the amount of interest payable to the
Class D Noteholders on prior Monthly Payment Dates over the amounts
actually paid to the Class D Noteholders in respect of interest on the
Class D Notes on those prior Monthly Payment Dates, plus interest on any
such shortfall to the extent permitted by law;
(9) to the Principal Distribution Account, the Regular Principal
Distribution Amount;
(10) to the Principal Distribution Account, an amount sufficient to
cause the Outstanding Amount of the Notes (after giving effect to all
payments on the Monthly Payment Date) to equal the Pool Balance as of the
end of the related Collection Period;
(11) to the Reserve Account, an amount sufficient to cause the amount
on deposit in the Reserve Account to equal the Reserve Account Required
Amount; and
(12) to the Residual Interestholder, any funds remaining on deposit in
the Collection Account with respect to the Collection Period preceding such
Monthly Payment Date.
RESERVE ACCOUNT
On the Closing Date, the Depositor will deposit (or cause to be deposited)
in the Reserve Account cash in an amount described in "Structural
Summary--Reserve Account" in this Prospectus Supplement. The Reserve Account
will be funded on each Monthly Payment Date as described under "--Priority of
Payments" above, until the amount on deposit in the Reserve Account equals the
Reserve Account Required Amount. Funds will be withdrawn from the Reserve
Account on any Monthly Payment Date if, and to the extent that, the Total
Distribution Amount with respect to such Monthly Payment Date is less than the
Total Required Payment payable on such Monthly Payment Date and such difference
will be deposited into the Collection Account.
On each Monthly Payment Date on which the amount on deposit in the Reserve
Account is less than the Reserve Account Required Amount, the Indenture Trustee
(based upon the instructions of the Servicer) will deposit therein amounts, if
any, remaining in the Collection Account after payment on such date of amounts
senior under "--Priority of Payments" above, until the amount on deposit therein
equals the Reserve Account Required Amount. Amounts in the Reserve Account on
any Monthly Payment Date (after giving effect to all distributions to be made on
such Monthly Payment Date) in excess of the Reserve Account Required Amount for
such Monthly Payment Date will be released to the Depositor and will no longer
be available to the Noteholders.
Amounts on deposit in the Reserve Account will be invested by the Indenture
Trustee at the direction of the Servicer in Eligible Investments, and investment
earnings--net of losses and investment expenses--therefrom will be deposited
into the Collection Account on each Monthly Payment Date. Eligible Investments
are generally limited to obligations or securities that mature on or before the
next Monthly Payment Date. However, to the extent each rating agency rating the
Notes confirms that such actions will not adversely affect its ratings of the
Notes, funds in the Reserve Account may be invested in securities that will not
mature prior to the next Monthly Payment Date with respect to such Notes and
will not be sold to meet any shortfalls.
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The Reserve Account is intended to enhance the likelihood of receipt by
Noteholders of the full amount of principal and interest due them and to
decrease the likelihood that the Noteholders will experience losses. However, in
certain circumstances, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in
collections on the Receivables exceeds the amount of available cash in the
Reserve Account, Noteholders could incur losses or a temporary shortfall in the
amounts distributed to the Noteholders could result, which could, in turn,
increase the average life of the Notes.
FEDERAL INCOME TAX CONSEQUENCES
The Trust will be structured as an owner trust. In the opinion of Mayer,
Brown & Platt, special counsel for the Depositor, for federal income tax
purposes, the Notes will be characterized as debt, and the Trust will not be
characterized as a separate entity that is an association (or a publicly traded
partnership) taxable as a corporation. The Notes will not be issued with
original issue discount ("OID"). For additional information regarding federal
income tax consequences, see "Federal Income Tax Consequences" in the
Prospectus.
STATE AND LOCAL TAX CONSEQUENCES
In the opinion of Bryan Cave LLP, special state tax counsel to the
Depositor, which is based in part on the opinion of Mayer, Brown and Platt,
special counsel to the Depositor with respect to certain federal income tax
matters, the Notes will be characterized as debt and the Trust will not be
characterized as an association (or a publicly traded partnership) taxable as a
corporation for California, Illinois, New York and Missouri income tax purposes.
For additional information regarding state and local tax consequences, see
"State and Local Tax Consequences" in the Prospectus.
ERISA CONSIDERATIONS
Subject to the following discussion, the Notes may be acquired by pension,
profit-sharing or other employee benefit plans, as well as individual retirement
accounts, Keogh plans and other plans subject to Section 4975 of the Code, as
well as entities deemed to hold "plan assets" of any of the foregoing under the
Plan Asset Regulations (as defined below) (each a "Benefit Plan"). Section 406
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code prohibit a Benefit Plan from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such 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 such persons or the
fiduciaries of the Benefit Plan. In addition, Title 1 of ERISA also requires
fiduciaries of a Benefit Plan subject to ERISA to make investments that are
prudent, diversified and in accordance with the governing plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of an employee benefit plan or certain other retirement
plans or accounts, such as an individual retirement account (each a "Benefit
Plan") subject to ERISA or Section 4975 of the Code. Under a regulation issued
by the United States Department of Labor (the "Plan Asset Regulations"), the
assets of the Trust would be treated as assets of a Benefit Plan for the
purposes of ERISA and the Code only if the Benefit Plan acquires an "equity
interest" in the Trust and none of the exceptions contained in the Plan Asset
Regulations is applicable. An equity interest is defined under the Plan Asset
Regulations as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no
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substantial equity features. Although there is little guidance on the subject,
assuming that the Notes would be treated as debt under applicable local law, the
Depositor believes that, at the time of their issuance, the Notes should be
treated as indebtedness without substantial equity features for purposes of the
Plan Asset Regulations. This determination is based in part upon the traditional
debt features of the Notes, including the reasonable expectation of purchasers
of Notes that the Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features. The debt
treatment of the Notes for ERISA purposes could change if the Trust incurred
losses; the risk of recharacterization is enhanced for subordinate classes of
Notes.
However, without regard to whether the Notes are treated as an equity
interest for such purposes, the acquisition or holding of Notes by or on behalf
of a Benefit Plan could be considered to give rise to a prohibited transaction
if the Trust, the Owner Trustee or the Indenture Trustee, the Servicer, the
owner of collateral, or any of their respective affiliates is or becomes a party
in interest or a disqualified person with respect to such Benefit Plan. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to purchase a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions by in-house asset managers;
and PTCE 84-14, regarding transactions by "qualified professional asset
managers." There can be no assurance that any of these, or any other exemption,
will be available with respect to any particular transaction involving the
Notes.
Each investor using the assets of a Benefit Plan which acquires the Notes,
or to whom the Notes are transferred by its acceptance and holding of any Notes
or an interest therein, will be deemed to represent and warrant that its
acquisition and continued holding of the Notes, throughout the term of the
holding, is eligible for and satisfies all of the requirements of a prohibited
transaction exemption under Section 406 of ERISA or Section 4975 of the Code.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. However governmental plans may be subject
to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its legal
advisors regarding whether the assets of the Trust would be considered plan
assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences. For additional
information regarding treatment of the Notes under ERISA, see "ERISA
Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (collectively, the "Underwriting Agreement"), the
Depositor has agreed to sell to each of the Underwriters named below
(collectively, the "Underwriters"), and each of the Underwriters, for whom
Deutsche Banc Alex. Brown Inc. is acting as representative, has
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severally agreed to purchase from the Depositor, the principal amount of the
Notes set forth opposite its name below:
<Table>
<Caption>
BANC ONE
DEUTSCHE BANC BANC OF AMERICA CAPITAL J.P. MORGAN
ALEX. BROWN INC. SECURITIES LLC MARKETS, INC. SECURITIES INC.
---------------- --------------- ------------- ---------------
Class A-1 Notes.................... $76,500,000 $37,500,000 $37,500,000 $37,500,000
Class A-2 Notes.................... $22,500,000 $10,500,000 $10,500,000 $10,500,000
Class A-3 Notes.................... $36,000,000 $18,000,000 $18,000,000 $18,000,000
Class A-4 Notes.................... $38,000,000 $19,000,000 $19,000,000 $19,000,000
Class A-5 Notes.................... $28,850,000 $14,500,000 $14,500,000 $14,500,000
Class B Notes...................... $19,830,000 $ -- $ -- $ --
Class C Notes...................... $ 9,270,000 $ -- $ -- $ --
Class D Notes...................... $13,250,000 $ -- $ -- $ --
</Table>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the Notes
offered hereby if any of the Notes are purchased. In the event of a default by
any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The underwriting discounts and commissions of the Underwriters, the selling
concessions that the Underwriters may allow to certain dealers and the discounts
that certain dealers may reallow to certain other dealers, each expressed as a
percentage of the principal amount of the Notes, will be as follows:
<Table>
<Caption>
UNDERWRITING SELLING
DISCOUNTS CONCESSIONS, REALLOWANCE,
AND NOT TO NOT TO
COMMISSIONS EXCEED EXCEED
------------ ------------ ------------
Class A-1 Notes....................................... 0.150% 0.090% 0.050%
Class A-2 Notes....................................... 0.200% 0.120% 0.070%
Class A-3 Notes....................................... 0.250% 0.150% 0.090%
Class A-4 Notes....................................... 0.300% 0.180% 0.110%
Class A-5 Notes....................................... 0.350% 0.210% 0.130%
Class B Notes......................................... 0.450% 0.270% 0.160%
Class C Notes......................................... 0.550% 0.330% 0.200%
Class D Notes......................................... 0.650% 0.390% 0.230%
</Table>
Until the distribution of the Notes is completed, rules of the Commission
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 are set forth on the cover page
of this Prospectus Supplement), the Underwriters may reduce that short position
by purchasing Notes in the open market.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Notes in the
open market to reduce the Underwriters' short position or to stabilize the price
of the Notes, they may reclaim the amount of the selling concession from any
Underwriter or selling group member who sold those Notes as part of the
offering.
S-60
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. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Depositor nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Notes. In addition,
neither the Depositor nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may engage in investment banking and commercial banking
transactions with the Servicer and its affiliates.
DFS and the Depositor have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from an Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Transferor or such
Underwriter will promptly deliver, or cause to be delivered, without charge, a
paper copy of the Prospectus Supplement and Prospectus.
After the initial distribution of the Notes by the Underwriters, the
Prospectus and this Prospectus Supplement may be used by Deutsche Banc Alex.
Brown Inc., an affiliate of the Transferor, the Servicer and the Depositor, in
connection with market making transactions in the Notes. Deutsche Banc Alex.
Brown Inc. may act as principal or agent in such transaction. Such transactions
will be at prices related to prevailing market prices at the time of sale.
Deutsche Banc Alex. Brown Inc., the Transferor, the Servicer and the
Depositor are each indirect, wholly-owned subsidiaries of Deutsche Bank AG. Any
obligations of Deutsche Banc Alex. Brown Inc. are the sole responsibility of
Deutsche Banc Alex. Brown Inc. and do not create any obligation on the part of
any affiliate of Deutsche Banc Alex. Brown Inc.
LEGAL OPINIONS
Certain legal matters relating to the Notes and certain federal income tax
matters will be passed upon for the Depositor by Mayer, Brown & Platt, Chicago,
Illinois. Certain legal matters relating to the Notes and certain state income
tax matters will be passed upon for the Depositor by Bryan Cave LLP, St. Louis,
Missouri. Certain legal matters relating to the Notes will be passed upon for
the Underwriters by Stroock & Stroock & Lavan LLP, New York, New York.
S-61
GLOSSARY OF TERMS
Following are definitions of some of the capitalized terms used in this
Prospectus Supplement.
"Affiliated Originator" means an originator affiliated with DFS, Ganis
and/or the Depositor.
"Average Sixty-Day Delinquency Ratio" means the ratio of the average of the
aggregate Principal Balances of Receivables delinquent 60 days or more for the
preceding three Collection Periods to the average Pool Balance for such
preceding three Collection Periods.
"Controlling Class" means, with respect to any Outstanding Notes, the Class
A Notes (voting together as a single class) as long as any Class A Notes are
Outstanding, and thereafter the Class B Notes as long as any Class B Notes are
Outstanding, and thereafter the Class C Notes as long as any Class C Notes are
Outstanding, and thereafter the Class D Notes as long as any Class D Notes are
Outstanding--excluding Notes held by the Depositor, the Servicer or their
affiliates.
"CPR" means the assumed constant prepayment rate of the Receivables each
month relative to the then outstanding Principal Balance of the Receivables.
"Crossover Date" is defined under "Structural Summary--Distributions from
the Principal Distribution Account" in this Prospectus Supplement.
"Cumulative Realized Losses" means with respect to any Monthly Payment Date
(1) the aggregate Principal Balance of all Receivables that have become
Defaulted Receivables during any Collection Period from the Cutoff Date through
the Collection Period preceding the Monthly Payment Date minus (2) all
Liquidation Proceeds.
"Defaulted Receivable" means a Receivable as to which any of (a) all or any
part of a scheduled payment is 120 days past due and the Servicer has not
repossessed the related Financed Asset, (b) the Servicer has repossessed and
liquidated the related Financed Asset, or (c) without duplication, any other
Receivable charged off under the Servicer's credit and collection policy, shall
have occurred.
"Event of Default" means an event of default under the Indenture, as
described in "Description of the Notes--The Indenture--Events of Default; Rights
Upon Event of Default" in the attached Prospectus.
"Financed Asset" means a new or used recreational vehicle, new or used
sport or power boat (including any boat motors and accompanying trailers) or
yacht (both power and sail), together with all accessions thereto, securing an
obligor's indebtedness under the respective Receivable.
"First Priority Principal Distribution Amount" means, with respect to any
Monthly Payment Date, an amount equal to the excess, if any, of (a) the
Outstanding Amount of the Class A Notes as of the Monthly Payment Date preceding
such Monthly Payment Date (after giving effect to any principal payments made on
the Class A Notes on the Monthly Payment Date preceding such Monthly Payment
Date), over (b) the Pool Balance at the end of the related Collection Period;
provided, however, that the First Priority Principal Distribution Amount shall
not exceed the Outstanding Amount of all of the Notes on such Monthly Payment
Date (prior to giving effect to any principal payments made on the Notes on such
Monthly Payment Date); and provided, further that the First Priority Principal
Distribution Amount on or after the Stated Maturity Date of a class of Class A
Notes shall not be less than the amount that is necessary to reduce the
Outstanding Amount of such class of Class A Notes and all earlier maturing
classes of Class A Notes to zero.
"Highest Priority Notes" means the Notes of the Controlling Class.
S-62
"Interest Accrual Period" means the period from (and including) the 15th
day of the preceding calendar month (or in the case of the first Monthly Payment
Date, from and including the Closing Date) to and including the day preceding
the 15th day of the current calendar month.
"Liquidation Proceeds" means, with respect to any Defaulted Receivable, the
monies collected in respect thereof, from whatever source, on such Defaulted
Receivable during the Collection Period in which such Receivable became a
Defaulted Receivable, net of the sum of any amounts of expenses incurred by the
Servicer in connection with such liquidation and any amounts required by law to
be remitted to the Obligor on such Defaulted Receivable.
"Note Distribution Account" means the account designated as such,
established and maintained in the name of the Indenture Trustee pursuant to the
Transfer and Servicing Agreement.
"Outstanding" means, as of any date of determination, all Notes theretofore
authenticated and delivered under the Indenture except:
(i) Notes theretofore cancelled by the note registrar referred to in
the Indenture or delivered to the note registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture Trustee
or any paying agent referred to in the Indenture in trust for the Holders
of such Notes (provided, however, that if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to the Indenture or
provision for such notice has been made, satisfactory to the Indenture
Trustee); and
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to the Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a bona fide purchaser.
"Outstanding Amount" means the aggregate principal amount of all Notes, or
class of Notes, as applicable, Outstanding at the date of determination.
"Parity Principal Distribution Amount" means amounts distributable pursuant
to clause (10) under "Description of the Transfer and Servicing
Agreements--Distributions--Priority of Payments."
"Payment Default" means an Event of Default that occurs as a result of (a)
a failure of the Trust to pay interest when due on any of the Notes of the
Controlling Class on any Monthly Payment Date, or (b) a failure to pay the
Outstanding Amount of all of the Notes on a date selected for redemption of the
Notes as described under "Description of the Notes--Optional Redemption" in this
Prospectus Supplement, or (c) a failure of the Trust to pay the Outstanding
Amount of the Notes of a particular class on the Stated Maturity Date for such
class of Notes.
"Pool Balance" means, as of the close of business on the last day of a
Collection Period, the aggregate Principal Balance of the Receivables as of such
day (excluding Purchased Receivables and Defaulted Receivables).
"Principal Balance" means, with respect to a Receivable, as of the close of
business on the last day of a Collection Period, the amount advanced toward the
purchase price of the related Financed Asset and any related costs minus the sum
of (i) the portion of all payments made by or on behalf of the related Obligor
on or prior to such date and allocable to principal using the Simple Interest
Method and (ii) any payment of the Purchase Amount for such Receivable allocable
to principal.
S-63
"Principal Distribution Account" means the administrative subaccount of the
Note Distribution Account established and maintained as such pursuant to the
Transfer and Servicing Agreement.
"Principal Distribution Amount" for a Monthly Payment Date will be the sum
of the First Priority Principal Distribution Amount, the Second Priority
Principal Distribution Amount, the Third Priority Principal Distribution Amount,
the Regular Principal Distribution Amount and the Parity Principal Distribution
Amount with respect to such Monthly Payment Date.
"Purchase Amount" means the amount, as of the close of business on the last
day of a Collection Period, required to prepay in full a Receivable under the
terms thereof including interest to the end of such Collection Period.
"Purchased Receivable" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the Servicer from the Trust
pursuant to the Transfer and Servicing Agreement, purchased by DFS from the
Transferor pursuant to the DFS/Ganis Transfer Agreement, purchased by the
Transferor from the Depositor pursuant to the Ganis/ Depositor Transfer
Agreement, or purchased by the Depositor from the Trust pursuant to the Transfer
and Servicing Agreement.
"Recoveries" means, with respect to any Receivable that becomes a Defaulted
Receivable, monies collected in respect thereof, from whatever source, during
any Collection Period following the Collection Period in which such Receivable
became a Defaulted Receivable, net of the sum of (i) any amounts expended by the
Servicer for the account of the Obligor and (ii) any amounts required by law to
be remitted to the Obligor.
"Regular Principal Distribution Amount" means, with respect to any Monthly
Payment Date, an amount not less than zero equal to (x) the decrease in the Pool
Balance during the related Collection Period minus (y) the sum of the First
Priority Principal Distribution Amount, if any, the Second Priority Principal
Distribution Amount, if any, and the Third Priority Principal Distribution
Amount, if any, previously deposited to the Principal Distribution Account each
with respect to such Monthly Payment Date; provided, however, that the Regular
Principal Distribution Amount shall not exceed the Outstanding Amount of all of
the Notes on such Monthly Payment Date (after giving effect to any principal
payments made on the Notes on such Monthly Payment Date in respect of the First
Priority Principal Distribution Amount, if any, the Second Priority Principal
Distribution Amount, if any and the Third Priority Principal Distribution
Amount, if any); and provided, further, that the Regular Principal Distribution
Amount on or after the Stated Maturity Date for the Class D Notes shall not be
less than the amount that is necessary to reduce the Outstanding Amount of the
Class D Notes to zero.
"Reserve Account" means the account designated as such, established and
maintained in the name of the Indenture Trustee pursuant to the Transfer and
Servicing Agreement.
"Reserve Account Required Amount" is defined under "Structural
Summary--Reserve Account" in this Prospectus Supplement.
"Reserve Account Transfer Amount" means, with respect to any Monthly
Payment Date, an amount equal to the lesser of (a) the amount of cash or other
immediately available funds on deposit in the Reserve Account on such Monthly
Payment Date, and (b) the amount, if any, by which (1) the Total Required
Payments for such Monthly Payment Date exceeds (2) the Total Distribution Amount
for such Monthly Payment Date.
"Second Priority Principal Distribution Amount" means, with respect to any
Monthly Payment Date, an amount not less than zero equal to (i) the excess, if
any, of (a) the sum of the Outstanding Amount of the Class A Notes and the
Outstanding Amount of the Class B Notes as of the Monthly Payment Date preceding
such Monthly Payment Date (after giving
S-64
effect to any principal payments made on the Class A Notes and Class B Notes on
the Monthly Payment Date preceding such Monthly Payment Date) over (b) the Pool
Balance at the end of the related Collection Period, minus (ii) the First
Priority Principal Distribution Amount, if any, deposited to the Principal
Distribution Account with respect to such Monthly Payment Date; provided,
however, that the Second Priority Principal Distribution Amount shall not exceed
the Outstanding Amount of the Notes on such Monthly Payment Date after giving
effect to any principal payments made on the Notes on such Monthly Payment Date
in respect of the First Priority Principal Distribution Amount, if any; and
provided, further that the Second Priority Principal Distribution Amount on or
after the Stated Maturity Date for the Class B Notes shall not be less than the
amount that is necessary to reduce the Outstanding Amount of the Class B Notes
to zero.
"Simple Interest Method" means the method of allocating a payment with
respect to a Receivable to principal and interest, pursuant to which the portion
of such payment that is allocated to interest is equal to the product of the
stated APR multiplied by the unpaid principal balance of the Receivable
multiplied by the period of time elapsed (as a fraction of a calendar year)
since the preceding payment of interest was made and the remainder of such
payment is allocable to reduce the principal.
"Third Priority Principal Distribution Amount" means, with respect to any
Monthly Payment Date, an amount not less than zero equal to (i) the excess, if
any, of (a) the sum of the Outstanding Amount of the Class A Notes, the
Outstanding Amount of the Class B Notes and the Outstanding Amount of the Class
C Notes as of the Monthly Payment Date preceding such Monthly Payment Date
(after giving effect to any principal payments made on the Class A Notes, Class
B Notes and Class C Notes on the Monthly Payment Date preceding such Monthly
Payment Date) over (b) the Pool Balance at the end of the related Collection
Period preceding such Monthly Payment Date, minus (ii) the First Priority
Principal Distribution Amount, if any, and the Second Priority Principal
Distribution Amount, if any, deposited to the Principal Distribution Account
with respect to such Monthly Payment Date; provided, however, that the Third
Priority Principal Distribution Amount shall not exceed the Outstanding Amount
of the Notes on such Monthly Payment Date after giving effect to any principal
payments made on the Notes on such Monthly Payment Date in respect of the First
Priority Principal Distribution Amount, if any, and the Second Priority
Principal Distribution Amount, if any; and provided, further that the Third
Priority Principal Distribution Amount on or after the Stated Maturity Date for
the Class C Notes shall not be less than the amount that is necessary to reduce
the Outstanding Amount of the Class C Notes to zero.
"Total Distribution Amount" means, with respect to any Monthly Payment
Date, the sum of the following amounts, without duplication, with respect to the
Receivables in respect of the Collection Period preceding such Monthly Payment
Date: (1) all collections on Receivables allocable to interest and principal,
(2) all Liquidation Proceeds or other collections attributable to accrued
interest on or the principal amount of Receivables that became Defaulted
Receivables during such Collection Period, plus interest on amounts in the
Reserve Account, (3) all Servicer Advances, (4) the Purchase Amount of each
Receivable that became a Purchased Receivable during such Collection Period, (5)
all Recoveries and (6) partial payments relating to refunds of extended warranty
protection plan costs or of physical damage, credit life or disability insurance
policy premiums, but only if such costs or premiums were financed by the
respective Obligors thereon as of the date of the original contract and only to
the extent not included under clause (1) above; provided, however, that in
calculating the Total Distribution Amount the following will be excluded: (i)
all payments and proceeds (including Liquidation Proceeds) of any Purchased
Receivables, the Purchase Amount of which has been included in the Total
Distribution Amount in a prior Collection Period; (ii) amounts received in
respect of interest on the Receivables (which amounts will be determined based
on the Simple Interest Method) during such preceding Collection Period in
S-65
excess of the amount of interest that would be due on the aggregate Principal
Balance of the Receivables during such Collection Period at their respective
APRs if a payment were received on each Receivable during such Collection Period
on the date payment is due under the terms of such Receivable; (iii) late
payments of interest to the extent applied to reimbursement of Servicer
Advances; and (iv) Liquidation Proceeds with respect to a Receivable
attributable to accrued and unpaid interest thereon (but not including interest
for the then current Collection Period) but only to the extent of any
unreimbursed Servicer Advances.
"Total Required Payment" means, with respect to any Monthly Payment Date,
the sum of the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods, the accrued and unpaid interest on the Class A Notes, the First
Priority Principal Distribution Amount, the accrued and unpaid interest on the
Class B Notes, the Second Priority Principal Distribution Amount, the accrued
and unpaid interest on the Class C Notes, the Third Priority Principal
Distribution Amount, the accrued and unpaid interest on the Class D Notes, and
the Regular Principal Distribution Amount; provided, however, that following the
occurrence and during the continuation of an Event of Default which has resulted
in an acceleration of the Notes, on any Monthly Payment Date until the Monthly
Payment Date on which the Outstanding Amount of all the Notes has been paid in
full, the Total Required Payment shall mean the sum of the Servicing Fee and all
unpaid Servicing Fees from prior Collection Periods, the accrued and unpaid
interest on the Class A Notes, the Class B Notes, the Class C Notes, the Class D
Notes and the amount necessary to reduce the Outstanding Amount of all the Notes
to zero.
"Trigger Event" will be in effect for a Monthly Payment Date commencing
with the Crossover Date if one of the following conditions occur:
- the Average Sixty-Day Delinquency Ratio as of the last day of the
related Collection Period exceeds 5.00%;
- the Cumulative Realized Losses as of the last day of the related
Collection Period exceeds the following percentages of the original Pool
Balance for the specified Monthly Payment Date:
December 2005 through November 2006................................3.50%
December 2006 through November 2007................................4.25%
December 2007 and after...........................................5.00%;
- the amount on deposit in the Reserve Account for any two prior
consecutive Monthly Payment Dates is less than the Reserve Account
Required Amount, provided that this Trigger Event will no longer be in
effect if the amount on deposit in the Reserve Account for three
consecutive Monthly Payment Dates thereafter equals the Reserve Account
Required Amount; or
- the Outstanding Amount of the Notes immediately preceding the Monthly
Payment Date is greater than the Pool Balance as of the last day of the
second Collection Period preceding the Monthly Payment Date.
S-66
INDEX OF TERMS
<Table>
Affiliated Originator....................................... S-9
APR......................................................... S-25
Average Sixty-Day Delinquency Ratio......................... S-62
BankBoston.................................................. S-37
Benefit Plan................................................ S-58
Cede........................................................ S-5
Closing Date................................................ S-7
Collection Period........................................... S-6
Commission.................................................. S-5
Controlling Class........................................... S-62
CPR......................................................... S-40
Crossover Date.............................................. S-11
Cutoff Date................................................. S-9
Defaulted Receivable........................................ S-62
Depositor................................................... S-6
DFS......................................................... S-39
DFS Receivables............................................. S-9
DTC......................................................... S-5
ERISA....................................................... S-58
Exchange Act................................................ S-5
Event of Default............................................ S-62
Financed Asset.............................................. S-9
First Priority Principal Distribution Amount................ S-62
Ganis....................................................... S-37
Highest Priority Notes...................................... S-62
Holder...................................................... S-52
Indenture Trustee........................................... S-6
Initial Pool Balance........................................ S-9
Interest Accrual Period..................................... S-7
Liquidation Proceeds........................................ S-63
Managed Marine Receivables Portfolio........................ S-31
Managed Recreational Vehicle Receivables Portfolio.......... S-32
Monthly Payment Date........................................ S-6
NADA........................................................ S-38
Note Distribution Account................................... S-63
Noteholder.................................................. S-52
Notes....................................................... S-6
OID......................................................... S-58
Outstanding................................................. S-63
Outstanding Amount.......................................... S-63
Owner Trustee............................................... S-6
Parity Principal Distribution Amount........................ S-63
Payment Default............................................. S-63
Pool Balance................................................ S-55
Principal Balance........................................... S-36
Principal Distribution Account.............................. S-63
Principal Distribution Amount............................... S-63
Prospectus.................................................. S-6
Purchase Amount............................................. S-64
PTCE........................................................ S-59
Purchased Receivable........................................ S-64
Rating Agency............................................... S-8
Receivables Pool............................................ S-25
Record Date................................................. S-52
</Table>
S-67
<Table>
Recoveries.................................................. S-64
Regular Principal Distribution Amount....................... S-64
Reserve Account............................................. S-15
Reserve Account Required Amount............................. S-15
Reserve Account Transfer Amount............................. S-64
Residual Interest........................................... S-54
Residual Interestholder..................................... S-54
Second Priority Principal Distribution Amount............... S-64
Servicer.................................................... S-39
Servicer Advance............................................ S-10
Servicing Fee............................................... S-39
Servicing Released Sale Transactions........................ S-29
Simple Interest Method...................................... S-65
Stated Maturity Date........................................ S-6
Third Priority Principal Distribution Amount................ S-65
Total Distribution Amount................................... S-65
Total Required Payment...................................... S-66
Transfer and Servicing Agreements........................... S-55
Transferor.................................................. S-37
Transferor Receivables...................................... S-9
Trigger Event............................................... S-66
Trust....................................................... S-6
Underwriters................................................ S-59
Underwriting Agreement...................................... S-59
</Table>
S-68
PROSPECTUS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
(EACH ISSUABLE IN SERIES)
------------------
DEUTSCHE RECREATIONAL ASSET FUNDING CORPORATION
DEPOSITOR
------------------
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") described herein
may be sold from time to time in one or more series, in amounts, at prices and
on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement"). Each series of
Securities, which may include one or more classes of Notes and/or one or more
classes of Certificates, will be issued by a trust to be formed with respect to
such series (each, a "Trust"). Each Trust will be formed pursuant to either (i)
a Trust Agreement to be entered into between Deutsche Recreational Asset Funding
Corporation (the "Depositor") and the trustee specified in the related
Prospectus Supplement (the "Trustee" or "Owner Trustee"), or (ii) a Pooling and
Servicing Agreement to be entered into among the Trustee, the Depositor and
Deutsche Financial Services Corporation, as servicer (the "Servicer"). If a
series of Securities includes Notes, such Notes will be issued and secured
pursuant to an Indenture between the Trust and the indenture trustee specified
in the related Prospectus Supplement (the "Indenture Trustee") and will
represent indebtedness of the related Trust. The Certificates of a series will
represent fractional undivided interests in the related Trust. In the event that
the Depositor and/or affiliates of the Depositor are the sole holders of
undivided interests in a Trust, such undivided interests may not be represented
by a certificate. The related Prospectus Supplement will specify which class or
classes of Notes, if any, and which class or classes of Certificates, if any, of
the related series are being offered thereby. The property of each Trust will
include a pool of retail installment sale contracts or installment loan
contracts (the "Receivables") secured by new or used recreational vehicles and
new or used recreational sport and power boats (including any boat motors and
accompanying trailers) and yachts (both power and sail), as applicable, certain
monies due or received thereunder on and after the applicable Cutoff Date set
forth in the related Prospectus Supplement, security interests in the items
financed thereby (other than security interests in Federally Documented Boats,
which security interests will be assigned to the Boat Mortgage Trustee as
described under "The Boat Mortgage Trust") and certain other property that shall
have secured a Receivable and that shall have been obtained by the applicable
Trust incidental to a foreclosure or repossession in the event of a payment
default, all as described herein and in the related Prospectus Supplement. In
addition, if so specified in the related Prospectus Supplement, the property of
the Trust will include monies on deposit in a trust account (the "Pre-Funding
Account") to be established with the Indenture Trustee, which may be used to
acquire additional Receivables (the "Subsequent Receivables") from the Depositor
from time to time during the Funding Period specified in the related Prospectus
Supplement or to make distributions to the Depositor with respect thereto.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE 12 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY,
DEUTSCHE RECREATIONAL ASSET FUNDING CORPORATION, GANIS CREDIT CORPORATION,
DEUTSCHE FINANCIAL SERVICES CORPORATION, DEUTSCHE BANK AG OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE RECEIVABLES
ARE GUARANTEED OR INSURED BY ANY GOVERNMENT AGENCY OR INSTRUMENTALITY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
------------------
November 14, 2001
2
AVAILABLE INFORMATION
Deutsche Recreational Asset Funding Corporation (the "Depositor") has filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement (together with all amendments and exhibits thereto, referred to herein
as the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Notes and the Certificates offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement which may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and 233 Broadway, New York, New York 10279. Copies of the
Registration Statement may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including Deutsche Recreational Asset Funding Corporation, that
file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by Deutsche Recreational Asset Funding Corporation (the
"Depositor"), as originator of the Trust referred to in the accompanying
Prospectus Supplement, pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to
the date of this Prospectus and prior to the termination of the offering of the
Securities offered by such Trust shall be deemed to be incorporated by reference
in this Prospectus. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Depositor will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein or in the related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Secretary, Deutsche Recreational Asset Funding
Corporation, 655 Maryville Centre Drive, St. Louis, Missouri 63141, telephone
number (314) 523-3000.
------------------
3
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms" beginning on page 80.
ISSUER........................ With respect to each series of Securities, the
trust (referred to herein as the "Trust" or the
"Issuer") to be formed pursuant to either a
Trust Agreement (as amended and supplemented
from time to time, a "Trust Agreement") between
the Depositor and the trustee specified in the
related Prospectus Supplement (the "Trustee")
or a Pooling and Servicing Agreement (as
amended and supplemented from time to time, the
"Pooling and Servicing Agreement") among the
Trustee, the Depositor and the Servicer.
DEPOSITOR..................... Deutsche Recreational Asset Funding
Corporation.
TRANSFEROR.................... Ganis Credit Corporation ("Ganis").
SERVICER...................... Deutsche Financial Services Corporation ("DFS"
or the "Servicer").
TRUSTEE/OWNER TRUSTEE......... With respect to each series of Securities, the
Trustee or Owner Trustee will be specified in
the related Prospectus Supplement.
INDENTURE TRUSTEE............. With respect to any applicable series of
Securities, the Indenture Trustee will be
specified in the related Prospectus Supplement.
THE NOTES..................... A series of Securities may include one or more
classes of Notes, which will be issued pursuant
to an Indenture between the Trust and the
Indenture Trustee (as amended and supplemented
from time to time, an "Indenture"). The related
Prospectus Supplement will specify which class
or classes, if any, of Notes of the related
series are being offered thereby.
Notes will be available for purchase in minimum
denominations of $1,000 and will be available
in book-entry form only subject to the next
sentence. Noteholders will be able to receive
Definitive Notes only in the limited
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the
Securities--Definitive Securities".
Except in the case of any Strip Notes, as
described below, each class of Notes will have
a stated principal amount and will bear
interest at a specified rate or rates (with
respect to each class of Notes, the "Interest
Rate"). 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. The related
4
Prospectus Supplement will specify the Interest
Rate for each class of Notes, or the method for
determining the Interest Rate.
With respect to a series that includes two or
more classes of Notes, each class may differ as
to the timing and priority of payments,
seniority, allocations of losses, Interest Rate
or amount of payments of principal or interest,
or payments of principal or interest in respect
of any such class or classes may or may not be
made upon the occurrence of specified events or
on the basis of collections from designated
portions of the Receivables Pool. In addition,
a series may include one or more classes of
Notes ("Strip Notes") entitled to (i) principal
payments with disproportionate, nominal or no
interest payments or (ii) interest payments
with disproportionate, nominal or no principal
payments.
To the extent provided in the related
Prospectus Supplement, the Servicer will be
permitted at its option to purchase the
Receivables from each Trust, as of the end of
any applicable Collection Period, if the then
outstanding Pool Balance with respect to the
Receivables held by such Trust is less than 10%
of the Initial Pool Balance (as defined in the
related Prospectus Supplement, the "Initial
Pool Balance"). Such purchase price will never
be less than the outstanding principal amount
of the Securities plus the accrued interest on
the Securities. See "Description of the
Transfer and Servicing
Agreements--Termination".
THE CERTIFICATES.............. A series may include one or more classes of
Certificates and may or may not include any
Notes. The related Prospectus Supplement will
specify which class or classes, if any, of the
Certificates are being offered thereby. In the
event that the Depositor and/or affiliates of
the Depositor are the sole holders of undivided
interests in a Trust, such undivided interests
may not be represented by a certificate.
Certificates will be available for purchase in
a minimum denomination of $1,000 and will be
available in book-entry form only subject to
the next sentence. Certificateholders will be
able to receive Definitive Certificates only in
the limited circumstances described herein or
in the related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Definitive Securities".
Except in the case of any Strip Certificates,
as described below, each class of Certificates
will have a stated Certificate Balance
specified in the related Prospectus Supplement
(the "Certificate Balance") and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each class of
Certificates, the "Pass Through Rate"). Each
class of Certificates may have a
5
different Pass Through Rate, which may be a
fixed, variable or adjustable Pass Through
Rate, or any combination of the foregoing. The
related Prospectus Supplement will specify the
Pass Through Rate for each class of
Certificates or the method for determining the
Pass Through Rate.
With respect to a series that includes two or
more classes of Certificates, each class may
differ as to timing and priority of
distributions, seniority, allocations of
losses, Pass Through Rate or amount of
distributions in respect of principal or
interest, or distributions in respect of
principal or interest in respect of any such
class or classes may or may not be made upon
the occurrence of specified events or on the
basis of collections from designated portions
of the Receivables Pool.
In addition, a series may include one or more
classes of Certificates ("Strip Certificates")
entitled to (i) distributions in respect of
principal with disproportionate, nominal or no
interest distributions or (ii) interest
distributions with disproportionate, nominal or
no distributions in respect of principal.
If a series of Securities includes classes of
Notes, distributions in respect of the
Certificates may be subordinated in priority of
payment to payments on the Notes to the extent
specified in the related Prospectus Supplement.
To the extent provided in the related
Prospectus Supplement, the Servicer will be
permitted at its option to purchase the
Receivables from each Trust, as of the end of
any applicable Collection Period, if the then
outstanding Pool Balance with respect to the
Receivables held by such Trust is less than 10%
of the Initial Pool Balance (as defined in the
related Prospectus Supplement, the "Initial
Pool Balance"). Such purchase price for the
Receivables will never be less than the
outstanding principal amount of the Securities
plus the accrued interest on the Securities.
See "Description of the Transfer and Servicing
Agreements--Termination".
TRUST PROPERTY................ The property of each Trust will include a pool
of retail installment sale contracts or
installment loans (the "Recreational Vehicle
Receivables") secured by new or used
recreational vehicles (the "Financed
Recreational Vehicles"), retail installment
sale contracts or installment loan contracts
(the "Boat Receivables"; the Boat Receivables
and the Recreational Vehicle Receivables may be
referred to collectively as the "Receivables"
and individually as a "Receivable") secured by
new or used recreational sport and power boats
(including any boat motors and accompanying
trailers) and yachts (both power and sail) (the
"Financed Boats"; the Financed Boats and the
Financed
6
Recreational Vehicles may be referred to
collectively as the "Financed Assets" and
individually as a "Financed Asset"),
collections and other payments with respect to
the Receivables received after the date
specified in the related Prospectus Supplement
(the "Cutoff Date") and monies on deposit in
certain Trust accounts.
Any reference in this Prospectus or the related
Prospectus Supplement to a "boat" will include,
unless the context otherwise requires,
recreational sport and power boats (including
any boat motors and accompanying trailers) and
yachts (both power and sail).
On or prior to the Closing Date specified in
the related Prospectus Supplement with respect
to a Trust (the "Closing Date"), the Transferor
will transfer Receivables (the "Initial
Receivables") having an aggregate principal
balance specified in the related Prospectus
Supplement as of the Cutoff Date to the
Depositor, which will transfer the Initial
Receivables to such Trust on or prior to the
Closing Date pursuant to either a Transfer and
Servicing Agreement among the Depositor, the
Servicer and the Owner Trustee (as amended and
supplemented from time to time, a "Transfer and
Servicing Agreement") or, if the Trust is to be
treated as a grantor trust for federal income
tax purposes, the related Pooling and Servicing
Agreement among the Depositor, the Servicer and
the Trustee. The property of each Trust will
also include amounts on deposit in certain
trust accounts, including the related
Collection Account, any Pre-Funding Account,
and any other account identified in the
applicable Prospectus Supplement.
To the extent provided in the related
Prospectus Supplement, the Transferor will be
obligated (subject only to the availability
thereof) to transfer to the Depositor which
will be obligated to acquire and transfer to
the related Trust, and such Trust will then be
obligated to acquire (subject to the
satisfaction of certain conditions described in
the applicable Transfer and Servicing Agreement
or Pooling and Servicing Agreement), additional
Receivables (the "Subsequent Receivables") from
time to time (as frequently as daily) during
the Funding Period, if any, specified in the
related Prospectus Supplement having an
aggregate principal balance approximately equal
to the amount on deposit in the Pre-Funding
Account (the "Pre-Funded Amount") on such
Closing Date. With respect to any Trust that is
to be treated as a grantor trust for federal
income tax purposes, the Funding Period, if
any, will not exceed 90 days in length from the
Closing Date, and with respect to any other
Trust the Funding Period, if any, will be
specified in the applicable Prospectus
Supplement and in any event will not exceed one
year in length. With respect to each Trust, the
Pre-Funded
7
Amount on the Closing Date will not exceed 25%
of the aggregate initial principal balance of
the Securities.
The Receivables have been or will be originated
by the Transferor, and/or originated by
Dealers, and/or originated or acquired by DFS
and/or other entities (DFS and such other
entities being referred to as "Originators"),
and (with respect to Receivables which were not
originated by the Transferor) acquired by the
Transferor from such Dealers and/or
Originators. Receivables held by any Originator
may have been acquired by such Originator from
Dealers or from other Originators. An
Originator (such as DFS) may be an affiliate of
the Transferor. The Originators will be
entities involved in the origination, secondary
market purchasing and/or servicing of retail
installment sales contracts, installment loans,
loans or other receivables secured by boats or
recreational vehicles. For a description of the
Transferor, see "The Transferor." For a
description of DFS, see "The Servicer" in the
related Prospectus Supplement.
CREDIT AND CASH FLOW
ENHANCEMENT................. If and to the extent specified in the related
Prospectus Supplement, credit and cash flow
enhancement with respect to a Trust or any
class or classes of Securities may include any
one or more of the following: subordination of
one or more other classes of Securities, a
Reserve Account, letters of credit, credit or
liquidity facilities, surety bonds, insurance
policies, guaranteed investment contracts,
swaps or other interest rate protection
agreements, repurchase obligations, yield
supplement agreements or accounts, other
agreements with respect to third party payments
or other support, cash deposits or other
arrangements. Any form of credit or cash flow
enhancement will have certain limitations and
exclusions from coverage thereunder, which will
be described in the related Prospectus
Supplement.
TRANSFER AND SERVICING
AGREEMENTS.................. With respect to each Trust, the Transferor will
transfer the related Receivables to the
Depositor, which, in turn, will transfer the
related Receivables to such Trust pursuant to a
Transfer and Servicing Agreement or a Pooling
and Servicing Agreement. The rights and
benefits of any Trust under a Transfer and
Servicing Agreement will be transferred to the
Indenture Trustee as collateral for the Notes
of the related series. If so specified in the
related Prospectus Supplement, the person
specified therein as Administrator will
undertake certain administrative duties under
an Administration Agreement with respect to any
Trust that has issued Notes, which duties would
in the absence of an Administrator be performed
for the related Trust primarily by the related
Indenture Trustee or by the Depositor.
8
The Servicer will advance any interest
shortfall with respect to a Receivable to the
extent that the Servicer, in its sole
discretion, expects to recoup the advance from
subsequent payments on or with respect to the
Receivables (a "Servicer Advance"). The
Servicer shall be entitled to reimbursement of
Servicer Advances from subsequent payments on
or with respect to the Receivables as described
under "Description of the Transfer and
Servicing Agreements--Servicer Advances."
The Servicer will be entitled to receive
compensation for servicing the Receivables of
each Trust as described under "Description of
the Transfer and Servicing Agreements--
Servicing Compensation and Payment of Expenses"
herein and in the related Prospectus
Supplement.
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES................. In connection with the transfer of Receivables
to a Trust, security interests in the Financed
Assets (other than Federally Documented Boats)
securing such Receivables will be transferred
by the Transferor to the Depositor (or by the
related Dealer or an Originator to the
Transferor and by the Transferor to the
Depositor) and by the Depositor to such Trust.
Security interests in the Federally Documented
Boats will be assigned by DFS or the
Transferor, as applicable, to the Boat Mortgage
Trustee. See "The Boat Mortgage Trust." Due to
administrative burden and expense, the
certificates of title to those Financed Assets
financed in states where security interests in
boats or recreational vehicles, as applicable,
are subject to certificate of title statutes
will not be amended to reflect any such
transfers, and the Uniform Commercial Code
("UCC") financing statements in respect of
those Financed Assets financed in states where
security interests in boats or recreational
vehicles, as applicable, are perfected by
filing a UCC-1 financing statement will not be
amended to reflect such transfers. Assignments
of security interests in Federally Documented
Boats to the Boat Mortgage Trustee will not be
filed with the Coast Guard until on or before
180 days after the Closing Date specified in
the related Prospectus Supplement. In the
absence of such procedures, such Trust may not
have a perfected security interest in the
Financed Assets in some states and will not
have a perfected security interest in the
Federally Documented Boats. In any event, the
Trust will not have any direct security
interest in the Federally Documented Boats. If
such Trust does not have a perfected security
interest in a Financed Asset, its ability to
realize on such Financed Asset may be adversely
affected. See "Risk Factors" and "Certain Legal
Aspects of the Receivables."
9
TAX STATUS.................... If the Prospectus Supplement specifies that the
related Trust will be treated as an owner trust
upon the issuance of the related series of
Securities, Mayer, Brown & Platt ("Tax
Counsel") is of the opinion that such Trust
will not be classified as a separate entity
that is an association (or publicly traded
partnership) taxable as a corporation for
federal income tax purposes. Further, with
respect to the Notes, Tax Counsel is of the
opinion that the Notes issued by such Trust
will be characterized as debt for federal
income tax purposes.
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor
trust, upon the issuance of the related series
of Certificates, Tax Counsel to such Trust is
of the opinion to the effect that such Trust
will not be classified as an association
taxable as a corporation for federal income tax
purposes and that such Trust will be classified
as a grantor trust for federal income tax
purposes.
See "Federal Income Tax Consequences" herein
for additional information concerning the
application of federal and state tax laws.
ERISA CONSIDERATIONS.......... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
related Prospectus Supplement, any Notes of a
series and any Certificates that are issued by
a Trust that is a grantor trust and are not
subordinated to any other class of Certificates
may be eligible for purchase by employee
benefit plans.
The Certificates of any series that are
subordinated to any other Security of that
series may not be acquired by any employee
benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or by any individual retirement
account. See "ERISA Considerations" herein and
in the related Prospectus Supplement.
RATING........................ It will be a requirement for issuance of any
series that the Securities offered by this
Prospectus and the related Prospectus
Supplement be rated at the time of initial sale
by at least one Rating Agency in one of its
four highest applicable rating categories. The
rating or ratings applicable to Securities of
each series offered hereby and by the related
Prospectus Supplement will be as set forth in
the related Prospectus Supplement. A securities
rating should be evaluated independently of
similar ratings on different types of
securities. A securities rating is not a
recommendation to buy, hold or sell securities
and does not address the effect that the rate
of prepayments on Receivables may have on the
yield to investors in the Securities of such
Series. See "Risk Factors" herein.
10
LEGAL INVESTMENT.............. The appropriate characterization of each class
of Notes (or Certificates) of a series under
various legal investment restrictions
applicable to the investment activities of
certain investors, and thus the ability of
investors subject to these restrictions to
purchase Notes (or Certificates), may be
subject to significant interpretive
uncertainties. Investors should consult with
their own counsel in determining whether, and
to what extent, Notes (or Certificates) will
constitute legal investments for them.
RISK FACTORS.................. In considering an investment in any
Certificates and/or Notes, investors should
recognize that there are material risks
associated with such an investment. See "Risk
Factors" herein and in the related Prospectus
Supplement.
11
RISK FACTORS
In addition to the other information contained in this Prospectus and in
the related Prospectus Supplement, prospective investors should carefully
consider the following risk factors before investing in any class or classes of
Securities. The risk factor disclosure here and in the related Prospectus
Supplement summarizes material risk factors relating to the Securities.
Possible Payment Delays or Losses Resulting From Failure of the Trust to
Have A Perfected Security Interest in Certain Financed Assets. If a Trust does
not have a perfected security interest in a Financed Asset, its ability to
realize on such Financed Asset in the event of a default may be adversely
affected. This could adversely affect the amount available for distribution to
the Securityholders and delays and reductions in payments to Securityholders
could result.
In connection with the transfer of Receivables to a Trust, security
interests in the Financed Assets (other than Federally Documented Boats)
securing such Receivables will be, or will have been, transferred by the
Transferor to the Depositor and by the Depositor to such Trust simultaneously
with the transfer of such Receivables to such Trust. Due to administrative
burden and expense, (i) the certificates of title to those Financed Assets
financed in states where security interests in recreational vehicles are subject
to certificate of title statutes will not be amended to reflect such transfers
and (ii) UCC financing statements in respect of those Financed Assets financed
in states where security interests in recreational vehicles are perfected by
filing a UCC-1 financing statement will not be amended to reflect such
transfers. In the absence of such procedures, such Trust may not have a
perfected security interest in the Financed Assets in some states.
Security interests in the Federally Documented Boats securing Receivables
transferred to a Trust will be transferred by DFS or the Transferor, as the case
may be, to the Boat Mortgage Trustee before or at the time of the transfer of
such Receivables to the Trust holding such Receivables. However, assignments of
security interests in the Federally Documented Boats to the Boat Mortgage
Trustee will not be filed with the Coast Guard until on or before the 180th day
after the Closing Date specified in the related Prospectus Supplement. In the
absence of such filings, the Boat Mortgage Trustee will not have a perfected
security interest in the Federally Documented Boats. In any event, the Trust
will not have any direct security interest in the Federally Documented Boats.
The Transferor will be obligated to purchase from the Trust any Transferor
Receivable transferred to such Trust as to which a perfected security interest
in the name of the Transferor in the Financed Asset securing such Receivable
shall not exist as of the date such Receivable is transferred to such Trust,
provided that such purchase obligation shall apply only in the circumstances
described under "Description of the Transfer and Servicing Agreements--Transfer
of Receivables." Such purchase obligation will not address or remedy the
situation where a perfected security interest in the name of a Trust in the
Financed Asset securing a Receivable has not been perfected as a result of the
absence of the procedures described in the preceding paragraph or for any other
reason. The Servicer will be obligated to purchase from the Trust any Receivable
secured by a Federally Documented Boat if the assignment of the security
interest in such Federally Documented Boats from DFS or the Transferor, as the
case may be, to the Boat Mortgage Trustee is not filed with the Coast Guard by
the 180th day after the Closing Date specified in the related Prospectus
Supplement. If a Trust or the Boat Mortgage Trust does not have a perfected
security interest in a Financed Asset, its ability to realize on such Financed
Asset in the event of a default may be adversely affected. This could adversely
affect the amount available for distribution to the Securityholders.
12
Possible Payment Delays or Losses Resulting From Certain Liens Having
Priority Over a Perfected Security Interest. To the extent the security
interest of a Trust in a Financed Asset is perfected, such Trust generally will
have a prior claim over subsequent purchasers of such Financed Asset and holders
of subsequently perfected security interests. However, as against maritime
liens, liens for repairs of a Financed Asset or for taxes unpaid by an Obligor
under a Receivable, or through fraud or negligence, such Trust could lose the
priority of its security interest or its security interest in a Financed Asset.
If an Obligor takes a Financed Asset to a dealer and the Financed Asset becomes
part of the dealer's inventory, the Financed Asset may become subject to claims
of the dealer's creditors or to claims of the bankruptcy trustee of such dealer.
If an Obligor arranges for a dealer to sell a Financed Asset on consignment and
the dealer then sells the Financed Asset to a third party which is a "buyer in
the ordinary course", the third party will take the Financed Asset free of the
security interest created by the Obligor (even though the security interest is
perfected). All maritime liens and various other claims of a maritime nature
recognized under federal admiralty law (including those referred to in the next
sentence) will have priority over state title liens or security interests in
Financed Boats perfected by filing UCC financing statements.
With respect to Preferred Mortgages on Federally Documented Boats, certain
liens, including liens for damages arising out of a maritime tort, for wages of
a stevedore when employed directly by the owner, operator, master, ship's
husband, or agent of the vessel, for wages of the crew of a vessel, for general
average, or for salvage would, as a matter of law, have priority over a
Preferred Mortgage. In addition, any Preferred Mortgages granted and perfected
prior in time to the Preferred Mortgage in question and liens under Federal law
for "necessaries" (which are generally goods and services rendered or delivered
to the Financed Boat) furnished before the Preferred Mortgage in question is
perfected will have priority over the Preferred Mortgage in question. The
above-described risk for crew wages exists in the case of the Financed Boats
because boat owners may utilize crew members and because liens for wages owed to
such crew members would have priority over the Trust's or the Boat Mortgage
Trust's interest in a Financed Boat.
If a Trust or the Boat Mortgage Trust does not have a first perfected
security interest in a Financed Asset, its ability to realize on such Financed
Asset in the event of a default may be adversely affected. This could adversely
affect the amount available for distribution to, and could result in delays and
reductions in payments to, the Securityholders. None of the Transferor, the
Servicer or the Depositor will have any obligation to purchase a Receivable as
to which any of the aforementioned occurrences result in a Trust or the Boat
Mortgage Trust losing the priority of its security interest or its security
interest in such Financed Asset after the date such security interest was
conveyed to such Trust. See "Possible Payment Delays or Losses Resulting From
Failure of the Trust to Have a Protected Security Interest in the Receivables"
herein.
Possible Payment Delays or Losses Resulting From Failure of the Trust to
Have a Perfected Security Interest in the Receivables. If a Trust does not have
a perfected security interest in the Receivables, its ability to realize on such
Receivable in the event of a default may be adversely affected. This could
adversely affect the amount available for distribution to, and could result in
delays and reductions in payments to, the Securityholders.
The Receivables will be treated by each Trust as "chattel paper" as defined
in the UCC. Pursuant to the UCC, the transfer of chattel paper is treated in a
manner similar to a security interest in chattel paper. Perfection of a security
interest in chattel paper may generally be made by filing UCC-1 financing
statements in respect thereof or by possession of the chattel paper. In order to
protect each Trust's ownership or security interest in its Receivables, the
Depositor will file UCC-1 financing statements with the appropriate authorities
in any state deemed advisable by the Depositor to give notice of such Trust's
ownership interest (and any related Indenture Trustee's security interest) in
the Receivables and proceeds thereof. Under
13
each Transfer and Servicing Agreement and Pooling and Servicing Agreement, the
Servicer will be appointed custodian of the Receivables by the Trustee and the
Servicer will otherwise be obligated to maintain the perfection of each Trust's
and any related Indenture Trustee's interest in the Receivables. The filing of
UCC-1 financing statements as described above and possession of the chattel
paper by the Servicer will reduce but not eliminate the risks involved in
perfection. A Trust could lose priority of its security interest in the
Receivables to certain liens arising by operation of law or in certain cases by
fraud or negligence. Moreover, if the Servicer should lose or inadvertently give
up possession of the chattel paper, a good faith purchaser of the chattel paper
without knowledge who gives new value and takes possession of it in the ordinary
course of such purchaser's business has priority over a security interest
(including an ownership interest) in the chattel paper that is perfected by
filing UCC-1 financing statements. In addition, the Receivables will not be
stamped to reflect the transfer of the Receivables to the Trust. Therefore, any
good faith purchaser of the chattel paper described above would not be deemed to
have knowledge of a security interest (including an ownership interest) therein
because such purchaser would not learn of the transfer of or security interest
in the Receivables from a review of the chattel paper.
Possible Payment Delays or Losses Resulting From Lack of Enforceability of
Receivables. The inability of a Trust to realize amounts owed in respect of a
Receivable could adversely affect the amount available for distribution to, and
could result in delays and reductions in payments to, the Securityholders.
Federal and state consumer protection laws impose requirements upon creditors in
connection with extensions of credit and collections of retail installment loans
and certain of these laws make a transferee of such a loan (such as such Trust)
liable to the obligor thereon for any violation by the lender. The application
of such laws could render a Receivable unenforceable or otherwise uncollectible.
The Transferor will be obligated to purchase (or cause an Originator to
purchase) from the Trust any Receivable which fails to comply with such
requirements in the circumstances described in "Description of the Transfer and
Servicing Agreements--Transfer of Receivables." See also "Certain Legal Aspects
of the Receivables--Consumer Protection Laws" herein. However, if the Transferor
or an Originator fails for any reason to perform its purchase obligation,
Securityholders could experience delays or reductions in payments on their
Securities.
Possible Payment Delays or Losses Resulting From Third Party Liabilities of
Trusts. To the extent that a Dealer, Ganis or an Originator (including DFS)
violates consumer protection laws applicable to Receivables, a Trust could be
liable to the obligor, as assignee of the affected Receivables. See "Certain
Legal Aspects of the Receivables--Consumer Protection Laws." The related
Ganis/Depositor Transfer Agreement provides that the Transferor is required to
purchase or to cause an Originator to purchase from the Trust Receivables that
do not comply in all material respects with applicable law in the circumstances
described in "Description of the Transfer and Servicing Agreements--Transfer of
Receivables." However, if the Transferor (or an Originator) fails for any reason
to perform its purchase obligation, Securityholders could experience delays or
reductions in payments on their Securities as a result of any such liabilities
imposed on the applicable Trust.
Possible Payment Delays or Losses Resulting From Insolvency of a Bank
Originator. The FDIC, if appointed as conservator or receiver for an insolvent
Bank Originator, may interfere with the timely transfer to the Transferor of
payments collected on the Receivables or interfere with the timely liquidation
of Receivables. Such interference could result in delays and reductions in
payments to the Securityholders. In the case of an Originator (a "Bank
Originator") that is a depository institution, if such Bank Originator becomes
insolvent or is in an unsound condition, or under certain other circumstances,
the applicable banking regulators may appoint a conservator or receiver for such
Bank Originator. In most instances, the conservator or receiver would be the
Federal Deposit Insurance Corporation (the "FDIC").
14
In the event that the FDIC were to assert that the transfer of Receivables
by a Bank Originator that is subject to the Federal Deposit Insurance Act, as
amended (the "FDIA"), constituted a grant of a security interest rather than a
sale, the FDIA sets forth certain powers that the FDIC, in its capacity as
conservator or receiver for a Bank Originator, could exercise. Positions taken
by the FDIC do not suggest that the FDIC, if appointed as conservator or
receiver for a Bank Originator, would interfere with the timely transfer to the
Transferor of payments collected on the Receivables or interfere with the timely
liquidation of Receivables, provided that certain conditions, as described
below, had been satisfied. To the extent that such Bank Originator has granted a
security interest in the Receivables to the Transferor and that interest was
validly perfected before the appointment of the FDIC as conservator or receiver
and before such Bank Originator's insolvency, was not taken in contemplation of
the insolvency of such Bank Originator, and was not taken with the intent to
hinder, delay or defraud such Bank Originator or the creditors of such Bank
Originator, such security interest should not be subject to avoidance if the
Originator Agreement and related documents are approved by such Bank Originator
and are continuously maintained records of such Bank Originator (as required by
the FDIA) and the transactions represent bona fide and arm's length transactions
undertaken for adequate consideration in the ordinary course of business and the
secured party is neither an insider nor an affiliate of such Bank Originator. If
the foregoing conditions are satisfied and transfers of the Receivables
constitute neither voidable preferences nor fraudulent conveyances, payments to
the Transferor with respect to the Receivables should not be subject to recovery
by the FDIC, as conservator or receiver of such Bank Originator. The foregoing
conclusion is based upon policy statements of the FDIC and opinions of a former
general counsel of the FDIC. No assurance can be given, however, that all such
conditions have been satisfied with respect to any Bank Originator and the
Receivables transferred by such Bank Originator. If such conditions were not
satisfied or the FDIC, as conservator or receiver for a Bank Originator, were to
assert a position contrary to the policy statements, or were to require the
Transferor, the Depositor, the Trustee or the Indenture Trustee to establish its
right to those payments by submitting to and completing the administrative
claims procedure established under the FDIA, or the conservator or receiver were
to request a stay of proceedings with respect to such Bank Originator as
provided under the FDIA, delays in payments on the related Securities and
possible reductions in the amount of those payments could occur.
Notwithstanding the foregoing, the FDIA provides that the FDIC may
repudiate contracts determined by it to be burdensome. If the FDIC were to
repudiate an Originator Agreement, the claims (and any security interest
securing such claims) of the affected party thereof would be limited to actual,
direct compensatory damages and any security securing such claims would be
enforceable only to the extent of such damages. The FDIA does not define the
term "actual direct compensatory damages", but requires such damages to be
determined as of the date of the appointment of the conservator or receiver.
The FDIC, as conservator or receiver, would also have the rights and powers
conferred under applicable state or Federal law (including laws regarding bank
insolvencies and applicable laws regarding preferences or fraudulent
conveyances). In addition, the appointment of a receiver or conservator could
result in administrative expenses of the receiver or conservator having priority
over the interest of the Trustee or the Indenture Trustee in the Receivables. In
addition, if the FDIC were appointed as conservator or receiver of a Bank
Originator, certain administrative expenses of the conservator, receiver or
banking authorities may have priority over the Transferor's, the Depositor's,
the Trustee's or the Indenture Trustee's interest in the Receivables.
Possible Payment Delays or Losses Resulting From Insolvency of a Dealer, a
Nonbank Originator, the Transferor or the Depositor. The Transferor will
represent and warrant that, immediately prior to transferring Receivables to the
Depositor, the Transferor owns such
15
Receivables and that the transfer of the Receivables by it to the Depositor will
constitute a conveyance of such Receivables. References in this Prospectus or
the related Prospectus Supplement to a "conveyance" or a "transfer" from the
Transferor to the Depositor contemplate either a "sale" or a "capital
contribution" from the Transferor to the Depositor. The Ganis/Depositor Transfer
Agreement will set forth whether such conveyance or transfer is intended to be a
"sale" or a "capital contribution" of such Receivable by the Transferor to the
Depositor. The Depositor intends that the transfer of Receivables by it to a
Trust will constitute either a conveyance of such Receivables or a pledge of
such Receivables.
If a Dealer, the Transferor, an Originator other than a Bank Originator (a
"Nonbank Originator") or the Depositor were to become a debtor in a bankruptcy
case (or if the parent or another affiliate of a Dealer, the Transferor, a
Nonbank Originator or the Depositor were to become a debtor in a bankruptcy case
and the assets of such Dealer, the Transferor, such Nonbank Originator or the
Depositor, as applicable, were consolidated with those of its parent or with
those of such affiliate) and a creditor or trustee-in-bankruptcy of such debtor
or such debtor itself were to take the position that the transfer of Receivables
by such Dealer, the Transferor, such Nonbank Originator, or the Depositor, as
the case may be, should be treated as a pledge of such Receivables to secure a
borrowing of such debtor, then delays in payments of collections of Receivables
to the related Securityholders could occur or (should the court rule in favor of
any such trustee, debtor or creditor) reductions in the amounts of such payments
could result. If the transfer of Receivables by a Dealer, an Originator, the
Transferor or the Depositor is treated as a pledge instead of a conveyance, a
tax or government lien on the property of the Dealer, the Originator, the
Transferor or the Depositor, as applicable, arising before such transfer may
have priority over the interest of the Transferor, the Depositor or the Trust or
the Indenture Trustee in such Receivables. If all of the transactions
contemplated herein are treated as conveyances, the Receivables would not be
part of the bankruptcy estate of a Nonbank Originator, the Transferor or the
Depositor and would not be available to their respective creditors.
The Depositor has established various Trusts, and may establish additional
Trusts from time to time. To the extent that securities issued by any Trust are
rated lower than the securities issued by another Trust, the holders of the
lower rated securities may have an incentive to file a bankruptcy petition
against the Depositor and seek repayment of such securities from other assets of
the Depositor. Consequently, a default of lower-rated securities issued by a
Trust established by the Depositor could bring about the bankruptcy of the
Depositor that would result in, among other things, a default on higher-rated
(and other) securities issued by that Trust or another Trust.
Possible Losses Resulting From Insolvency of the Depositor Related to
Certain Trusts. With respect to each Trust that is not a grantor trust, if the
related Prospectus Supplement so provides, upon the occurrence of an Insolvency
Event of the Depositor, the Indenture Trustee or Trustee for such Trust will
promptly sell, dispose of or otherwise liquidate the related Receivables in a
commercially reasonable manner on commercially reasonable terms, except under
certain limited circumstances. The proceeds from any such sale, disposition or
liquidation of Receivables will be treated as collections on the Receivables and
deposited in the Collection Account of such Trust. If the proceeds from the
liquidation of the Receivables and any amounts on deposit in the Reserve
Account, if any, the Note Distribution Account, if any, and the Certificate
Distribution Account with respect to any such Trust and any amounts available
from any credit enhancement are not sufficient to pay any Notes and the
Certificates of the related series in full, the amount of principal returned to
any Noteholders or the Certificateholders will be reduced and such Noteholders
and Certificateholders will incur a loss.
Possible Payment Delays or Losses Resulting From Application of Octagon Gas
Case. In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
the U.S. Court of Appeals
16
for the 10th Circuit determined that "accounts," a defined term under the
Uniform Commercial Code, would be included in the bankruptcy estate of a
transferor regardless of whether the transfer is treated as a transfer or a
secured loan. Although the Receivables are likely to be viewed as "chattel
paper," as defined under the Uniform Commercial Code, rather than as accounts,
the Octagon holding is equally applicable to chattel paper. The circumstances
under which the Octagon ruling would apply are not fully known and the extent to
which the Octagon decision will be followed in other courts or outside of the
Tenth Circuit is not certain. If the holding in the Octagon case were applied in
a bankruptcy of a Dealer, an Originator, the Transferor or the Depositor,
however, even if the transfers of Receivables by the Dealer, by the Originator,
by the Transferor and by the Depositor were treated as conveyances, the
Receivables would be part of the bankruptcy estate of the Dealer, the
Originator, the Transferor or the Depositor (as applicable) and would be subject
to claims of certain creditors, and delays and reductions in payments to the
Securityholders could result. In light of the adoption of Revised Article 9 of
the UCC in Nevada, a result similar to that in the Octagon case could occur
under the transactions contemplated herein because the Depositor and DFS are
Nevada corporations, and the Depositor has an office in Nevada.
Possible Payment Delays or Losses Resulting From Substantive
Consolidation. The Transferor has taken steps in structuring the transactions
described herein that are intended to ensure that the voluntary or involuntary
application for the relief by the Transferor under the United States Bankruptcy
Code or similar state insolvency laws (collectively, "Insolvency Laws") will not
result in consolidation of the assets and liabilities of the Transferor with
those of the Depositor. These steps include the creation of the Depositor as a
separate, bankruptcy-remote, special-purpose corporation under a certificate of
incorporation containing certain limitations (including restrictions on the
nature of its business and a restriction on its ability to commence a voluntary
case or proceeding under any Insolvency Law without the consent of an
independent director). However, there can be no assurance that the activities of
the Depositor would not result in a court's concluding that the assets and
liabilities of the Depositor should be consolidated with those of the Transferor
or with those of another entity in a proceeding under any Insolvency Law. If the
assets of the Depositor were consolidated into the bankruptcy estate of the
Transferor or any other entity, the assets would be subject to claims of certain
creditors, and delays and reductions in payments to the Securityholders could
result.
Possible Payment Delays or Losses Resulting From Inability to Collect
Payments From Obligors. Numerous statutory provisions, including Insolvency
Laws, may interfere with or affect the ability of a creditor to collect payments
due under a contract or to enforce a deficiency judgment against an Obligor. For
example, a bankruptcy court may reduce the monthly payments of an Obligor due
under a Receivable or change the rate of interest applicable to such Receivable.
Such actions could result in delays in payments on the Securities and possible
reductions in the amount of those payments.
Possible Payment Delays or Losses Resulting From Failure of the Depositor,
Transferor or Servicer to Perform Under the Agreements. None of the Transferor,
the Servicer, the Depositor or any of their respective affiliates will generally
be obligated to make any payments in respect of any Notes, the Certificates or
the Receivables of a Trust. However, in connection with the transfer of
Receivables by the Transferor to the Depositor and the Depositor to a Trust, the
Transferor will make representations and warranties with respect to the
characteristics of such Receivables and, in certain circumstances, the Depositor
may be required to purchase from the Trust or the Transferor would be required
to purchase or to cause an Originator to purchase from the Depositor or the
Trust Receivables with respect to which such representations and warranties have
been breached. See "Description of the Transfer and Servicing
Agreements--Transfer of Receivables". In addition, under certain circumstances,
the Servicer may be required to purchase Receivables. See "Description of the
17
Transfer and Servicing Agreements--Servicing Procedures". If the Depositor, the
Transferor and/or the Servicer failed for any reason to perform in accordance
with their respective purchase obligations, then delays in payments on the
Securities and possible reductions in the amount of those payments could occur.
Moreover, if the Servicer were to cease acting as Servicer, the performance
of the Receivables could be adversely affected. In addition, delays in
processing payments on the Receivables and information in respect thereof could
occur and result in delays in payments to the Securityholders. See "The
Servicer."
Possible Payment Delays or Losses Resulting From Subordination of
Payments. To the extent specified in the related Prospectus Supplement,
distributions of interest and principal on one or more classes of Notes or
Certificates of a series may be subordinated in priority of payment to interest
and principal due on the Notes, if any, of such series or one or more other
classes of Notes or Certificates of such series. Investors in any subordinated
class or classes of Notes or Certificates should consider the risk that losses
on the Receivables will be borne by such investors if the Reserve Account (if
any) or any other credit enhancement, as described in the related Prospectus
Supplement, is exhausted and could result in delays and reductions in payments
to such investors.
Possible Payment Delays or Losses Resulting From Insufficient Payments on
the Receivables. No Trust will have, and no Trust is permitted or expected to
have, any significant assets or sources of funds other than the Receivables and,
to the extent provided in the related Prospectus Supplement, a Pre-Funding
Account, a Reserve Account and any other credit enhancement. The Notes of any
series will represent obligations solely of, and the Certificates of any series
will represent interests solely in, the related Trust and neither the Notes nor
the Certificates of any series will be insured or guaranteed by any of the
Transferor, the Depositor, the Servicer, any Trustee, any Indenture Trustee or
any other person or entity. Consequently, holders of the Securities of any
series must rely for repayment upon payments on the related Receivables and, if
and to the extent available, amounts on deposit in the Pre-Funding Account (if
any), the Reserve Account (if any) and any other credit enhancement, all as
specified in the related Prospectus Supplement. If such amounts and credit
enhancement are exhausted (and not replenished), the related Trust will depend
solely on payments on the Receivables to make distributions on the Securities,
and the Securities will bear the risk of delinquency, loan loss and
repossessions with respect to the Receivables. Losses on Receivables may be
larger than otherwise because the amount advanced on a Financed Asset may exceed
the value of the Financed Asset at the time a loan is initially made or at any
subsequent time, including at the time of foreclosure or repossession of the
Financed Asset if a default occurs with respect to the related Receivable. See
"Underwriting Procedures and Guidelines." If losses occur which are not covered
by credit enhancement for the Securities or exceed the amount covered by such
credit enhancement, delays and reductions in payments to Securityholders could
result.
Possible Losses Resulting From Payment Prior to Maturity. All the
Receivables are prepayable at any time. (For this purpose the term "prepayments"
includes prepayments in full, partial prepayments (including those related to
rebates of extended warranty contract costs and insurance premiums) and
liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and disability insurance policies). The rate of prepayments
on the Receivables may be influenced by a variety of economic, social and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Asset securing a Receivable without causing the related loan to
become due and payable. The rate of prepayment on the Receivables may also be
influenced by the structure of the loan evidencing the Receivable. In addition,
under certain circumstances, the Depositor will be obligated to purchase from
the Trust and the Transferor (or an Originator) will be obligated to purchase
from the Depositor or the Trust Receivables pursuant to a Transfer and Servicing
18
Agreement or Pooling and Servicing Agreement as a result of certain breaches of
representations and warranties and, under certain circumstances, the Servicer
will be obligated to purchase Receivables pursuant to such Transfer and
Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of certain covenants. See "Description of the Transfer and Servicing
Agreements--Transfer of Receivables" herein. As a result, the actual maturity of
any Class of Notes and/or Certificates could occur significantly earlier than
expected. Any such reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables held by a given Trust will be borne
entirely by the Securityholders of the related series of Securities. See
"Weighted Average Life of the Securities." See also "Description of the Transfer
and Servicing Agreements--Termination" herein regarding the Servicer's option to
purchase the Receivables of a given Receivables Pool. In addition, as described
above under "Possible Losses Resulting From an Insolvency Event of the Depositor
Related to Certain Trusts", in the case of a Trust that is not a grantor Trust
if so specified in the related Prospectus Supplement, as described in such
Prospectus Supplement, the sale of the Receivables owned by such Trust will be
required if an Insolvency Event with respect to the Depositor occurs.
Possible Payment Delays or Losses Resulting From Commingling. With respect
to each Trust, the Servicer will deposit all payments on the related Receivables
(from whatever source) and all proceeds of such Receivables collected during
each Collection Period into the Collection Account of such Trust within two
business days of receipt thereof. However, in the event that the Servicer
satisfies certain requirements for monthly or less frequent remittances and each
Rating Agency in respect of Securities issued by such Trust (as such term is
defined in the related Prospectus Supplement, a "Rating Agency" and,
collectively, the "Rating Agencies") affirm its ratings of the related
Securities at the initial level, then for so long as DFS is the Servicer and
provided that (i) there exists no Servicer Default and (ii) each other condition
to making such monthly or less frequent deposits as may be specified by the
Rating Agencies is satisfied, the Servicer will not be required to deposit such
amounts into the Collection Account of such Trust until each Distribution Date
or Payment Date. The Servicer will deposit the aggregate Purchase Amount of
Receivables purchased by the Servicer into the applicable Collection Account on
the applicable Distribution Date or Payment Date. Pending deposit into such
Collection Account, collections may be invested by the Servicer at its own risk
and for its own benefit and will not be segregated from funds of the Servicer.
If the Servicer were unable to remit such funds, such funds will not be
available for distribution to the applicable Securityholders and delays and
reductions in payments to Securityholders could result. In order to satisfy the
requirements described above, the Servicer may (but is not required to) obtain a
letter of credit or other credit enhancement for the benefit of the related
Trust to secure timely remittances of collections on the related Receivables and
payment of the aggregate Purchase Amount with respect to Receivables.
It is anticipated that the Servicer will satisfy the conditions to making
monthly or less frequent remittances and thus the Servicer will commingle
collections and will not be required to deposit such amounts in the Collection
Account until on or before each Distribution Date or Payment Date.
Possible Payment Delays and Losses Resulting From Changes in
Characteristics of Receivables Pool Due to Subsequent Receivables. Amounts on
deposit in any Pre-Funding Account may be invested only in Eligible Investments.
Subsequent Receivables may be originated by the Dealers, by Originators or by
the Transferor at a later date using credit criteria different from those which
were applied to any Initial Receivables and may be of a different credit quality
and seasoning. In addition, following the transfer of Subsequent Receivables to
the applicable Trust, the characteristics of the entire pool of Receivables
included in such Trust may vary from those of the Initial Receivables
transferred to such Trust. As a result, it is possible that the credit quality
of the Receivables in a Trust, as a whole, may
19
decline as a result of the inclusion of Subsequent Receivables and may result in
a higher or lower rate of payment to the applicable Securityholders as a result
of an increased level of defaults on such Receivables or may result in delays or
reductions in payments to Securityholders.
Possible Loss of Yield Resulting From Use of Balance in Pre-Funding Account
to Prepay Securities. To the extent that amounts on deposit in the Pre-Funding
Account have not been distributed to the Transferor by the end of the Funding
Period and such amount exceeds the applicable amount described in the related
Prospectus Supplement, the holders of Securities issued by the related Trust
will receive, on the Distribution Date or Payment Date on or immediately
following the last day of the applicable Funding Period, a prepayment of
principal in an amount equal to the amount remaining in the Pre-Funding Account.
It is anticipated that the principal balance of Subsequent Receivables
transferred to a Trust will not be exactly equal to the amount on deposit in the
Pre-Funding Account, and that therefore there will be at least a nominal amount
of principal prepaid to the holders of the Securities issued by such Trust.
Securityholders will bear all reinvestment risk associated with distribution to
Securityholders of amounts on deposit in the Pre-Funding Account after
termination of the applicable Funding Period. Any such distribution will have
the effect of a prepayment on the related Receivables and may result in a
reduction in the yield to maturity of any class of Securities to which such
amounts are distributed.
Possible Payment Delays and Losses Resulting From Control by Indenture
Trustee or Noteholders in Owner Trusts. With respect to any Owner Trust issuing
Notes, until the Notes have been paid in full, the ability to cause certain
actions permitted to be taken under the related Transfer and Servicing
Agreements rests with the related Indenture Trustee and the Noteholders instead
of the Certificateholders. The risk that the Noteholders, not the
Certificateholders, control the Owner Trust pertains only to Certificateholders
of Owner Trusts because an Owner Trust is authorized to issue both Notes and
Certificates while a Grantor Trust may issue only Certificates.
For example, with respect to an Owner Trust issuing Notes, in the event a
Servicer Default occurs, the Indenture Trustee or certain Noteholders with
respect to such series, as described under "Description of the Transfer and
Servicing Agreements--Rights upon Servicer Default" herein, may remove the
Servicer without the consent of the Trustee or any of the Certificateholders
with respect to such series. The Trustee or the Certificateholders with respect
to such series will not have the ability to remove the Servicer if a Servicer
Default occurs. In addition, the Noteholders of such series have the ability,
with certain specified exceptions, to waive defaults by the Servicer, including
defaults that could materially adversely affect the Certificateholders of such
series. See "Description of the Transfer and Servicing Agreements--Waiver of
Past Defaults" herein. The actions by the Indenture Trustee or the Noteholders
could result in delays or reductions in payments to Certificateholders.
Risk of Book-Entry Registration. Each class of Securities of a given
series will be initially represented by one or more certificates registered in
the name of Cede & Co. ("Cede"), or any other nominee for the Depository Trust
Company ("DTC") set forth in the related Prospectus Supplement (Cede, or such
other nominee, "DTC's Nominee"), and will not be registered in the names of the
holders of the Securities of such series or their nominees. Because of this,
unless and until Definitive Securities for such series are issued, holders of
such Securities will not be recognized by the Trustee or any applicable
Indenture Trustee as "Certificateholders", "Noteholders" or "Securityholders,"
as the case may be (as such terms are used herein or in the related Pooling and
Servicing Agreement or related Indenture and Trust Agreement, as applicable).
Hence, until Definitive Securities are issued, holders of such Securities will
only be able to exercise the rights of Securityholders indirectly through DTC
and its participating organizations. See "Certain Information Regarding the
Securities--Book-Entry Registration"
20
and "--Definitive Securities" herein. The Noteholders and the Certificateholders
are referred to collectively as the "Securityholders."
Ratings Are Not Recommendations; There Is No Assurance That a Rating Will
Remain In Effect. It will be a condition to the issuance of a series of
Securities that they be rated in one of the four highest rating categories by a
Rating Agency identified in the related Prospectus Supplement. Such rating
should not be deemed a recommendation to purchase, hold or sell Securities,
inasmuch as it does not address market price or suitability for a particular
investor. Such rating will not constitute an assessment of the likelihood that
principal prepayments on the related Receivables will be made, the degree to
which the rate of such prepayments might differ from that originally anticipated
or the likelihood of early optional termination of the Class of Notes and/or
Certificates. Such rating will not address the possibility that prepayment at
higher or lower rates than anticipated by an investor may cause such investor to
experience a lower than anticipated yield or that an investor purchasing a Note
and/or Certificate at a significant premium might fail to recoup its initial
investment under certain scenarios.
The Depositor has established Trusts prior to the date hereof and may
establish additional Trusts in the future. If the rating on some or all of the
Securities issued by a Trust is lowered or withdrawn by a rating agency, such
rating agency may also lower or withdraw its rating on some or all of the
Securities issued by another Trust.
There is no assurance that any rating of any Securities will remain in
effect for any given period of time or may not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant. A
reduction or withdrawal of a rating of Securities could adversely affect a
Securityholder's ability to transfer its Securities.
Risk if Non-U.S. Citizens Hold Securities. The validity of a Preferred
Mortgage or a state law security interest in a Financed Boat that has ever been
federally documented and operated other than for pleasure could be challenged if
Securityholders having a controlling interest with respect to a Trust were
determined to be nationals of, or under the control (directly or indirectly) of
entities in, countries that the U.S. Maritime Administration has named pursuant
to applicable regulations as being contrary to United States foreign policy
interests, or were determined to be foreign nationals or subject to foreign
control (directly or indirectly) in time of war or national emergency (and in
connection therewith transfers of Securities to such nationals or entities could
also be challenged). Any such challenge could result in delays or reductions in
payments on the Securities.
Nature of Summaries. It should be noted that this Prospectus and the
Prospectus Supplement contain summaries of certain legal matters. The summaries
do not purport to be complete and are qualified in their entirety by reference
to applicable federal and state laws. In particular, the summaries may include
matters governed by state laws; however, such laws may differ substantially from
state to state. The summaries do not purport to be complete nor to reflect the
laws of any particular state nor to encompass the laws of all states in which
any person, entity or Financed Asset may be situated.
Possible Losses and Delays in Payments Relating to Other Events or
Circumstances. Other events or circumstances could result in delays and
reductions in payments to Securityholders. Those events and circumstances
include, among others, those described under "Certain Legal Aspects of the
Receivables" herein.
21
THE TRUSTS
With respect to each series of Securities, the Depositor will establish a
separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement. The property of each Trust will include a
pool (a "Receivables Pool") of retail installment sales contracts or installment
loan contracts (i) between dealers (the "Dealers") and Obligors, (ii) between
Originators and Obligors and/or (iii) between the Transferor and Obligors, and
all payments received thereunder on and after the applicable Cutoff Date.
"Obligors" are persons who purchase or refinance new and used recreational
vehicles or who purchase or refinance new and used recreational sport and power
boats (including any boat motors and accompanying trailers) and yachts (both
power and sail). The Receivables of each Receivables Pool were or will be
originated by the Transferor, Originators and/or Dealers, acquired by the
Transferor, pursuant to agreements between the Transferor and Dealers ("Dealer
Agreements"), or pursuant to agreements between the Transferor and one or more
Originators, and transferred to the Depositor. Such Receivables will be serviced
by the Servicer. On or prior to the applicable Closing Date, the Transferor will
transfer the Receivables to the Depositor. On or prior to the applicable Closing
Date, the Depositor will transfer the Initial Receivables of the applicable
Receivables Pool to the Trust. To the extent so provided in the related
Prospectus Supplement, Subsequent Receivables will be transferred to the Trust
as frequently as daily during the Funding Period. Any Subsequent Receivables so
transferred will also be assets of the applicable Trust, subject to the prior
rights of the related Indenture Trustee and the Noteholders, if any, therein.
The property of each Trust will also include (i) such amounts as from time to
time may be held in separate trust accounts established and maintained pursuant
to the related Transfer and Servicing Agreement or Pooling and Servicing
Agreement and the proceeds of such accounts, as described herein and in the
related Prospectus Supplement; (ii) the Depositor's rights with respect to
security interests in the Financed Assets (other than security interests in
Federally Documented Boats, which security interests will be assigned to the
Boat Mortgage Trustee as described under "The Boat Mortgage Trust"); (iii) the
Depositor's rights with respect to proceeds from claims on certain physical
damage, credit life and disability insurance policies covering the Financed
Assets or the Obligors, as the case may be; (iv) any property that shall have
secured a Receivable and that shall have been obtained by the applicable Trust
incidental to a foreclosure or repossession in the event of a payment default;
and (v) any and all proceeds of the foregoing. To the extent specified in the
related Prospectus Supplement, a Pre-Funding Account, a Reserve Account or other
form of credit enhancement may be a part of the property of any given Trust or
may be held by the Trustee or an Indenture Trustee for the benefit of holders of
the related Securities.
Although the property of each Trust will include any interest of the
Depositor in proceeds from claims on physical damage insurance policies covering
the Financed Assets, the Servicer typically allows Obligors (unless the Financed
Asset is a total loss) to use such proceeds to repair or replace Financed Assets
instead of making corresponding prepayments of the applicable Receivables. The
applicable Transfer and Servicing Agreement or Pooling and Servicing Agreement
will permit the Servicer, subject to the servicing standards referred to
therein, to allow Obligors to use proceeds from such claims to repair or replace
Financed Assets rather than making prepayments of Receivables in the related
Trust.
The Servicer will continue to service the Receivables held by each Trust
and will receive fees for such services. See "Description of the Transfer and
Servicing Agreements--Servicing Compensation and Payment of Expenses" herein and
in the related Prospectus Supplement. To facilitate the servicing of the
Receivables, each Trustee will authorize the Servicer to retain physical
possession of the Receivables held by each Trust and other documents relating
thereto as custodian for each such Trust. Due to the administrative burden and
expense, the
22
certificates of title or UCC financing statements, as applicable, to the
Financed Assets will not be amended to reflect the transfer of the security
interest in the Financed Assets to each Trust. Assignments of security interests
in the Federally Documented Boats to the Boat Mortgage Trustee will not be filed
with the Coast Guard until on or before the 180th day after the Closing Date
specified in the related Prospectus Supplement. In the absence of such
amendments and filings, a Trust may not have a perfected security interest in
the Financed Assets in all states and the Boat Mortgage Trust will not have a
perfected security interest in Federally Documented Boats. In any event, the
Trust will not have a direct security interest in the Federally Documented
Boats. See "Risk Factors--Certain Legal Aspects--Security Interest in Financed
Assets," "Certain Legal Aspects of the Receivables" and "Description of the
Transfer and Servicing Agreements--Transfer of Receivables".
If the protection provided to any Noteholders of a series by the
subordination of the related Certificates or other Notes and by the Reserve
Account, if any, or other credit enhancement for such series or the protection
provided to Certificateholders by any such Reserve Account or other credit
enhancement is insufficient, such Noteholders or Certificateholders, as the case
may be, would have to look principally to payments on the related Receivables
and the proceeds from the repossession and sale of Financed Assets which secure
defaulted Receivables. In such event, certain factors, such as the applicable
Trust's not having perfected security interests in the Financed Assets in all
jurisdictions may affect the Servicer's ability to repossess and sell the
collateral securing the Receivables, and thus may reduce the proceeds to be
distributed to the holders of the Securities of such series. See "Description of
the Transfer and Servicing Agreements--Distributions", "--Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables".
Each Trust may be a "business trust" or common-law trust.
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
THE TRUSTEE
The Trustee for each Trust under the related Trust Agreement or Pooling and
Servicing Agreement will be specified in the related Prospectus Supplement. The
Trustee's liability in connection with the issuance and sale of the related
Securities is limited solely to the express obligations of such Trustee set
forth in the related Trust Agreement and the Transfer and Servicing Agreement or
the related Pooling and Servicing Agreement, as applicable. A Trustee may resign
at any time, in which event the Depositor will be obligated to appoint a
successor trustee. The Depositor may also remove the Trustee if the Trustee
ceases to be eligible to continue as Trustee under the related Trust Agreement
or Pooling and Servicing Agreement, as applicable, or if the Trustee is adjudged
insolvent. In such circumstances, the Depositor, as applicable, will be
obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
THE BOAT MORTGAGE TRUST
DFS and Ganis have entered into a boat mortgage trust agreement (the "Boat
Mortgage Trust Agreement") with Wilmington Trust Company as trustee (the "Boat
Mortgage Trustee"), a form of which has been filed with the Commission. This
Prospectus summarizes certain terms of the Boat Mortgage Trust Agreement. Such
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Boat Mortgage Trust
Agreement.
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The Boat Mortgage Trust Agreement provides that DFS and Ganis will assign
to the Boat Mortgage Trustee security interests in Financed Boats that are
documented under federal law (the "Federally Documented Boats"). Pursuant to the
Boat Mortgage Trust Agreement, the Boat Mortgage Trustee is appointed as trustee
of a trust (the "Boat Mortgage Trust") with respect to security interests in
such Federally Documented Boats. The Boat Mortgage Trustee will hold such
security interests for the benefit of DFS and Ganis at such time as DFS and
Ganis have not financed such Receivables through a Trust or another financing
transaction. Upon the transfer to a Trust of Receivables secured by Federally
Documented Boats, the Boat Mortgage Trustee will hold security interests in such
Federally Documented Boats for the benefit of such Trust and the applicable
Owner Trustee and Indenture Trustee.
At any point in time, the Boat Mortgage Trustee may be holding security
interests in different Federally Documented Boats for the benefit of different
Trusts. In addition, in the event that DFS, Ganis or the Depositor finances
Receivables other than through a Trust, the Boat Mortgage Trustee will hold
security interests in the Federally Documented Boats for the applicable parties
to such other financing transaction. The Boat Mortgage Trust Agreement provides
that Federally Documented Boats pertaining to a particular Trust or other
financing transaction will not be deemed to be collateral for any other Trust or
financing transaction.
If the Depositor, DFS, the Transferor or the Servicer purchases a
Receivable from a Trust (or from the Depositor, if applicable), then the Boat
Mortgage Trustee will hold the security interest with respect to the related
Federally Documented Boat for the benefit of the entity which will own such
Receivable after giving effect to such purchase or release.
DFS and Ganis entered into the Boat Mortgage Trust Agreement in order to
minimize the expense of assigning security interests in Federally Documented
Boats in connection with the formation of the Trusts and other financing
transactions secured by Receivables. In the absence of the arrangements
contemplated by the Boat Mortgage Trust Agreement, assigning a perfected
security interest in a Federally Documented Boat for the benefit of a Trust
would require (i) multiple assignments (from DFS to Ganis (if DFS Receivables
secured by Federally Documented Boats will be transferred to a Trust), from
Ganis to the Depositor, from the Depositor to the Trust and by the Trust in
favor of the Indenture Trustee (if applicable)), (ii) corresponding multiple
filings with the Coast Guard, and (iii) payment of separate filing fees to the
Coast Guard for each such filing. In contrast, the arrangements contemplated by
the Boat Mortgage Trust Agreement allow a single assignment by DFS or Ganis, as
the case may be, to the Boat Mortgage Trustee and a corresponding reduction in
the number of filings in respect of such assignments with the Coast Guard.
THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool are and will be retail installment
sales contracts or installment loans that have been or will be originated by the
Transferor, and/or originated by Dealers, and/or originated or acquired by
Deutsche Financial Services Corporation ("DFS") and/or other entities (DFS and
such other entities being referred to herein as "Originators"), and (with
respect to Receivables which were not originated by the Transferor) acquired by
the Transferor from such Dealers and/or Originators. The installment loans are
typically documented in a combined note and security agreement. Receivables held
by any Originator may have been acquired by such Originator from Dealers or from
other Originators. An Originator (such as DFS) may be an affiliate of the
Transferor. The Originators will be entities involved in the origination,
secondary market purchasing and/or servicing of retail installment sales
contracts, installment loans, loans and other receivables secured by boats or
recreational vehicles. In addition, the related Receivables Pool may include
Receivables acquired by an
24
Affiliate of the Transferor through acquisitions. Receivables will be
transferred by the Transferor to the Depositor pursuant to the Ganis/Depositor
Transfer Agreement and then will be transferred by the Depositor to the
applicable Trust.
The Receivables to be held by each Trust will be acquired by the Depositor
and chosen at random from the portfolio of the Transferor for inclusion in a
Receivables Pool in accordance with several criteria, including that each
Receivable (i) is secured by a new or used boat or recreational vehicle, (ii)
was originated in the United States, and (iii) as of the Cutoff Date was not
more than 59 days past due (provided that, as of the Cutoff Date, the ratio of
(x) the aggregate outstanding principal balance of the Receivables that are 31
to and including 59 days delinquent to (y) the aggregate outstanding principal
balance of the Receivables does not equal or exceed 20%). No selection
procedures believed by the Depositor to be adverse to the Securityholders of any
series were or will be used in selecting the related Receivables.
All of the Receivables will be Simple Interest Receivables. "Simple
Interest Receivables" are receivables that provide for the amortization of the
amount financed under each receivable over a series of periodic payments,
generally in monthly installments. Each such installment consists of an amount
of interest which is calculated on the basis of the outstanding principal
balance of the receivable multiplied by the stated APR and further multiplied by
the period elapsed (as a fraction of a calendar year) since the preceding
payment of interest was made. As payments are received under a Simple Interest
Receivable, the amount received is applied, first, to interest accrued to the
date of payment, second, to reduce the unpaid principal balance, and third, to
late fees and other fees and charges, if any. Accordingly, if an Obligor pays a
monthly installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be less than it would have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a monthly installment
after its scheduled due date, the portion of the payment allocable to interest
for the period since the preceding payment was made will be greater than it
would have been had the payment been made as scheduled, and the portion of the
payment applied to reduce the unpaid principal balance will be correspondingly
less. In either case, the Obligor pays a monthly installment until the final
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance and unpaid accrued interest. If a Simple Interest Receivable is prepaid,
the Obligor is required to pay interest only to the date of prepayment.
PAID-AHEAD RECEIVABLES
If an obligor, in addition to making his regularly scheduled payment, makes
one or more additional scheduled payments in any Collection Period (for example,
because the obligor intends to be on vacation the following month), the
additional scheduled payments made in such Collection Period will be treated as
a principal prepayment and applied to reduce the principal balance of the
related receivable in such Collection Period and, unless otherwise requested by
the obligor, the obligor will not be required to make any scheduled payment in
respect of such receivable (a "Paid-Ahead Receivable") for the number of due
dates corresponding to the number of such additional scheduled payments (the
"Paid-Ahead Period"). During the Paid-Ahead Period, interest will continue to
accrue on the principal balance of the receivable, as reduced by the application
of the additional scheduled payments made in the Collection Period in which such
receivable became a Paid-Ahead Receivable. The obligor's receivable would not be
considered delinquent during the Paid-Ahead Period.
When the obligor resumes his required payments following the Paid-Ahead
Period, the payment so paid may be insufficient to cover the interest that has
accrued since the last payment by the obligor. Notwithstanding such
insufficiency, the obligor's receivable would be
25
considered current. This situation will continue until the regularly scheduled
payments are once again sufficient to cover all accrued interest and to reduce
the principal balance of the receivable. Depending on the principal balance and
interest rate of the related receivable, and on the number of payments that were
paid-ahead, there may be extended periods of time during which receivables that
are current are not amortizing. During such periods, no distributions in respect
of principal will be made to the noteholders with respect to such receivables.
Paid-Ahead Receivables will affect the weighted average life of the
Securities. The distribution of the paid-ahead amount on the payment date
following the Collection Period in which such amount was received will generally
shorten the weighted average life of the Securities. However, depending on the
length of time during which a Paid-Ahead Receivable is not amortizing as
described above, the weighted average life of the Securities may be extended.
Additional information with respect to each Receivables Pool will be set
forth in the related Prospectus Supplement.
SUBSEQUENT RECEIVABLES
Subsequent Receivables may be originated by Dealers, Originators or the
Transferor at a later date using credit criteria different from those which were
applied to any Initial Receivables and may be of a different credit quality and
seasoning. In addition, following the transfer of Subsequent Receivables to the
applicable Trust, the characteristics of the entire pool of Receivables included
in such Trust may vary significantly from those of the Initial Receivables
transferred to such Trust. Each Prospectus Supplement will describe the effects
that including such Subsequent Receivables may have on the Receivables Pool
included in the Trust Property of the applicable Trust.
UNDERWRITING
For a description of certain underwriting procedures and guidelines of the
Transferor and of DFS (in its capacity as an Originator), see "Underwriting
Procedures and Guidelines" in the related Prospectus Supplement.
SERVICING AND COLLECTIONS
For a description of the Servicer's servicing procedures, see "The
Servicer" in the related Prospectus Supplement and "Description of the Transfer
and Servicing Agreements--Servicing Procedures" in this Prospectus.
LOSSES AND DELINQUENCIES
Certain information concerning the loss and delinquency experience of DFS
and the Transferor with respect to boat and recreational vehicle receivables
will be set forth in each Prospectus Supplement. There can be no assurance that
the loss and delinquency experience on any Receivables Pool will be comparable
to prior experience or to such information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates, if
any, of any series will generally be influenced by the rate at which the
principal balances of the related Receivables are paid, which payment may be in
the form of scheduled amortization or prepayments. (For this purpose, the term
"prepayments" includes prepayments in full, partial prepayments (including those
related to rebates of extended warranty contract costs and insurance premiums),
liquidations due to default, as well as receipts of proceeds from
26
physical damage, credit life and disability insurance policies.) All of the
Receivables are prepayable at any time without penalty to the Obligor. The rate
of prepayment of boat and recreational vehicle receivables is influenced by a
variety of economic, social and other factors, including the fact that the
Receivables generally provide that an Obligor generally may not sell or transfer
the Financed Asset securing a Receivable without the consent of DFS or Ganis, as
the case may be, or its successors and assigns. The rate of prepayment on the
Receivables may also be influenced by the structure of the loan. In addition,
under certain circumstances, the Depositor will be obligated to purchase from a
Trust or the Transferor (or an Originator, if applicable) will be obligated to
purchase Receivables from the Depositor or a Trust pursuant to the related
Transfer and Servicing Agreement or Pooling and Servicing Agreement as a result
of breaches of representations and warranties and the Servicer will be obligated
to purchase Receivables from such Trust pursuant to such Transfer and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of certain
covenants. In the case of any Security purchased at a discount to its principal
amount, a slower than anticipated rate of principal payments is likely to result
in a lower than anticipated yield. In the case of a Security purchased at a
premium to its principal amount, a faster than anticipated rate of principal
payments is likely to result in a lower than anticipated yield. See "Description
of the Transfer and Servicing Agreements--Transfer of Receivables" and
"--Servicing Procedures". See also "Description of the Transfer and Servicing
Agreements --Termination" herein regarding the Servicer's option to purchase the
Receivables from a given Trust. No prediction can be made as to the rate of
prepayment that the Receivables will experience.
The weighted average life of the Notes, if any, and the Certificates, if
any, of any series will generally be influenced by Paid-Ahead Receivables. See
"The Receivables Pool -- Paid-Ahead Receivables."
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes, if any, or the
Certificates, if any, of a given series on each Payment Date or Distribution
Date, as applicable, since such amount will depend, in part, on the amount of
principal collected on the related Receivables Pool during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne entirely by the
Noteholders, if any, and the Certificateholders of a given series. The related
Prospectus Supplement may set forth certain additional information with respect
to the maturity and prepayment considerations applicable to the particular
Receivables Pool and the related series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal balance of
such class of Notes, as of the applicable Payment Date (after giving effect to
payments to be made on such Payment Date), as a fraction of the initial
outstanding principal balance of such class of Notes. The "Certificate Pool
Factor" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be. A Noteholder's portion of
the aggregate outstanding principal balance of the related class of Notes is the
product of (i) the original denomination of such Noteholder's Note and (ii) the
27
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates is the
product of (a) the original denomination of such Certificateholder's Certificate
and (b) the applicable Certificate Pool Factor.
The Noteholders and the Certificateholders, as applicable, will receive
reports on or about each Payment Date concerning (i) with respect to the
Collection Period immediately preceding such Payment Date, payments received on
the Receivables, the aggregate Principal Balance of the Receivables as of the
close of business on the last day of a given Collection Period (excluding
Purchased Receivables and Defaulted Receivables) (the "Pool Balance"), each
Certificate Pool Factor or Note Pool Factor, as applicable, and various other
items of information, and (ii) with respect to the Collection Period second
preceding such Payment Date, as applicable, amounts allocated or distributed on
the preceding Payment Date and any reconciliation of such amounts with
information provided by the Servicer prior to such current Payment Date. In
addition, Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Certain Information Regarding the Securities--Reports to
Securityholders" herein.
USE OF PROCEEDS
The net proceeds from the sale of the Securities of a given series will be
applied by the applicable Trust (i) to acquire Receivables from the Depositor or
otherwise to make a distribution to the Depositor, or (ii) for any other purpose
described in the related Prospectus Supplement. The Depositor will use that
portion of such net proceeds paid to it with respect to any such Trust to
acquire Receivables from the Transferor or otherwise to make a distribution to
the Transferor and for general corporate purposes.
THE DEPOSITOR
Deutsche Recreational Asset Funding Corporation (the "Depositor") was
incorporated in the State of Nevada in 1998 as a wholly-owned subsidiary of the
Transferor. The Depositor maintains its principal office at 655 Maryville Centre
Drive, St. Louis, Missouri 63141. Its telephone number is (314) 523-3000.
The only obligations, if any, of the Depositor with respect to a Series of
Certificates and/or Notes may be pursuant to certain limited representations and
warranties and limited undertakings to purchase Receivables under certain
circumstances. See "Description of the Transfer and Servicing
Agreements--Transfer of Receivables." The Depositor will also undertake certain
obligations to the applicable underwriters pursuant to the applicable
underwriting agreement for a Series of Certificates of Notes. The Depositor will
have no ongoing servicing obligations or responsibilities with respect to any
Financed Asset. The Depositor does not have, nor is required to have, nor is
expected in the future to have, any significant assets.
Neither the Depositor nor the Transferor nor any of their respective
affiliates will insure or guarantee the Receivables or the Certificates and/or
Notes of any series.
THE TRANSFEROR
For a description of the Transferor and certain underwriting procedures and
guidelines of the Transferor, see "The Transferor" and "Underwriting Procedures
and Guidelines" in the related Prospectus Supplement.
28
UNDERWRITING PROCEDURES AND GUIDELINES
For a description of certain underwriting procedures and guidelines of DFS
and Ganis, see "Underwriting Procedures and Guidelines" in the applicable
Prospectus Supplement.
THE SERVICER
For description of the Servicer, see "The Servicer" in the related
Prospectus Supplement.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of Notes
of the related series will be issued pursuant to the terms of an Indenture, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. This Prospectus and the related Prospectus
Supplement summarize material terms of the related Notes and the Indenture. Such
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
Each class of Notes will initially be represented by one or more Notes, in
each case registered in the name of the nominee of DTC (together with any
successor depository selected by the Trust, the "Depository") except as set
forth below. The Notes will be available for purchase in denominations of
$1,000, and integral multiples thereof, in book-entry form only. The Depositor
has been informed by DTC that DTC's nominee will be Cede & Co. ("Cede").
Accordingly, Cede is expected to be the holder of record of the Notes of each
class. Unless and until Definitive Notes are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Noteholder will be entitled to receive a physical certificate representing a
Note. All references herein and in the related Prospectus Supplement to actions
by Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein and
in the related Prospectus Supplement to distributions, notices, reports and
statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC's procedures with respect
thereto. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Definitive Securities" herein.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such series, as
described in the related Prospectus Supplement. To the extent provided in the
related Prospectus Supplement, payments of interest on the Notes of such series
will be made prior to payments of principal thereon. To the extent provided in
the related Prospectus Supplement, a series may include one or more classes of
Strip Notes entitled to (i) principal payments with disproportionate, nominal or
no interest payments or (ii) interest payments with disproportionate, nominal or
no principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a given
29
series or the method for determining such Interest Rate. See also "Certain
Information Regarding the Securities--Fixed Rate Securities" and "--Floating
Rate Securities" herein. One or more classes of Notes of a series may be
redeemable in whole or in part under the circumstances specified in the related
Prospectus Supplement, including at the end of the Funding Period (if any) or as
a result of the Servicer's exercising its option to purchase the related
Receivables Pool.
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a series may have fixed principal payment schedules. Noteholders of
such Notes would be entitled to receive as payments of principal on any Payment
Date the applicable amounts set forth on such schedule with respect to such
Notes, in the manner and to the extent set forth in the related Prospectus
Supplement.
Payments to Noteholders of all classes within a series in respect of
interest will have the same priority. Under certain circumstances, the amount
available for such payments could be less than the amount of interest payable on
the Notes on any of the dates specified for payments in the related Prospectus
Supplement (each, a "Payment Date"), in which case each class of Noteholders
will receive its ratable share (based upon the aggregate amount of interest due
to such class of Noteholders) of the aggregate amount available to be
distributed in respect of interest on the Notes of such series. See "Description
of the Transfer and Servicing Agreements--Distributions" and "--Credit and Cash
Flow Enhancement" herein.
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
THE INDENTURE
Modification of Indenture. With respect to each Trust that has issued
Notes pursuant to an Indenture, the Trust and the Indenture Trustee may, with
the consent of the holders, of not less than a majority in principal amount of
the outstanding Notes of the related series, execute a supplemental indenture to
add provisions to, change in any manner or eliminate any provisions of, the
related Indenture, or modify (except as provided below) in any manner the rights
of the related Noteholders.
With respect to a series of Notes, in the absence of the consent of the
holder of each such outstanding Note affected thereby, no supplemental indenture
will: (i) change the date of payment of, any installment of principal of or
interest on any Note or reduce the principal amount thereof, the interest rate
specified thereon or the redemption price with respect thereto, or change any
place of payment where, or the coin or currency in which, any such Note or the
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the related Indenture regarding payment;
(iii) reduce the percentage of the aggregate amount of the outstanding Notes of
such series, the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of certain defaults thereunder and their consequences as provided for
in such Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor on
such Notes, the Depositor, the Transferor or an affiliate of any of them; (v)
reduce the percentage of the aggregate outstanding amount of such Notes, the
consent of the holders of which is required to direct the related Indenture
Trustee to sell or liquidate the Receivables if the proceeds of such sale would
be insufficient to pay the principal amount and accrued but unpaid interest on
the outstanding Notes of such series; (vi) decrease the percentage of the
30
aggregate principal amount of such Notes required to amend the sections of the
related Indenture which specify the applicable percentage of aggregate principal
amount of the Notes of such series necessary to amend such Indenture; or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien of
the related Indenture with respect to any of the collateral for such Notes or,
except as otherwise permitted or contemplated in such Indenture, terminate the
lien of such Indenture on any such collateral or deprive the holder of any such
Note of the security afforded by the lien of such Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not adversely affect in any material respect the interest
of any such Noteholder.
Events of Default; Rights Upon Event of Default. With respect to the Notes
of a given series, "Events of Default" under the related Indenture will consist
of: (i) a default for five days in the payment of any interest on any such Note;
(ii) a default in the payment of the principal of or any installment of the
principal of any such Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
applicable Trust made in the related Indenture and the continuation of any such
default for a period of time specified in the related Indenture (which may be as
long as 60 days) after notice thereof is given to such Trust by the applicable
Indenture Trustee or to such Trust and such Indenture Trustee by the holders of
at least 25% in principal amount of such Notes then outstanding; (iv) any
representation or warranty made by such Trust in the related Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within a period of time specified in the related Indenture (which may
be as long as 60 days) after notice thereof is given to such Trust by the
applicable Indenture Trustee or to such Trust and such Indenture Trustee by the
holders of at least 25% in principal amount of such Notes then outstanding; (v)
certain events of bankruptcy, insolvency, receivership or liquidation of the
applicable Trust; and (vi) any other event specified as an "Event of Default" in
the related Prospectus Supplement. However, the amount of principal required to
be paid to Noteholders of such series under the related Indenture will generally
be limited to amounts available to be deposited in the applicable Note
Distribution Account. Therefore, the failure to pay principal on a class of
Notes generally will not result in the occurrence of an Event of Default until
the final scheduled Payment Date for such class of Notes (which may be referred
to in the related Prospectus Supplement as the "Stated Maturity Date" for such
class of Notes). In addition, the amount of interest required to be paid to
Noteholders of subordinated classes of Notes under an Indenture may be
subordinated to payment in full of interest to higher classes of Notes, in which
case the failure to pay interest to such subordinated classes of Notes may not
constitute an Event of Default under such Indenture.
The "Highest Priority Notes" of any series are as specified in the related
Prospectus Supplement.
If an Event of Default, other than a payment default, should occur and be
continuing with respect to the Notes of any series, then and in every such case
the Indenture Trustee or the holders of Notes representing not less than a
majority of the outstanding principal amount of the Notes of such series may
declare all of the Notes of such series to be immediately due and payable. If an
Event of Default should occur as a result of failure to pay interest when due on
any class of Notes of such series, or as a result of failure to pay principal
upon the redemption date or the maturity date of any class of Notes of such
series, then and in every such case the Indenture Trustee or the holders of
Notes representing not less than a majority of the outstanding principal amount
of the Highest Priority Notes of such series may make
31
such declaration. Upon such declaration, the unpaid principal of all the Notes
of such series, together with accrued and unpaid interest thereon through the
date of acceleration, shall become immediately due and payable. Such declaration
may, under certain circumstances, be rescinded by the holders of Notes
representing at least a majority in principal amount of the Notes of such series
then outstanding.
If the Notes of any series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
applicable Trust maintain possession of such Receivables and continue to apply
collections on such Receivables as if there had been no declaration of
acceleration. However, such Indenture Trustee is prohibited from selling the
related Receivables following an Event of Default, other than a default in the
payment of any principal of or a default for five days or more in the payment of
any interest on any Note of such series, unless (i) the holders of all such
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale or (iii) such Indenture Trustee
determines that the proceeds of Receivables would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and such
Indenture Trustee obtains the consent of the holders of at least 66 2/3% of the
aggregate outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes, if such
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to the provisions for indemnification and
certain limitations contained in the related Indenture, the holders of a
majority in principal amount of the outstanding Notes of a given series will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the applicable Indenture Trustee, and the holders of
a majority in principal amount of such Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or provision of
such Indenture that cannot be modified without the waiver or consent of all the
holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in principal
amount of the outstanding Notes of such series have made written request to such
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such holder or holders have offered such Indenture Trustee
reasonable indemnity, (iv) such Indenture Trustee has for 60 days failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to such Indenture Trustee during such 60-day period by
the holders of a majority in principal amount of such outstanding Notes, subject
to the next sentence. Notwithstanding any other provision of the related
Indenture, the right of any Noteholder to receive payment of the principal of
and interest on its Notes, on or after the respective due dates expressed in the
Indenture, or to institute suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected without the
consent of such Noteholder, except that the related Indenture may contain
provisions limiting or denying the right of any such Noteholder to institute any
such suit, if and to the extent that the institution or prosecution thereof or
the
32
entry of judgment therein would, under applicable law, result in the surrender,
impairment, waiver or loss of the lien of such Indenture for any property
subject to such lien.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
acquiesce, petition or otherwise invoke or cause (or join with any other person
in acquiescing, petitioning or otherwise invoking or causing) the Depositor or
the related Trust or the Boat Mortgage Trust to invoke the process of any court
or government authority for the purpose of commencing or sustaining a case
against the Depositor or the related Trust or the Boat Mortgage Trust under any
federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator, or other
similar official of the Depositor or the related Trust or the Boat Mortgage
Trust or any substantial part of the property of the Depositor or the related
Trust or the Boat Mortgage Trust, or ordering the winding up or liquidation of
the affairs of the Depositor or related Trust or the Boat Mortgage Trust.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the related Notes or for the agreements of such Trust contained in the
applicable Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related series and the performance or observance of every
agreement and covenant of such Trust under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) such Trust has been advised that the rating of the Notes or
the Certificates of such series then in effect would not be reduced or withdrawn
by the Rating Agencies as a result of such merger or consolidation and (v) such
Trust has received an opinion of counsel to the effect that such consolidation
or merger would have no material adverse tax consequence to the Trust or to any
related Noteholder or Certificateholder.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements or
certain related documents with respect to such Trust (collectively, the "Related
Documents"), sell, transfer, exchange or otherwise dispose of any of the assets
of such Trust, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon such Trust, (iii) dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the related Indenture
to be impaired or permit any person to be released from any covenants or
obligations with respect to such Notes under such Indenture except as may be
expressly permitted thereby or (v) except as contemplated by the related
Indenture permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance to be created on or extend to or otherwise arise upon or
burden the assets of such Trust or any part thereof, or any interest therein or
the proceeds thereof.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement titled "The Trust". No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture, pursuant to any
Servicer Advances made to it by the Servicer or otherwise in accordance with the
Related Documents.
33
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. If required by the Trust Indenture Act
of 1939, the Indenture Trustee for each Trust will be required to mail each year
to all related Noteholders a brief report relating to its eligibility and
qualification to continue as Indenture Trustee under the related Indenture, any
amounts advanced by it under the Indenture, the amount, interest rate and
maturity date of certain indebtedness owing by such Trust to the applicable
Indenture Trustee in its individual capacity, the property and funds physically
held by such Indenture Trustee as such and any action taken by it that
materially affects the related Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery of
all such Notes to the related Indenture Trustee for cancellation or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may resign
at any time, in which event the Depositor will be obligated to appoint a
successor trustee for such series. The Depositor may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue as
such under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances, the Depositor will be obligated to appoint a successor
trustee for the applicable series of Notes. Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee for any series of Notes
does not become effective until acceptance of the appointment by the successor
trustee for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series may be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
This Prospectus and the related Prospectus Supplement summarize material terms
of the Certificates, the related Trust Agreement or the related Pooling and
Servicing Agreement. Such summary does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement or Pooling and Servicing Agreement, as
applicable.
In the event that the Depositor and/or affiliates of the Depositor are the
sole holders of undivided interests in a Trust, such undivided interests may not
be represented by a certificate.
Except for the Certificates, if any, of a given series purchased by the
Depositor, each class of Certificates will initially be represented by one or
more Certificates registered in the name of the Depository, except as set forth
below. Except for the Certificates, if any, of a given series purchased by the
Depositor, the Certificates will be available for purchase in minimum
denominations of $1,000 in book-entry form only. The Depositor has been informed
by DTC that DTC's nominee will be Cede. Accordingly, such nominee is expected to
be the holder of record of the Certificates of any series that are not purchased
by the Depositor. Unless and until Definitive Certificates are issued under the
limited circumstances described herein or in
34
the related Prospectus Supplement, no Certificateholder (other than the
Depositor) will be entitled to receive a physical certificate representing a
Certificate. All references herein and in the related Prospectus Supplement to
actions by Certificateholders refer to actions taken by DTC upon instructions
from the Participants and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities" herein. Any
Certificates of a given series owned by the Depositor will be entitled to equal
and proportionate benefits under the applicable Trust Agreement or Pooling and
Servicing Agreement, except that such Certificates will be deemed not to be
outstanding for the purpose of determining whether the requisite percentage of
Certificateholders have given any request, demand, authorization, direction,
notice, consent or have taken other action under the Related Documents.
PRINCIPAL AND INTEREST ON THE CERTIFICATES
The timing and priority of distributions, seniority, any allocations of
losses, Pass Through Rate and amount of or method of determining distributions
with respect to principal and interest of each class of Certificates will be
described in the related Prospectus Supplement. Distributions of interest on
such Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and will be made prior to distributions
with respect to principal of such Certificates. With respect to any Trust that
issues both Notes and Certificates, the Distribution Date for the Certificates
may coincide with the Payment Date for the Notes, in which case such date will
be referred to in the related Prospectus Supplement as a Payment Date with
respect to both the Notes and Certificates. To the extent provided in the
related Prospectus Supplement, a series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Pass Through Rate,
which may be a fixed, variable or adjustable Pass Through Rate (and which may be
zero for certain classes of Strip Certificates) or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass Through Rate
for each class of Certificates of a given series or the method for determining
such Pass Through Rate. See also "Certain Information Regarding the
Securities--Fixed Rate Securities" and "--Floating Rate Securities" herein. To
the extent provided in the related Prospectus Supplement, distributions in
respect of the Certificates of a given series that includes Notes may be
subordinate to payments in respect of the Notes of such series as more fully
described in the related Prospectus Supplement. Distributions in respect of
interest on and principal of any class of Certificates will be made on a pro
rata basis among all the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
Each class of Securities of any series will represent the right to receive
a specified amount of payments on the related Receivables, at the rates, on the
dates and in the manner described herein and in the related Prospectus
Supplement. If a series includes multiple classes of Securities, the rights of
one or more classes of Securities to receive payments may be senior or
subordinate to the rights of one or more of the other classes of such series.
35
Distributions on Certificates of a series may be subordinated in priority to
payments due on any related Notes to the extent described herein and in the
related Prospectus Supplement. A series may include one or more classes of Notes
and/or Certificates which differ as to the timing and priority of payment,
interest rate or amount (or percentage) of distributions in respect of principal
or interest or both. A series may include one or more classes of Notes or
Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions with disproportionate, nominal or no distributions in respect of
principal. The rate of payment in respect of principal of any class of Notes and
distributions in respect of the Certificate Balance of the Certificates of any
class will depend on the priority of payment of such class and the rate and
timing of payments (including prepayments, defaults, liquidations and
repurchases of Receivables) on the related Receivables. A rate of payment lower
or higher than that anticipated may affect the weighted average life of each
class of Securities in the manner described herein and in the related Prospectus
Supplement. See "Risk Factors" herein and in the related Prospectus Supplement.
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. See "Description of the
Notes--Principal and Interest on the Notes" and "Description of the
Certificates--Principal and Interest on the Certificates" herein.
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of one percent) that may be specified in
the applicable Prospectus Supplement as being applicable to such class, and the
"Spread Multiplier" is the percentage that may be specified in the applicable
Prospectus Supplement as being applicable to such class.
BOOK-ENTRY REGISTRATION
Holders of the Certificates or the Notes may hold through DTC (in the
United States) or, solely in the case of the Notes, Clearstream, Luxembourg or
Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations that are participants in such systems. The Certificates
may not be held, directly or indirectly, through Clearstream, Luxembourg or
Euroclear. Cede, as nominee for DTC, will hold the Securities. Clearstream,
Luxembourg and Euroclear will hold omnibus positions in the Notes on behalf of
the Clearstream, Luxembourg Participants and the Euroclear Participants,
respectively, through customers' securities accounts in Clearstream,
Luxembourg's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries"), which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York
36
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also facilitates the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Direct Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. Access to the
DTC system is also available to others such as securities brokers and dealers,
banks, and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants").
Purchases of securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for such securities on DTC's
records. The ownership interest of each actual purchaser of each such security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive a written confirmation
from DTC of their purchase. Transfers of ownership interests in such securities
are to be accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in such securities,
except in the event that use of the book-entry system for such securities is
discontinued.
To facilitate subsequent transfers, all securities deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of securities with DTC and their registration
in the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such securities are credited, which may or may not be the
Beneficial Owners. The Direct and Indirect Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or
vote with respect to the securities. Under its usual procedures, DTC mails an
"Omnibus Proxy" to the applicable Trust as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Payments and redemption proceeds on the securities will be made to Cede &
Co., or such other nominee as may be requested by an authorized representative
of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's
receipt of funds and corresponding detail information from the applicable Trust
or trustee on payable date in accordance with their respective holdings shown on
DTC's records. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, 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 such Participant and not of DTC, the
applicable Trust or the applicable trustee, subject to any statutory or
regulatory requirements as may be in effect from time to time. The making of
payments and redemption proceeds to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) is the responsibility of the
applicable Trust or the applicable trustee, disbursement of such payments
37
to Direct Participants shall be the responsibility of DTC, and disbursement of
such payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to securities at any time by giving notice to the applicable Trust or
the applicable trustee.
Transfers between DTC's participating organizations (the "Participants")
will occur in accordance with DTC rules. Transfers between Clearstream,
Luxembourg Participants and Euroclear Participants will occur in the ordinary
way in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same- day funds settlement applicable to DTC.
Clearstream, Luxembourg Participants and Euroclear Participants may not deliver
instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Clearstream,
Luxembourg or Euroclear as a result of a transaction with a Participant will be
made during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the relevant
Clearstream, Luxembourg Participant or Euroclear Participant on such business
day. Cash received in Clearstream, Luxembourg or Euroclear as a result of sales
of securities by or through a Clearstream, Luxembourg Participant or a Euroclear
Participant to a Participant will be received with value on the DTC settlement
date but will be available in the relevant Clearstream, Luxembourg or Euroclear
cash account only as of the business day following settlement in DTC.
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders will receive all distributions of principal and
interest from the related Indenture Trustee or the related Trustee, as
applicable (the "Applicable Trustee"), through Participants. Under a book-entry
format, Securityholders may experience some delay in their receipt of payments,
since such payments will be forwarded by the Applicable Trustee to DTC's
nominee. DTC will forward such payments to its Participants, which thereafter
will forward them to Indirect Participants or Securityholders. Except to the
extent the Depositor holds Certificates with respect to any series of
Securities, it is anticipated that the only "Securityholder", "Noteholder" and
"Certificateholder" will be DTC's nominee. Noteholders will not be recognized by
each Indenture Trustee as Noteholders, as such term is used in each Indenture,
and Noteholders will be permitted to exercise the rights of Noteholders only
indirectly through DTC and its Participants. Similarly, Certificateholders will
not be recognized by each Trustee as Certificateholders as such term is used in
each Trust Agreement or Pooling and Servicing Agreement, and Certificateholders
will be permitted to exercise the rights of Certificateholders only indirectly
through DTC and its Participants.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons
38
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte,
L-2967 Luxembourg ("Clearstream, Luxembourg"), was incorporated in 1970 as
"Cedel S.A.", a company with limited liability under Luxembourg law (a societe
anonyme). Cedel S.A. subsequently changed its name to Cedelbank. On January 10,
2000, Cedelbank's parent company, Cedel International, societe anonyme ("CI")
merged its clearing, settlement and custody business with that of Deutsche Borse
Clearing AG ("DBC"). The merger involved the transfer by CI of substantially all
of its assets and liabilities (including its shares in CB) to a new Luxembourg
company, New Cedel International, societe anonyme ("New CI"), which is 50% owned
by CI and 50% owned by DBC's parent company Deutsche Borse AG.
Further to the merger, the Board of Directors of New Cedel International
decided to rename the companies in the group in order to give them a cohesive
brand name. The new brand name that was chosen is "Clearstream". With effect
from January 14, 2000 New CI has been renamed "Clearstream International,
societe anonyme". On January 18, 2000, Cedelbank was renamed "Clearstream
Banking, societe anonyme", and Cedel Global Services was renamed "Clearstream
Services, societe anonyme".
On January 17, 2000, DBC was renamed "Clearstream Banking AG". This means
that there are now two entities in the corporate group headed by Clearstream
International which share the name "Clearstream Banking", the entity previously
named "Cedelbank" and the entity previously named "Deutsche Borse Clearing AG".
Clearstream, Luxembourg holds securities for its customers ("Clearstream,
Luxembourg Participants") and facilitates the clearance and settlement of
securities transactions between Clearstream, Luxembourg customers through
electronic book-entry changes in accounts of Clearstream, Luxembourg customers,
thereby eliminating the need for physical movement of certificates. Transactions
may be settled by Clearstream, Luxembourg in various currencies, including
United States Dollars. Clearstream, Luxembourg provides to its customers, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg also deals with domestic securities markets in various
countries through established depository and custodial relationships.
Clearstream, Luxembourg is registered as a bank in Luxembourg, and as such is
subject to regulation by the Commission de Surveillance du Secteur Financier,
"CSSF", which supervises Luxembourg banks. Clearstream, Luxembourg's customers
are world-wide financial institutions including underwriters, securities brokers
and dealers, banks, trust companies and clearing corporations. Indirect access
to Clearstream, Luxembourg is available to other institutions that clear through
or maintain a custodial relationship with an account holder of Clearstream,
Luxembourg. Clearstream, Luxembourg has established an electronic bridge with
the Euroclear Operator in Brussels to facilitate settlement of trades between
Clearstream, Luxembourg and Euroclear.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear system ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in Euroclear in various currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC. The Euroclear System is operated by Euroclear
Bank S.A./N.V. (the "Euroclear Operator" or "Euroclear"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear
39
Operator. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriter(s). Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through Clearstream, Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream, Luxembourg
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by its Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "Certain Federal Income Tax
Consequences" herein and "Global Clearance, Settlement and Tax Documentation
Procedures" in Annex I hereto. Clearstream, Luxembourg or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Noteholder under the Indenture on behalf of a Clearstream, Luxembourg
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Notes among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
In the event that any of DTC, Clearstream, Luxembourg or Euroclear should
discontinue its services, the Administrator, if any, or the Applicable Trustee
would seek an alternative depository (if available) or cause the issuance of
Definitive Securities to the owners thereof or their nominees in the manner
described under "Certain Information Regarding the Securities --Definitive
Securities".
Except as required by law, none of the Administrator, if any, the
Applicable Trustee, the underwriter(s) of the Securities, the Depositor, the
Transferor or the Servicer will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of the
Securities of any series held by DTC's nominee, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
DEFINITIVE SECURITIES
The Notes, if any, and the Certificates, if any, of a series will be issued
in fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates", respectively, and collectively referred to herein as "Definitive
Securities") to Noteholders or Certificateholders or their respective nominees,
rather than to DTC or its nominee, only if (i) the Depositor, determines that
DTC is no longer willing or able to discharge properly its responsibilities as
the Depositor with respect to such Securities and such Applicable Trustee is
unable to locate a qualified successor, (ii) the Depositor, at its option,
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Default or a Servicer Default with respect to such
Securities, holders representing at least a majority of the outstanding
principal amount
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of the Notes or the Certificates, as the case may be, of such series advise DTC
in writing that the continuation of a book- entry system through DTC (or a
successor thereto) with respect to such Notes or Certificates is no longer in
the best interest of the holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the typewritten Notes or
Certificates representing the corresponding Securities and receipt of
instructions for re-registration, the Applicable Trustee will reissue such
Securities as Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the Applicable Trustee. The final payment on any such Definitive
Security, however, will be made only upon presentation and surrender of such
Definitive Security at the office or agency specified in the notice of final
distribution to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Trust or the Applicable Trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
LIST OF SECURITYHOLDERS
With respect to the Notes of any series, three or more holders of the Notes
of such series may, by written request to the related Indenture Trustee, obtain
access to the list of all Noteholders maintained by such Indenture Trustee for
the purpose of communicating with other Noteholders with respect to their rights
under the related Indenture or under such Notes. Such 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 such series.
With respect to the Certificates of any series, a holder of a Certificate
may, by written request to the related Trustee, obtain access to the list of all
Certificateholders maintained by such 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 such Certificates.
REPORTS 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 the related Noteholders on such
Payment Date. With respect to each series of Securities, on or prior to each
Distribution Date, the Servicer will prepare and provide to the related Trustee
a statement to be delivered to the related Certificateholders. With respect to
each series of Securities, each such statement to be delivered to Noteholders
will include (to the extent applicable) the following information (and any other
information so specified in the related Prospectus Supplement) as to the Notes
of such series with respect to such Payment Date or the period since the
previous Payment Date, as applicable, and each such statement to be delivered to
Certificateholders will include (to the extent applicable) the following
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information (and any other information so specified in the related Prospectus
Supplement) as to the Certificates of such series with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or with
respect to each class of Securities of such series;
(iii) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(iv) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such date;
(v) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period or Collection Periods, as the case may be;
(vi) the Interest Rate or Pass Through Rate for the next period for
any class of Notes or Certificates of such series with variable or
adjustable rates;
(vii) any shortfall in required payments on the Securities, if any, in
each case as applicable to each class of Securities, and the change in such
amounts from the preceding statement;
(viii) the aggregate Purchase Amounts for Receivables, if any, that
were repurchased in such Collection Period;
(ix) the balance of the Reserve Account (if any) on such date, after
giving effect to changes therein on such date;
(x) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount; and
(xi) for the first such date that is on or immediately following the
end of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been distributed to the Transferor and is being passed
through as payments of principal on the Securities of such series.
Each amount set forth pursuant to subclauses (i), (ii), and (v) with
respect to the Notes or the Certificates of any series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
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
will mail to each person who at any time during such calendar year has been a
Securityholder with respect to such Trust and received any payment thereon a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Certain Federal
Income Tax Consequences" herein.
In addition, the filing with the Commission of periodic reports with
respect to each Trust will cease following completion of the reporting period
required by Rule 15d-1 of Regulation 15D under the Exchange Act.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Transfer and
Servicing Agreement or Pooling and Servicing Agreement pursuant to which a Trust
will acquire Receivables from the Depositor and the Servicer will agree to
service such Receivables, each Trust Agreement (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 each Administration Agreement pursuant to
which the Servicer (or such other person named in the related Prospectus
Supplement) will undertake certain administrative duties with respect to a Trust
that issues Notes (collectively, the "Transfer and Servicing Agreements"). Forms
of the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. This Prospectus
and the Prospectus Supplement summarize material terms of the Transfer and
Servicing Agreements. Such summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
the Transfer and Servicing Agreements.
TRANSFER OF RECEIVABLES
On or prior to the closing date (the "Closing Date") specified in the
Prospectus Supplement for a Trust, the Transferor will transfer, without
recourse, to the Depositor its entire interest in the related Initial
Receivables and its security interests in the related Financed Assets (other
than Federally Documented Boats) pursuant to a transfer agreement (the
"Ganis/Depositor Transfer Agreement"). On or prior to such Closing Date, the
Depositor will transfer to the Applicable Trustee, without recourse, pursuant to
a Transfer and Servicing Agreement or a Pooling and Servicing Agreement, as
applicable, its entire interest in such Initial Receivables, including its
security interests in the related Financed Assets. Each such Receivable will be
identified in a schedule appearing as an exhibit to such Pooling and Servicing
Agreement or Transfer and Servicing Agreement (a "Schedule of Receivables"). The
Applicable Trustee will, concurrently with such transfer, execute and deliver
the related Notes and/or Certificates. The Applicable Trustee will not verify
the existence of the Receivables or review the Receivables files. The related
Prospectus Supplement for a given Trust will specify whether, and the terms,
conditions and manner under which, Subsequent Receivables will be transferred by
the Transferor to the Depositor and by the Depositor to the applicable Trust
from time to time during any Funding Period on each date specified as a transfer
date in the related Prospectus Supplement (each, a "Subsequent Transfer Date").
The Depositor will acquire Receivables from the Transferor pursuant to a
Ganis/Depositor Transfer Agreement, and the Transferor may acquire Receivables
from DFS pursuant to a transfer agreement (the "DFS/Ganis Transfer Agreement")
or pursuant to another intercompany transfer arrangement. In each
Ganis/Depositor Transfer Agreement the Transferor will represent and warrant,
among other things, that: (i) the information provided in the related Schedule
of Receivables with respect to Receivables originated by the Transferor or
acquired by the Transferor from Dealers or acquired by the Transferor from DFS
prior to the Closing Date ("Transferor Receivables") is correct in all material
respects; (ii) the Obligor on each Transferor Receivable is required to maintain
physical loss and damage insurance covering the related Financed Asset; (iii)
immediately prior to the conveyance of the Receivables by the Transferor to the
Depositor, the Transferor had good and indefeasible title to the Receivables,
free and clear of all security interests, liens, charges and encumbrances (other
than tax liens, mechanics' liens and any liens that attach to a Receivable by
operation of law as a result of any act or omission by the related Obligor) and,
to the knowledge of the Transferor, no offsets, defenses or counterclaims have
been asserted or threatened with respect to the Transferor Receivables; (iv) as
of the Closing Date or the applicable Subsequent Transfer Date, if any, each of
such Receivables is or will be secured by a first perfected security interest in
favor of the Transferor in the related Financed Asset other than certain horse
trailers; and
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(v) to the knowledge of the Transferor, each Transferor Receivable, at the time
it was originated, complied and, as of the Closing Date or the applicable
Subsequent Transfer Date, if any, complies in all material respects with
applicable federal and state laws, including, without limitation, consumer
credit, truth in lending, equal credit opportunity and disclosure laws. DFS will
make similar representations and warranties in any DFS/Ganis Transfer Agreement,
if applicable, with respect to Receivables originated or acquired by DFS. In the
Transfer and Servicing Agreement, the Depositor will represent and warrant as of
the Closing Date that (i) no Receivable has been sold, transferred, assigned or
pledged by the Depositor other than to the related Trust; (ii) immediately prior
to the transfer and assignment by the Depositor to the related Trust, the
Depositor had good and marketable title to each Receivable, free and clear of
all liens (other than tax liens, mechanics' liens and any liens that attach to a
Receivable by operation of law as a result of any act or omission by the related
Obligor) and, immediately upon the transfer thereof, the related Trust will have
good and marketable title to each Receivable, free and clear of all such liens
(other than tax liens, mechanics' liens and any liens that attach to a
Receivable by operation of law as a result of any act or omission by the related
Obligor) and such transfer has been perfected under the UCC; and (iii) all
filings (including UCC filings) necessary in any jurisdiction to give the
related Trust a first perfected ownership interest in the Receivables and the
Indenture Trustee a first perfected security interest in the Receivables have
been made.
Upon discovery by the Depositor, the Servicer, the Trustee or the Indenture
Trustee of a breach of any of such representations and warranties of the
Depositor set forth in the Transfer and Servicing Agreement, of the Transferor
set forth in the Ganis/Depositor Transfer Agreement or of DFS set forth in the
DFS/Ganis Transfer Agreement, in each case which materially and adversely
affects the value of the Receivables or the interest therein of the related
Trust or the Indenture Trustee (or which materially and adversely affects the
interest of the related Trust or the Indenture Trustee in the related Receivable
in the case of a representation and warranty relating to a particular
Receivable), the person discovering such breach shall give prompt written notice
to the other parties thereto. On the last day of the Collection Period following
the Collection Period during which the Depositor discovers or receives notice of
such a breach, if such breach shall not have been cured in all material respects
by such last day, then the Depositor shall purchase (and, if applicable, the
Depositor shall enforce the obligation of DFS, under the DFS/Ganis Transfer
Agreement, or Ganis, under the Ganis/Depositor Transfer Agreement, to purchase)
such Receivable from the related Trust as of such last day at a price equal to
the unpaid principal balance owed by the Obligor thereon plus interest thereon
at the respective APR to such last day (the "Purchase Amount"). The purchase
obligations described above constitute the sole remedy available to the Trust,
DFS, Ganis, the Depositor, the Certificateholders or the Trustee and any
Noteholders or Indenture Trustee for any such uncured breach. The obligation of
the Depositor to purchase any Receivable that arises as a result of a breach of
the representations and warranties of DFS or the Transferor under the DFS/Ganis
Transfer Agreement or the Ganis/Depositor Transfer Agreement, as the case may
be, is subject to the payment of the Purchase Amount by DFS or the Transferor.
Pursuant to each Transfer and Servicing Agreement or Pooling and Servicing
Agreement, to assure uniform quality in servicing the Receivables and to reduce
administrative costs, each Trust will designate the Servicer as custodian to
maintain possession, as such Trust's agent, of the related retail installment
sale or loan contracts, and any other documents relating to the Receivables. The
Depositor's and the Transferor's accounting records and computer systems will
reflect the transfer of the related Receivables to the applicable Trust, and
Uniform Commercial Code ("UCC") financing statements reflecting such transfers
will be filed. The Receivables will not be segregated, stamped or otherwise
marked to indicate that they have been transferred to the related Trust, and
neither will any documents relating to the Receivables. If through inadvertence
or otherwise, another party purchases (or takes a security
44
interest in) the Receivables for new value in the ordinary course of business
and takes possession of the Receivables without actual knowledge of the related
Trust's interest, the purchaser (or secured party) will acquire an interest in
the Receivables superior to the interest of the related Trust.
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain one or more accounts, in the name of the Indenture Trustee on
behalf of the related Noteholders and Certificateholders, into which all
payments made on or with respect to the related Receivables will be deposited
(the "Collection Account"). The Indenture Trustee will establish and maintain an
account, in the name of such Indenture Trustee on behalf of such Noteholders,
into which amounts released from the Collection Account and any Pre-Funding
Account, Reserve Account or other credit enhancement for payment to such
Noteholders will be deposited and from which all distributions to such
Noteholders will be made (the "Note Distribution Account"). The Indenture
Trustee may establish and maintain one or more subaccounts of the Note
Distribution Account. Any reference in this Prospectus or the related Prospectus
Supplement to the Note Distribution Account will be deemed to include a
reference, where applicable, to such subaccounts. The applicable Trustee will
establish and maintain an account, in the name of the related Trustee on behalf
of such Certificateholders, into which amounts released from the Collection
Account and any Pre-Funding Account, Reserve Account or other credit or cash
flow enhancement for distribution to such Certificateholders will be deposited
and from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to each Trust that does not
issue Notes, the Servicer will also establish and maintain the Collection
Account and any other Trust Account in the name of the related Trustee on behalf
of the related Certificateholders.
Any other accounts to be established with respect to a Trust, including any
Pre-Funding Account or any Reserve Account, will be described in the related
Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account and any Pre-Funding Account, Reserve Account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") will be invested as provided in the related Transfer and
Servicing Agreement or Pooling and Servicing Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies rating such Securities as being consistent with the rating of
such Securities and may include recreational vehicle retail sale contracts or
installment loans. Except as described below or in the related Prospectus
Supplement, Eligible Investments are limited to obligations or securities that
mature on or before the date of the next distribution for such series. However,
to the extent permitted by the Rating Agencies, funds in any Reserve Account or
the Collection Account may be invested in securities that will not mature prior
to the date of the next distribution with respect to such Certificates or Notes
and will not be sold to meet any shortfalls. Thus, the amount of cash in any
Reserve Account or the Collection Account at any time may be less than the
balance of the Reserve Account or the Collection Account. If the amount required
to be withdrawn from any Reserve Account or the Collection Account to cover
shortfalls in collections on the related Receivables (as provided in the related
Prospectus Supplement) exceeds the amount of cash in the Reserve Account or the
Collection Account, a temporary shortfall in the amounts distributed to the
related Noteholders or Certificateholders could result, which could, in turn,
increase the average life of the Notes or the Certificates of such series.
Investment earnings on funds deposited in the Trust Accounts, net of losses and
investment expenses (collectively, "Investment Earnings"), shall be allocated in
the manner described in the related Prospectus Supplement.
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The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i) which has either (A) a
long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, consistent with the
related Transfer and Servicing Agreement or Pooling and Servicing Agreement,
follow such collection procedures as it follows with respect to recreational
vehicle receivables that it services for itself or others. The Servicer may, in
its discretion, arrange with the Obligor on a Receivable to extend or modify the
payment schedule, but no such arrangement will, for purposes of any Transfer and
Servicing Agreement or Pooling and Servicing Agreement, modify the original due
dates (except that DFS, as Servicer, may, for administrative purposes, modify
the due date of a Receivable to a different date in the same month) or the
amount of the scheduled payments. If the Servicer extends the final payment date
of any Receivable beyond the Monthly Payment Date (as such term is defined in
the related Prospectus Supplement) immediately following the latest scheduled
maturity date of the Receivables held by the related Trust, or takes certain
other actions, the Servicer may be obligated to purchase the related Receivable
for the Purchase Amount. The Servicer may sell the Financed Asset securing the
respective Receivable at public or private sale, or take any other action
permitted by applicable law. See "Certain Legal Aspects of the Receivables"
herein.
The Servicer may from time to time perform any portion of its servicing
obligations under the applicable Transfer and Servicing Agreement or Pooling and
Servicing Agreement through subservicing agreements with third-party servicers
which (other than the Transferor) shall have been approved by the Rating
Agencies. Each applicable Transfer and Servicing Agreement and Pooling and
Servicing Agreement will provide that, notwithstanding the use of subservicers,
the Servicer will remain liable for its servicing duties and obligations as if
the Servicer were servicing the Receivable directly.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables (from whatever source) and all proceeds of such Receivables
collected during each collection period specified in the related Prospectus
Supplement (each, a "Collection Period") into the related Collection Account
within two business days after receipt thereof. However, at any time that and
for so long as (i) DFS is the Servicer, (ii) there exists no Servicer Default
and (iii) each other condition to making deposits less frequently than daily as
may be specified by the Rating Agencies or set forth in the related Prospectus
Supplement is satisfied, the Servicer will not be required to deposit such
amounts into the Collection Account until the applicable Distribution Date or
Payment Date. Pending deposit into the
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Collection Account, collections may be invested by the Servicer at its own risk
and for its own benefit and will not be segregated from its own funds. If the
Servicer were unable to remit such funds, Securityholders might incur a loss. In
order to satisfy the requirements described above, the Servicer may (but is not
required to) obtain a letter of credit or other security for the benefit of the
related Trust to secure timely remittances of collections on the related
Receivables purchased by the Servicer.
SERVICER ADVANCES
On or before each applicable Distribution Date or Payment Date, the
Servicer shall deposit into the related Collection Account as a Servicer Advance
(but only to the extent that the Servicer, in its sole discretion, expects to
recoup such Servicer Advance from subsequent payments on or with respect to the
Receivables) an amount equal to the amount of interest due on the related
Receivables at their respective APRs for the related Collection Period (assuming
that such Receivables pay on their respective due dates) minus the amount of
interest actually received on such Receivables during the related Collection
Period. If such calculation results in a negative number, an amount equal to
such amount shall be paid to the Servicer in reimbursement of outstanding
Servicer Advances. In addition, in the event that a Receivable becomes a
Defaulted Receivable (as such term is defined in the related Prospectus
Supplement), certain liquidation proceeds with respect to such Receivable
attributable to accrued and unpaid interest thereon (but not including interest
for the then current Collection Period) shall be withdrawn from the Collection
Account and paid to the Servicer in reimbursement of outstanding Servicer
Advances. No advances will be made by the Servicer in respect of principal of
the Receivables or in respect of Defaulted Receivables. The reimbursement of
Servicer Advances will be made out of available funds prior to the deposit of
funds in the Collection Account.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to receive a servicing fee for each
Collection Period in an amount equal to a specified percentage per annum (as set
forth in the related Prospectus Supplement, the "Servicing Fee Rate") of the
Pool Balance as of the first day of the related Collection Period (the
"Servicing Fee"). The Servicing Fee (together with any portion of the Servicing
Fee that remains unpaid from prior Distribution Dates or Payment Dates) will be
paid out of available funds for the related Collection Period prior to the
distributions on the related Distribution Date or Payment Date to the
Noteholders or the Certificateholders of the given series.
The Servicer will also be entitled to retain any late fees, prepayment
charges and other administrative fees or similar charges provided for under the
Receivables or allowed by applicable law with respect to the related Receivables
and will be entitled to reimbursement from such Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments and
late fees and other charges in accordance with the Servicer's customary
servicing procedures that it follows with respect to all comparable boat and
recreational vehicle receivables that it services for itself or others.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of boat and recreational vehicle receivables as an
agent for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment coupons to Obligors and reporting tax information
to Obligors. The Servicing Fee also will compensate the Servicer for
administering the particular Receivables Pool, including accounting for
collections and furnishing monthly and annual statements to the related Trustee
and Indenture Trustee with respect to distributions.
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The Servicer will be entitled to receive additional compensation from
amounts on deposit in a Reserve Account or other account relating to the
applicable Trust, or from other funds (including collections on the related
Receivables) relating to such Trust.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment Date or
Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, of
principal or interest only) on each class of such Securities entitled thereto
will be made by the Applicable Trustee to the Noteholders and the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all distributions to each class of Certificateholders of such
series will be set forth in the related Prospectus Supplement.
With respect to each Trust, on or before each Payment Date and Distribution
Date, as applicable, collections on the related Receivables will be transferred
from the Collection Account to the Note Distribution Account, if any, and the
Certificate Distribution Account for distribution to Noteholders, if any, and
Certificateholders to the extent provided in the related Prospectus Supplement.
Credit enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a class of Securities of a given series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates or Notes of such
series may be subordinate to payments in respect of Notes, if any, of such
series or other classes of Certificates or Notes of such series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit and
cash flow enhancement may be in the form of subordination of one or more classes
of Securities, Reserve Accounts, over-collateralization, letters of credit,
credit or liquidity facilities, surety bonds, insurance policies, guaranteed
investment contracts, swaps or other interest rate protection agreements,
repurchase obligations, yield supplement agreements, other agreements with
respect to third party payments or other support, cash deposits or such other
arrangements as may be described in the related Prospectus Supplement or any
combination of two or more of the foregoing. If specified in the applicable
Prospectus Supplement, credit or cash flow enhancement for a class of Securities
may cover one or more other classes of Securities of the same series, and credit
or cash flow enhancement for a series of Securities may cover one or more other
series of Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. The credit enhancement for a class
or series of Securities may not provide protection against all risks of loss and
may not guarantee repayment of the entire principal balance and interest
thereon. If losses occur which exceed the amount covered by any credit
enhancement or which are not covered by any credit enhancement, Securityholders
of any class or series will bear their allocable share of deficiencies, as
described in the related Prospectus Supplement. In addition, if a form of credit
enhancement covers more than one series of Securities, Securityholders of
48
any such series will be subject to the risk that such credit enhancement will be
exhausted by the claims of Securityholders of other series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Transfer and Servicing Agreement or Pooling and
Servicing Agreement, the Servicer will establish for a series or class of
Securities an account, as specified in the related Prospectus Supplement (the
"Reserve Account"), which will be maintained in the name of the related Trustee
or Indenture Trustee, as applicable. The Reserve Account will be funded by an
initial deposit by the Depositor or such other person specified in the related
Prospectus Supplement on the Closing Date in the amount set forth in the related
Prospectus Supplement and, if the related series has a Funding Period, will also
be funded on each Subsequent Transfer Date to the extent described in the
related Prospectus Supplement. If so provided in the related Prospectus
Supplement, the amount on deposit in the Reserve Account will be increased on
each Distribution Date or Payment Date thereafter up to an amount specified in
the related Prospectus Supplement by the deposit therein of certain collections
on the related Receivables. The related Prospectus Supplement will describe the
circumstances and manner under which distributions may be made out of the
Reserve Account, either to holders of the Securities covered thereby, to the
Depositor, to the Servicer or such other person specified in the related
Prospectus Supplement.
NET DEPOSITS
As an administrative convenience, unless the Servicer is required to remit
payments daily (see "--Collections" above), the Servicer will be permitted to
make the deposit of collections, aggregate Servicer Advances and Purchase
Amounts for any Trust for or with respect to the related Collection Period net
of distributions to be made to the Servicer for such Trust with respect to such
Collection Period. The Servicer, however, will account to the Trustee, any
Indenture Trustee, the Noteholders, if any, and the Certificateholders with
respect to each Trust as if all deposits, distributions and transfers were made
individually. With respect to any Trust that issues both Certificates and Notes,
if the related Payment Dates do not coincide with Distribution Dates, all
distributions, deposits or other remittances made on a Payment Date will be
treated as having been distributed, deposited or remitted on the Distribution
Date for the applicable Collection Period for purposes of determining other
amounts required to be distributed, deposited or otherwise remitted on such
Distribution Date.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date or Payment Date with respect to each series
of Securities, the Servicer will provide to each Applicable Trustee as of the
close of business on the last day of the preceding Collection Period a statement
setting forth substantially the same information as is required to be provided
in the periodic reports provided to Securityholders of such series described
under "Certain Information Regarding the Securities--Reports to
Securityholders".
EVIDENCE AS TO COMPLIANCE
Each Transfer and Servicing Agreement and Pooling and Servicing Agreement
will provide that a firm of independent public accountants will furnish to the
related Trust and Indenture Trustee or Trustee, as applicable, annually a
statement as to compliance by the Servicer during the preceding calendar year
(or, in the case of the first such certificate, from the applicable Closing Date
through the end of the preceding calendar year) with certain standards relating
to the servicing of the applicable Receivables.
Each Transfer and Servicing Agreement and Pooling and Servicing Agreement
will also provide for annual delivery to the related Indenture Trustee or
Trustee, as applicable, of a certificate signed by an officer of the Servicer
stating that to the best of such officer's
49
knowledge the Servicer has fulfilled its obligations under the Transfer and
Servicing Agreement or Pooling and Servicing Agreement, as applicable,
throughout the preceding calendar year (or, in the case of the first such
certificate, from the Closing Date through the end of the preceding calendar
year) or, if there has been a default in the fulfillment of any such obligation,
describing each such default known to such officer. The Servicer has agreed to
give each Indenture Trustee and each Trustee notice of certain Servicer Defaults
under the related Transfer and Servicing Agreement or Pooling and Servicing
Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Transfer and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer may not resign from its obligations and duties as
Servicer thereunder, except upon determination that the Servicer's performance
of such duties is no longer permissible under applicable law. No such
resignation will become effective until the related Indenture Trustee or
Trustee, as applicable, or a successor servicer has assumed the Servicer's
servicing obligations and duties under such Transfer and Servicing Agreement or
Pooling and Servicing Agreement.
Each Transfer and Servicing Agreement and Pooling and Servicing Agreement
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will be under any liability to the related Trust
or the related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to such Transfer and Servicing
Agreement or Pooling and Servicing Agreement or for errors in judgment; except
that neither the Servicer nor any such 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 thereunder or by
reason of reckless disregard of its obligations and duties thereunder. In
addition, each Transfer and Servicing Agreement and Pooling and Servicing
Agreement will provide that the Servicer is under no obligation to appear in,
prosecute or defend any legal action that is not incidental to the Servicer's
servicing responsibilities under such Transfer and Servicing Agreement or
Pooling and Servicing Agreement and that, in its opinion, may cause it to incur
any expense or liability.
Under the circumstances specified in each Transfer and Servicing Agreement
and Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to the properties and
assets of the Servicer substantially as a whole, which entity in each of the
foregoing cases assumes the obligations of the Servicer, will be the successor
of the Servicer under such Transfer and Servicing Agreement or Pooling and
Servicing Agreement.
SERVICER DEFAULT
"Servicer Default" under each Transfer and Servicing Agreement and Pooling
and Servicing Agreement will consist of (i) any failure by the Servicer to
deliver to the Applicable Trustee for deposit in any of the Trust Accounts or
the Certificate Distribution Account any required payment or to direct the
Applicable Trustee to make any required distributions therefrom, which failure
continues unremedied for three business days after written notice from the
Applicable Trustee is received by the Servicer or after discovery of such
failure by the Servicer; (ii) any failure by the Servicer duly to observe or
perform in any material respect any other covenant or agreement in such Transfer
and Servicing Agreement or Pooling and Servicing Agreement or other Basic
Document, which failure materially and adversely affects the rights of the
Noteholders or the Certificateholders of the related series and which
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continues unremedied for 60 days after the giving of written notice of such
failure (A) to the Servicer, by the Applicable Trustee or (B) to the Servicer
and to the Applicable Trustee by holders of Notes or Certificates of such
series, as applicable, evidencing not less than 25% in principal amount of such
outstanding Notes or of such Certificate Balance; (iii) the occurrence of an
Insolvency Event with respect to the Servicer, and (iv) any other event
described as a "Servicer Default" in the related Prospectus Supplement.
"Insolvency Event" means, with respect to a specified person (1) the filing of a
decree or order for relief by a court having jurisdiction in the premises in
respect of such person or any substantial part of its property in an involuntary
case under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such person
or for any substantial part of its property, or ordering the winding-up or
liquidation of such person's affairs, and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or (2) the
commencement by such person of a voluntary case under any applicable federal or
state bankruptcy, insolvency or other similar law now or hereafter in effect, or
the consent by such person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such person to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for such person or for any substantial part of
its property, or the making by such person of any general assignment for the
benefit of creditors, or the failure by such person generally to pay its debts
as such debts become due, or the taking of action by such person in furtherance
of any of the foregoing.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Transfer and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing not less
than 25% of the principal amount of such Notes then outstanding may terminate
all the rights and obligations of the Servicer under such Transfer and Servicing
Agreement, whereupon such Indenture Trustee or a successor servicer appointed by
such Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Transfer and Servicing Agreement and will
be entitled to similar compensation arrangements. In the case of any Trust that
has not issued Notes, unless otherwise provided in the related Prospectus
Supplement, as long as a Servicer Default under the related Pooling and
Servicing Agreement remains unremedied, the related Trustee or holders of
Certificates of the related series evidencing not less than 25% of the principal
amount of such Certificates then outstanding may terminate all the rights and
obligations of the Servicer under such Pooling and Servicing Agreement,
whereupon such Trustee or a successor servicer appointed by such Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Pooling and Servicing Agreement and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Servicer Default other than such
appointment has occurred, such trustee or official may have the power to prevent
such Indenture Trustee, such Noteholders, such Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $100,000,000 and whose regular business
includes the servicing of the type of receivables included in the Trust.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, the holders of Notes
evidencing at least a majority in principal amount of the then outstanding Notes
of the related series (or the holders of the Certificates of such series
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Servicer Default which does not adversely
51
affect the related Indenture Trustee or the Noteholders of such Series) may, on
behalf of all such Noteholders and Certificateholders, waive any default by the
Servicer in the performance of its obligations under the related Transfer and
Servicing Agreement and its consequences, except a default in making any
required deposits to or payments from any of the Trust Accounts in accordance
with such Transfer and Servicing Agreement. With respect to each Trust that has
not issued Notes, holders of Certificates of such series evidencing not less
than a majority of the principal amount of such Certificates then outstanding
may, on behalf of all such Certificateholders, waive any default by the Servicer
in the performance of its obligations under the related Pooling and Servicing
Agreement, except a Servicer Default in making any required deposits to or
payments from the Certificate Distribution Account or the related Trust Accounts
in accordance with such Pooling and Servicing Agreement. No such waiver will
impair such Noteholders' or Certificateholders' rights with respect to
subsequent defaults.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the related
Trust, the Depositor and the Servicer, with the consent of the related Indenture
Trustee but without the consent of the related Noteholders or
Certificateholders, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of such Transfer and Servicing
Agreements or of modifying in any manner the rights of such Noteholders or
Certificateholders; provided that such action will not, in the opinion of
counsel satisfactory to the related Trustee or Indenture Trustee, as applicable,
adversely affect in any material respect the interest of any such Noteholder or
Certificateholder. The Transfer and Servicing Agreements may also be amended by
the Depositor, the Servicer, the related Trustee and any related Indenture
Trustee with the consent of the holders of Notes evidencing at least a majority
in principal amount of then outstanding Notes, if any, of the related series and
the holders of the Certificates of such series evidencing at least a majority of
the principal amount of such Certificates then outstanding, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Transfer and Servicing Agreements or of modifying in any
manner the rights of such Noteholders or Certificateholders; provided, however,
that no such amendment may (i) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on the related
Receivables or distributions that are required to be made for the benefit of
such Noteholders or Certificateholders or (ii) reduce the aforesaid percentage
of the Notes or Certificates of such series which are required to consent to any
such amendment, without the consent of the holders of all the outstanding Notes
or Certificates, as the case may be, of such series.
NON PETITION
The related Trust Agreement will provide that the Trustee and the
Certificateholders will not at any time acquiesce, petition or otherwise invoke
or cause (or join with any other person in acquiescing, petitioning or otherwise
invoking or causing) the Depositor or the Trust or the Boat Mortgage Trust to
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Depositor or the Trust or the Boat
Mortgage Trust under any federal or state bankruptcy, insolvency or similar law,
or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of the Depositor or the Trust or the Boat Mortgage
Trust or any substantial part of the property of the Depositor or the Trust or
the Boat Mortgage Trust, or ordering the winding up or liquidation of the
affairs of the Depositor or the Trust or the Boat Mortgage Trust.
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PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such series will succeed to all the rights of the Noteholders of such series,
under the related Transfer and Servicing Agreement, except as otherwise provided
therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Depositor,
the related Trustee and the related Indenture Trustee, if any, pursuant to the
Transfer and Servicing Agreements will terminate upon the earlier of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables, (ii)
the payment to Noteholders, if any, and Certificateholders of the related series
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iii) the occurrence of either event described below.
To the extent provided in the related Prospectus Supplement, the Servicer
will be permitted at its option to purchase from each Trust, as of the end of
any applicable Collection Period, if the then outstanding Pool Balance with
respect to the Receivables held by such Trust is less than 10% of the Initial
Pool Balance (as defined in the related Prospectus Supplement, the "Initial Pool
Balance"), all remaining related Receivables at a price equal to the aggregate
of the Purchase Amounts thereof as of the end of such Collection Period. The
Servicer will not be permitted to exercise such option unless the resulting
distribution to the Noteholders and Certificateholders would be sufficient to
pay the sum of the outstanding principal amount of the Securities plus the
accrued but unpaid interest on the Securities.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date or Payment Date as of which the Pool Balance is equal to or
less than the percentage of the Initial Pool Balance specified in the related
Prospectus Supplement, solicit bids for the purchase of the Receivables
remaining in such Trust, in the manner and subject to the terms and conditions
set forth in such Prospectus Supplement. If the Applicable Trustee receives
satisfactory bids as described in such Prospectus Supplement, then the
Receivables remaining in such Trust will be sold to the highest bidder. Any such
successful bid must equal an amount which is not less than the outstanding
principal amount of the Securities plus accrued interest on the Securities.
If and to the extent provided in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above, and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
ADMINISTRATION AGREEMENT
If so specified in the related Prospectus Supplement, the person named as
such in the related Prospectus Supplement (the "Administrator"), will enter into
an agreement (as amended and supplemented from time to time, an "Administration
Agreement") with each Trust that issues Notes and the related Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture. As compensation
for the performance of the Administrator's obligations under the applicable
Administration Agreement and as reimbursement for its expenses related thereto,
the
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Administrator will be entitled to a monthly administration fee in such amount as
may be set forth in the related Prospectus Supplement (the "Administration
Fee").
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Receivables will be treated by each Trust as "chattel paper" as defined
in the UCC. Pursuant to the UCC, the transfer of chattel paper is treated in a
manner similar to a security interest in chattel paper. In order to protect each
Trust's ownership or security interest in its Receivables, the Depositor will
file UCC-1 financing statements with the appropriate authorities in any state
deemed advisable by the Depositor to give notice of such Trust's and any related
Indenture Trustee's ownership of and security interest in the Receivables and
their proceeds. Under each Transfer and Servicing Agreement and Pooling and
Servicing Agreement, the Servicer will be obligated to maintain the perfection
of each Trust's and any related Indenture Trustee's interest in the Receivables.
It should be noted, however, that a purchaser of chattel paper who gives new
value and takes possession of it in the ordinary course of such purchaser's
business has priority over a security interest, including an ownership interest,
in the chattel paper that is perfected by filing UCC-1 financing statements, and
not by possession of such chattel paper by the original secured party, if such
purchaser acts in good faith without knowledge that the related chattel paper is
subject to a security interest, including an ownership interest. Any such
purchaser would not be deemed to have such knowledge because there are UCC
filings and would not learn of the transfer of or security interest in the
Receivables from a review of the Receivables since they would not be marked to
show such transfer.
Any lien or security interest in a Financed Asset may be held by an agent
or trustee for the benefit of DFS and/or the Transferor. In connection with the
transfer of the related Receivable to the related Trust, such lien would then be
held for the benefit of the applicable Trust.
SECURITY INTEREST IN VEHICLES
In states in which retail installment sale contracts and installment loans
such as the Recreational Vehicle Receivables evidence the credit sale of
recreational vehicles by dealers to obligors, the contracts or loans also
constitute personal property security agreements and include grants of security
interests in the vehicles under the applicable UCC. Perfection of security
interests in recreational vehicles is generally governed by the motor vehicle
registration laws of the state in which the vehicle is located. In most states
in which the Recreational Vehicle Receivables have been originated, a security
interest in Financed Recreational Vehicles is perfected by obtaining the
certificate of title to the Financed Recreational Vehicle or notation of the
secured party's lien on the Financed Recreational Vehicle's certificate of
title. In certain states, however, folding camping trailers and/or slide-in
campers, which may constitute the Financed Recreational Vehicle with respect to
certain Recreational Vehicle Receivables, are not subject to state titling and
vehicle registration laws and a security interest in such recreational vehicles
is perfected by filing pursuant to the provisions of the UCC. However, in some
jurisdictions, a purchase money lien in consumer goods is perfected without any
filing requirement.
Because the Servicer will continue to service the Receivables, the Obligors
on the contracts and loans will not be notified of the transfers from the
Transferor to the Depositor or from the Depositor to the Trust, and no action
will be taken to record the transfer of the security interest from the
Transferor to the Depositor or from the Depositor to the Trust by amendment of
the certificates of title for the Financed Recreational Vehicles or otherwise.
54
Pursuant to the Ganis/Depositor Transfer Agreement, the Transferor will
transfer to the Depositor its interests in the Financed Recreational Vehicles
securing the Recreational Vehicle Receivables transferred by the Transferor to
the Depositor and, with respect to each Trust, pursuant to the related Transfer
and Servicing Agreement or Pooling and Servicing Agreement, the Depositor will
transfer its interests in the Financed Recreational Vehicles securing the
related Receivables to such Trust. However, because of the administrative burden
and expense, none of the Transferor, the applicable Originator, the Depositor,
the Servicer or the related Trustee will amend any certificate of title to
identify either the Depositor or such Trust as the new secured party on such
certificate of title relating to a Financed Recreational Vehicle nor will any
such entity execute and file any transfer instrument (including, among other
instruments, UCC-3 transfers for those Financed Recreational Vehicles for which
perfection is governed by the UCC).
In most states, a transfer such as that under the Ganis/Depositor Transfer
Agreement, Transfer and Servicing Agreement or Pooling and Servicing Agreement
is an effective conveyance of a security interest without amendment of any lien
noted on a vehicle's certificate of title or the execution or filing of any
transfer instrument, and the transferee succeeds thereby to the transferor's
rights as secured party. In some states, however, in the absence of such an
amendment, execution or filing, the transfer to the Applicable Trustee of a
security interest in Financed Recreational Vehicles registered therein may not
be effective or such security interest may not be perfected. If any otherwise
effectively transferred security interest in favor of the Applicable Trustee is
not perfected, such transfer of the security interest to such Trustee may not be
effective against creditors or a trustee in bankruptcy of the Transferor or the
applicable Originator, which continues to be specified as lienholder on any
certificates of title or as secured party on any UCC filing. The Servicer will
continue to hold any certificates of title relating to the Financed Recreational
Vehicles in its possession as custodian for such Trust pursuant to the related
Transfer and Servicing Agreement or Pooling and Servicing Agreement. See
"Description of the Transfer and Servicing Agreements--Transfer of Receivables"
herein.
In addition, even in those states where a transfer such as that under each
Receivables Transfer Agreement, Transfer and Servicing Agreement or Pooling and
Servicing Agreement is an effective conveyance of a security interest without
amendment of any lien noted on a vehicle's certificate of title, by not
identifying a Trust as the secured party on the certificate of title, the
security interest of such Trust in the vehicle could be defeated through fraud
or negligence. In such states, in the absence of fraud or forgery by the vehicle
owner or the Transferor (or the Originator, if the Transferor acquired the
applicable Receivable from an Originator) or administrative error by state or
local agencies, the notation of the lien of the Transferor (or the Originator,
if applicable) on the certificates of title will be sufficient to protect a
Trust against the rights of subsequent purchasers of a Financed Recreational
Vehicle or subsequent lenders who take a security interest in a Financed
Recreational Vehicle. If there are any Financed Recreational Vehicles as to
which the Transferor or the applicable Originator failed to obtain a perfected
security interest, the security interest of the related Trust would be
subordinate to, among others, the interests of subsequent purchasers of the
Financed Recreational Vehicles and holders of perfected security interests
therein. Such a failure may create an obligation of the Depositor to purchase
the related Receivable from the Trust or of the Transferor to purchase the
related Receivable from the Depositor or the Trust in the circumstances
described under "Description of the Transfer and Servicing Agreements--Transfer
of Receivables." See also "Risk Factors--Possible Payment Delays and Losses
Resulting From Failure of the Trust to Have a Perfected Security Interest in
Certain Financed Assets."
If an Obligor takes a Financed Recreational Vehicle to a dealer and the
Financed Recreational Vehicle becomes part of the dealer's inventory or is
otherwise offered for sale,
55
the Financed Recreational Vehicle may become subject to claims of creditors or
the bankruptcy trustee of such dealer. In addition, in some jurisdictions, if an
Obligor arranges for a dealer to sell a Financed Recreational Vehicle on
consignment and the dealer then sells the Financed Recreational Vehicle to a
third party which is a "buyer in the ordinary course", the third party will take
the Financed Recreational Vehicle free of the security interest created by the
Obligor (even though the security interest is perfected).
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after the vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the owner
thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to reregister a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered in a
state providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender 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 debtor somehow procures a
new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require a certificate of title for
registration of a recreational vehicle, re- registration could defeat
perfection. In the ordinary course of servicing recreational vehicle
receivables, the Servicer takes 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 vehicle, the Servicer must surrender
possession of the certificate of title or will receive notice as a result of its
lien noted thereon and accordingly will have an opportunity to require
satisfaction of the related loan before release of the lien. Under each Transfer
and Servicing Agreement and Pooling and Servicing Agreement, the Servicer will
be obligated to take steps to maintain perfection of security interests created
by the Receivables in the Financed Recreational Vehicles and is obligated to
purchase the related Receivable if it fails to do so and such uncured failure
materially and adversely affects such Receivables.
Under the laws of most states, liens for repairs performed on a
recreational vehicle and liens for unpaid taxes take priority over even a
perfected security interest in such vehicle. The Code also grants priority to
certain federal tax liens over the lien of a secured party. Certain state laws
and federal law permit the confiscation of vehicles by governmental authorities
under certain circumstances if used in unlawful activities, which may result in
the loss of a secured party's perfected security interest in the confiscated
vehicle. Under the Ganis/ Depositor Transfer Agreement, the Transferor will
represent to the related Trust that, as of the date the related Receivable is
transferred to such Trust, each security interest in a Financed Vehicle is or
will be prior to all other present liens (other than tax liens, mechanic's
liens, and other liens that arise by operation of law) upon such Financed
Recreational Vehicle. However, liens for repairs or taxes could arise, or the
confiscation of a Financed Recreational Vehicle could occur, at any time during
the term of a Receivable. No notice will be given to the Trustee, any Indenture
Trustee, any Noteholders or the Certificateholders in respect of a given Trust
if such a lien arises or confiscation occurs and any such lien or confiscation
arising after the applicable Closing Date would not give rise to the
Transferor's purchase obligation under the applicable Ganis/Depositor Transfer
Agreement.
As of the Closing Date for a Trust, DFS will be the initial Servicer.
Unless the Servicer is the secured party of record, it may be unable to take
actions necessary to cause a perfected security interest in a Financed
Recreational Vehicle to be maintained without cooperation from the secured party
of record, which may be Ganis, DFS or another Originator. DFS will be the
56
secured party of record with respect to a Financed Recreational Vehicle only if
DFS originated the related Receivable or acquired it from a Dealer, and DFS may
not be the Servicer for the entire term of a Trust. Failure of the Servicer to
obtain such cooperation from the secured party of record on a timely basis could
adversely affect the applicable Trust and holders of Securities issued by that
Trust.
SECURITY INTERESTS IN BOATS
Generally, security interests in boats may be perfected in one of three
ways: (a) in "title" states, a security interest is perfected by notation of the
secured party's lien on the certificate of title issued by an applicable state
motor vehicle department or other appropriate state agency; (b) in other states,
a security interest may be perfected by filing a UCC-1 financing statement,
however, in some jurisdictions a purchase money lien in consumer goods may be
perfected without any filing requirement; and (c) if a boat is documented or an
application for documentation has been duly filed under Federal law, a security
interest will be perfected only by filing a document that creates a preferred
ship mortgage (a "Preferred Mortgage") under the federal ship mortgage statutes
with the Secretary of Transportation of the United States, who conducts such
function through the United States Coast Guard (the "Coast Guard").
To qualify for documentation under Federal law, a boat must measure at
least five net tons, which is a measure not of weight but of units of 100 cubic
feet of enclosed, internal volume after certain deductions of space, as measured
under Federal law. If a boat with a security interest perfected under state law
is later documented under Federal law (or an application for documentation is
duly filed), the exclusive method of perfecting a security interest in it is to
have the boat owner or an authorized attorney-in-fact sign a Preferred Mortgage
and for the Preferred Mortgage to be filed with the Coast Guard. When a boat
becomes documented under federal law (or an application therefor is duly filed)
the state law security interest becomes unperfected unless it is continued by
the filing of a Preferred Mortgage under Federal law.
At the time that the Transferor or an Originator makes a loan secured by a
Financed Boat, arrangements typically are made so that the necessary documents
to grant and perfect the desired title lien, security interest or Preferred
Mortgage in favor of the Transferor or the Originator, as the case may be, are
signed by the consumer and are filed by the Dealer or the Transferor (or the
applicable Originator, if the Transferor acquired the applicable Receivable from
an Originator). In the event of clerical error, negligence or otherwise, the
necessary actions may not have been taken, or taken in a timely fashion. In such
event, the Originator (if applicable) and the Transferor may not have a
perfected security interest in the Financed Boat or the security interest may be
subordinate to the interests of subsequent purchasers of the Financed Boat,
other lienholders, or bankruptcy trustees or receivers of the owner of the
Financed Boat. A security interest or Preferred Mortgage may also be subordinate
to such third parties in the event of fraud or forgery by the Obligor or
administrative error by state or federal recording and filing officials. In
addition, under certain state certificate of title statutes the Transferor must
separately perfect its security interest in boat motors or trailers. If a
Financed Boat is properly documented under Federal law and covered by a
Preferred Mortgage, as a matter of Federal law, the particular boat motor is
considered to be an appurtenance of the Financed Boat and does not require a
separately perfected security interest.
A security interest perfected by a Preferred Mortgage has a nationwide
scope and no further action is necessary when an Obligor moves or relocates the
collateral in order to maintain such perfection. Security interests perfected
under state law may have to be refiled if the Obligor moves to a state other
than the state in which a security interest is originally perfected and in
addition, if the security interest is perfected under the UCC, a new filing must
be made under the UCC in order to continue the perfected security interest.
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If the security interest in a boat is perfected under a title statute and
the related Obligor moves to a state other than the state in which the boat is
titled, under the laws of most title states the perfection of the security
interest in the boat would continue for a brief period of time after such
relocation but would have to be timely reperfected in the new state (i.e.,
within four months). Some states issuing certificates of title on boats require
surrender of any prior certificate of title to retitle a boat. In those states
that also provide for possession of the certificate of title by the secured
party, possession of the certificate of title must be surrendered for any
related Financed Boat to be retitled. Some states do not give the secured party
possession of the certificate of title, but indicate the secured party on the
certificate of title and provide notice to such secured party of surrender of
the certificate of title by another person. If either the Servicer is in
possession of a certificate of title that must be surrendered to retitle the
Financed Boat, or the Servicer receives notice of any surrender of the
certificate of title by another person, the Servicer would then have the
opportunity, but only with the cooperation of the secured party of record, to
continue the perfection of the security interest in the Financed Boat in the
state of retitling. If the Obligor moves to a state which does not require
surrender of a certificate of title for retitling of a boat, retitling could
defeat perfection. In the ordinary course of servicing its portfolio of boat
contracts, the Servicer generally takes steps to effect such perfection upon
receipt of notice of surrender or information from the Obligor as to relocation
in those states that require any action to be taken. Similarly, when an Obligor
sells a boat, under the laws of many states, the purchaser cannot retitle the
boat unless the related lienholder of record (which in the case of the Financed
Boats covered by such laws would be the Transferor or, if the Transferor
acquired the Receivables from an Originator, would be such Originator or other
entity, if applicable, which acquired such Receivable from the related Dealer)
surrenders possession of the certificate of title and accordingly the Servicer,
in such circumstance, but only with the cooperation of the secured party of
record, would have an opportunity to require satisfaction of the related
Receivable before release of the lien.
If a security interest in a Financed Boat was perfected by the filing of a
UCC financing statement, or the Obligor moves from a title state to a non-title
state or to a different location in the same state, a security interest in the
Financed Boat will cease to be perfected unless within four months after such
move or change, the secured party of record files a UCC financing statement in
the new state of the Obligor, if the Obligor has moved out of state, or in some
states amends an existing filing if the Obligor has changed locations in the
same state. If the Servicer does not learn of the change or if the Servicer does
not act in time (i.e., within four months after the date of such change), the
perfection of the security interest could lapse. UCC financing statements expire
after five years. When the term of a loan exceeds five years, the filing must be
continued in order to maintain the perfected security interest. In the event
that an Obligor moves from a title state to a non-title state, or to a state
other than the state in which the UCC financing statement is filed or in certain
states to a different county in such state, under the laws of most states the
perfection of the security interest in the Financed Boat would continue for four
months after such relocation, unless the perfection in the original jurisdiction
would have expired earlier. A new financing statement must be filed in the state
of relocation or, if such state is a title state, a notation on the new
certificate of title must be made in order to continue the security interest.
As of the Closing Date for a Trust, DFS will be the initial Servicer.
Unless the Servicer is the secured party of record, it may be unable to take
actions necessary to cause a perfected security interest in a Financed Asset to
be maintained without cooperation from the secured party of record, which may be
Ganis, DFS, another Originator or the Boat Mortgage Trustee. DFS will be the
secured party of record with respect to a Financed Boat only if DFS originated
the related Receivable or acquired it from a Dealer, and DFS may not be the
Servicer for the entire term of a Trust. Failure of the Servicer to obtain such
cooperation from the secured
58
party of record on a timely basis could adversely affect the applicable Trust
and holders of Securities issued by that Trust.
Due to the administrative burden and expense of (i) endorsing the
certificate of title of Financed Boats to reflect a Trust's interest therein and
delivering each such certificate of title to the Trustee for filing (and the
payment of related filing fees), in the case of Financed Boats titled in states
where security interests in boats are subject to certificate of title statutes,
and (ii) filing amendments to or assignments of record of UCC-1 financing
statements relating to Financed Boats (and the payment of related filing fees)
to reflect the Trust's interest therein, in the case of Financed Boats
registered in states where security interests in boats are perfected by filing a
UCC financing statement, none of such certificates of title will be endorsed,
delivered and filed, and none of such UCC financing statements will be amended
or assigned of record. Assignments of Preferred Mortgages with respect to
Federally Documented Boats will not be filed with the Coast Guard until on or
before the 180th day after the Closing Date specified in the related Prospectus
Supplement. See "The Boat Mortgage Trust." In the absence of such procedures,
neither the Depositor nor the Trust may have a perfected security interest in
the Financed Boats titled in certificate of title states or registered in UCC
states and will not have a perfected security interest in the Federally
Documented Boats. In any event, neither the Depositor nor the Trust will have
any direct security interest in Federally Documented Boats. The failure to make
such endorsements, filings or recordations will not affect the validity of an
original perfected security interest as against the Obligor under a Receivable
in UCC states.
In the case of "title" states, in the absence of the step described in
clause (i) of the preceding paragraph, the Transferor (or, if the Transferor
acquired the related Receivable from an Originator, such Originator) will
continue to be named as the secured party on the certificates of title relating
to the Financed Boats titled in such states. In most such states, a transfer of
such Receivable would be an effective conveyance of such a security interest and
the new secured party would succeed to the rights of the Transferor (or, if the
Transferor acquired the related Receivable from an Originator, the rights of
such Originator) as the secured party (other than the right to retitle). In the
absence of fraud or forgery by the Obligor, the Transferor, or an Originator, or
administrative error by Federal, state or local recording officials, the
notation of the lien of the Transferor (or, if the Transferor acquired the
related Receivable from an Originator, the lien of such Originator) on the
certificate of title will in most cases be sufficient to protect the Trust
against the rights of subsequent purchasers of a Financed Boat covered by the
laws of such state (provided the Financed Boat has not become part of the
inventory of a dealer) or subsequent lenders who take a security interest in the
Financed Boat. There exists a risk, however, in not identifying the Trust as the
new secured party on the certificate of title, that the Trust may in some states
be subordinate to claims of creditors or the receiver of the Transferor or an
Originator, as the case may be, in the event of the insolvency of the Transferor
or such Originator, as the case may be, and that, through fraud or negligence,
the security interest of such Trust could be released by the Transferor or such
Originator, as the case may be, as security holder of record.
Under Federal law, no assignment of a Preferred Mortgage in a Federally
Documented Boat is valid against a third party without notice until the transfer
is recorded. While the interpretation of this provision by a court might depend
upon the factual circumstances, under the terms of the Federal statute, the
unperfected interest of the Boat Mortgage Trustee (and the indirect interest of
a Trust) in Federally Documented Boats is subordinate to creditors and the
receiver or trustee of the Transferor, an Originator or any other holder of the
related Receivable, as the case may be, in the event of the insolvency of the
Transferor (and, if the Transferor acquired the related Receivable from an
Originator, in the event of an insolvency of such Originator or any other holder
of the related Receivable), as the case may be, and to the rights of subsequent
purchasers of such a Financed Boat, subsequent lenders who take a
59
security interest in the Financed Boat and the bankruptcy trustee of the
Obligor. This provision does not affect the validity of the original security
interest (if such security interest is perfected) as against the Obligor. As a
general rule, a Preferred Mortgage on a Federally Documented Boat is subordinate
to the costs incurred by the court and the custodian of the Financed Boat
incurred during foreclosure proceedings; liens for crew wages, wages of a
stevedore, salvage, general average, and tort claims, whenever they arise;
Preferred Mortgages granted and perfected prior in time to the Preferred
Mortgage in question; any maritime liens arising before, including liens under
Federal law for "necessaries" (which are generally goods and services rendered
or delivered to the Financed Boat) furnished before the Preferred Mortgage in
question is perfected.
A security interest perfected under state law is not only subordinate to
the same costs and liens, but it is also subordinate to all maritime liens of
any kind, whenever they arise; previously perfected state law security
interests; and certain other liens, including liens for storage, repairs and
taxes.
If an Obligor takes a Financed Boat to a dealer and the Financed Boat
becomes part of the dealer's inventory or is otherwise offered for sale, the
Financed Boat may become subject to claims of creditors or the bankruptcy
trustee of such dealer. In addition, in some jurisdictions if an Obligor
arranges for a dealer to sell a Financed Boat on consignment and the dealer
sells the Financed Boat to a third party which is a "buyer in the ordinary
course," the third party will take the Financed Boat free and clear of the
security interest created by the Obligor (even if the security interest is
perfected).
The priority of all security interests, mortgages, and liens may be subject
to the application of principles of equitable subordination and other charges
due to the exercise by courts of their equitable discretion in appropriate
cases. Certain state laws and Federal law permit the seizure and forfeiture of
boats by governmental authorities under certain circumstances if used in
unlawful activities, which may result in the loss of a secured party's perfected
security interest in the forfeited boat. Federal law protects a Preferred
Mortgage from this result for violation of Federal laws if the mortgagor did not
authorize, consent or conspire with respect to the unlawful act, failure or
omission.
The enforceability and priority of security interests in boats that journey
outside the United States are subject to the laws of each country where such
boats go, which laws vary from place to place. No assurance can be given as to
the effect of such laws on the interest of a Trust or the Boat Mortgage Trustee
in any Financed Boat.
The validity of a Preferred Mortgage or a state law security interest in a
Financed Boat that has ever been federally documented and operated other than
for pleasure could be challenged if Securityholders having a controlling
interest with respect to a Trust were determined to be nationals of, or under
the control (directly or indirectly) of entities in, countries that the U.S.
Maritime Administration has named pursuant to applicable regulations as being
contrary to United States foreign policy interests, or were determined to be
foreign nationals or subject to foreign control (directly or indirectly) in time
of war or national emergency (and in connection therewith transfers of
Securities to such nationals or entities could also be challenged). No assurance
can be given as to whether any such challenge would be defeated.
The holder of a Preferred Mortgage or maritime lien who arrests a boat
under Federal law to enforce that Preferred Mortgage or lien is required to give
notice of the suit to all mortgagees and lienholders of record. However, if the
holder of a Preferred Mortgage does not receive notice of the suit (e.g.,
because a transfer of the Preferred Mortgage was not recorded and the current
holder did not receive notice of the arrest) and consequently does not intervene
in the arrest action, or otherwise fails to so intervene, the boat can be sold
free and clear of the Preferred Mortgage. If the holder of a Preferred Mortgage
does not arrest the
60
boat and foreclose the mortgage under Federal law in Federal court, but rather
repossesses and resells the boat under state law, any maritime liens on the boat
are not terminated by such sale and may impair the Preferred Mortgage holder's
ability to transfer clear title to the boat.
The Transferor will represent and warrant in the applicable Ganis/Depositor
Transfer Agreement that, as of the related Closing Date, each Transferor
Receivable has created a first priority security interest in favor of the
Transferor in the related Financed Boat, that the security interest of the
Transferor in each Financed Boat (other than a Federally Documented Boat) has
been validly assigned by the Transferor to the Depositor pursuant to such Ganis/
Depositor Transfer Agreement, and that the security interest in each Federally
Documented Boat securing a Transferor Receivable has been validly assigned by
the Transferor to the Boat Mortgage Trustee pursuant to the Boat Mortgage Trust
Agreement. If DFS is transferring a Receivable to the Transferor pursuant to a
DFS/Ganis Transfer Agreement, DFS will make a similar representation and
warranty in such DFS/Ganis Transfer Agreement with respect to Financed Boats
securing DFS Receivables. However, none of such transfers will be accompanied by
any of the endorsement or filing procedures described above. In the event of a
material adverse breach of such a representation and warranty by the Transferor
(or DFS, if applicable), the only recourse of the Trust would be to require the
Transferor (or DFS, if applicable) to purchase the related Receivables. See
"Risk Factors--Certain Legal Aspects--Security Interests in the Receivables"
herein. However, liens that take priority over a perfected security interest in
a Financed Boat could arise, or the seizure and forfeiture of a Financed Boat
could occur, at any time during the term of a Receivable. No notice will be
given to the Trustee, any Indenture Trustee, any Noteholders or the
Certificateholders in respect of a given Trust if such a lien arises or seizure
and forfeiture occurs and any such lien or seizure and forfeiture arising after
the applicable Closing Date would not give rise to the purchase obligation of
the Transferor or DFS under the applicable Ganis/Depositor Transfer Agreement or
DFS/Ganis Transfer Agreement.
REPOSSESSION
If a boat or vehicle owner defaults on its obligations under a retail
installment sale contract or an installment loan, the holder of the related
retail installment sale contract or installment loan 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
self-help repossession unless such act would constitute a breach of the peace.
Self-help is the method employed by the Servicer in most cases and is
accomplished simply by retaking possession of the financed boat or vehicle. In
the event of default by the obligor, some jurisdictions require that the obligor
be notified of the default and be given a time period within which he may cure
the default prior to repossession. Generally, the right of reinstatement may be
exercised on a limited number of occasions in any one- year period. In cases
where the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and the boat or vehicle must then be repossessed in
accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws generally require the secured party to provide
the obligor with reasonable notice of the date, time and place of any public
sale and/or the date after which any private sale of the collateral may be held.
The obligor has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale plus, in some jurisdictions, reasonable
attorneys' fees, or, in some states, by payment of delinquent installments or
the unpaid balance.
61
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the Financed Assets 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 such judgments. However, the deficiency judgment
would be a personal judgment against the obligor for the shortfall, and a
defaulting obligor can be expected to have very little capital or sources of
income available following repossession. 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.
Occasionally, after resale of a boat or recreational vehicle and payment of
all expenses and all indebtedness, there is a surplus of funds. In that case,
the UCC requires the creditor to remit the surplus to any holder of a lien with
respect to the boat or recreational vehicle or if no such lienholder exists or
there are remaining funds, the UCC requires the creditor to remit the surplus to
the former owner of the boat or recreational vehicle.
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, state adoptions of the National
Consumer Act and of the Uniform Consumer Credit Code, and retail installment
sales acts, lending 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 a
transferee's ability to enforce consumer finance contracts such as the
Receivables.
The Fair Debt Collection Practices Act contains provisions that restrict
where a legal action against a consumer may be filed. In the case of personal
property, this is where the consumer resides or where the applicable contract
was signed. When the consumer keeps the personal property collateral outside the
court jurisdiction where the consumer resides or where the applicable contract
was signed, the statute could require that the Trustee enforce the security
interest in the Financed Asset by means of private repossession and sale, which
is not always available in each case, depending upon the circumstances. In the
case of Preferred Mortgages, enforcement is accomplished by an action in rem
against the vessel itself as the named defendant in federal court, in whatever
jurisdiction (in the United States) in which the boat is located. Any action
against the Obligor in personam for a deficiency must comply with the venue
requirements of the Fair Debt Collection Practices Act.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting a seller in a consumer credit transaction (and certain related
creditors and their assignees) to all claims and defenses which 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 thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that
62
the purchaser of the applicable Financed Asset may assert against the seller of
the Financed Asset. Such claims are limited to a maximum liability equal to the
amounts paid by the Obligor on the Receivable. If an Obligor were successful in
asserting any such claim or defense, such claim or defense would constitute a
breach of the Transferor's warranties under the Ganis/Depositor Transfer
Agreement and would create an obligation of the Transferor to purchase or to
cause an Originator to purchase the Receivable in the circumstances described
under "Description of the Transfer and Servicing Agreements--Transfer of
Receivables."
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 certain 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.
Under the Ganis/Depositor Transfer Agreement, the Transferor will warrant
that each Receivable complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim against such Trust for
violation of any law and such claim materially and adversely affects such
Trust's interest in a Receivable, such violation would create an obligation of
the Transferor to purchase or (if applicable) to cause an Originator to purchase
the Receivable in the circumstances described under "Description of the Transfer
and Servicing Agreements--Transfer of Receivables." See also "Risk
Factors--Possible Payment Delays and Losses Resulting From Lack of
Enforceability of Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a vehicle and, as part of the rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of the vehicle
at the time of bankruptcy (as determined by the court), leaving the creditor as
a general unsecured creditor for the remainder of the indebtedness. A bankruptcy
court may also reduce the monthly payments due under a contract or change the
rate of interest and time of repayment of the indebtedness.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The following summary represents the opinion of Tax Counsel
subject to the qualifications set forth herein. An opinion of Tax Counsel,
however, is not binding on the Internal Revenue Service ("IRS") or the courts.
No ruling on any of the issues discussed below will be sought from the IRS. The
following summary is intended as an explanatory discussion of the possible
effects of certain federal income tax consequences to holders generally, but
does not purport to furnish information in the level of detail or with the
attention to a holder's specific tax circumstances that would be provided by a
holder's own tax advisor. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. In addition, the discussion
regarding the Notes is limited to the federal income tax consequences of the
initial Noteholders and not a purchaser in the
63
secondary market. Moreover, there are no cases or IRS rulings on similar
transactions involving both debt and equity interests issued by a trust with
terms similar to those of the Notes and the Certificates. As a result, the IRS
may disagree with all or a part of the discussion below. Prospective investors
should consult their own tax advisors in determining the federal, state, local,
foreign and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
The federal tax discussion herein is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive.
Tax Counsel has prepared or reviewed the statements under the heading
"Summary of Terms--Tax Status" as they relate to federal income tax matters and
under the heading "Federal Income Tax Consequences" herein and in the Prospectus
Supplement and is of the opinion that such statements are correct in all
material respects. Such statements are intended as an explanatory discussion of
the possible effects of the classification of the Trust as a partnership for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to the investor's specific tax
circumstances that would be provided by an investor's own tax adviser.
Accordingly, each investor is advised to consult its own tax advisers with
regard to the tax consequences to it of investing in the Notes and the
Certificates.
Following is a brief summary of the tax opinions being rendered by Tax
Counsel. If the Prospectus Supplement specifies that the related Trust will be
treated as an owner trust, Tax Counsel is of the opinion that such Trust will
not be classified as a separate entity that is an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
Further, with respect to the Notes, Tax Counsel is of the opinion that the Notes
issued by such Trust will be characterized as debt for federal income tax
purposes. If the Prospectus Supplement specifies that the related Trust will be
treated as a grantor trust, Tax Counsel is of the opinion that such Trust will
not be classified as an association taxable as a corporation for federal income
tax purposes and that such Trust will be classified as a grantor trust for
federal income tax purposes.
TRUSTS THAT ARE STRUCTURED AS OWNER TRUSTS
TAX CLASSIFICATION OF THE TRUST
If the Prospectus Supplement specifies that the related Trust will be
structured as an Owner Trust, Tax Counsel is of the opinion that such Trust will
not be classified as a separate entity that is an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
This opinion is based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on Tax Counsel's conclusion
that the nature of the income of such Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Receivables, reduced
by its interest expense on the Notes provided the Notes are respected as debt
for federal income tax purposes (see discussion in the following paragraph). Any
such corporate income tax could materially reduce cash available to make
payments on the Notes and distributions on the Certificates, and
Certificateholders could be liable for any such tax that is unpaid by the Trust.
64
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Transferor will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal, state and local income and franchise tax purposes. In the opinion
of Tax Counsel, the Notes will be characterized as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
The discussion below assumes that all payments on the Notes are denominated
in U.S. dollars, and that the Notes are not Strip Notes. Moreover, the
discussion assumes that the interest formula for the Notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID regulations") relating to original issue discount ("OID"), and that any OID
on the Notes (i.e., any excess of the principal amount of the Notes over their
issue price) does not exceed a de minimis amount (i.e., 1/4% of their principal
amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of bond premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses generally may
be used by a corporate taxpayer only to offset capital gains, and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who
is a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Depositor (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Depositor is a "related person" within the meaning of the Code and
(ii) provides the Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8
BEN or a substantially similar form), signed under penalties of perjury,
certifying that the beneficial owner of the Note is a foreign person and
providing the foreign person's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8BEN or substantially similar form provided by the
foreign person that owns the
65
Note. If such interest is not portfolio interest, then it will be subject to
United States federal withholding tax at a rate of 30 percent, unless that rate
is reduced or eliminated pursuant to an applicable tax treaty and the foreign
person provides the trustee or other payor of the interest with a copy of IRS
Form W-8BEN, or if the interest is effectively connected with the conduct of a
U.S. trade or business and the foreign person provides a copy of IRS Form
W-8ECI.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Prospective investors should consult their tax advisors with respect to the
effect of the Withholding Tax Regulations.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax exempt organization, qualified pension and profit
sharing trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold up to
31 percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Noteholders should consult with their tax advisors as to their eligibility for
exemption from backup withholding and the procedure for obtaining the exemption,
and the potential impact of the Withholding Tax Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Tax Counsel, the IRS successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and most
likely in the view of Tax Counsel, the Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) would be "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, and individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses. Furthermore, such a characterization could subject holders to state
and local taxation in jurisdictions in which they are not currently subject to
tax.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust. The Depositor, the Servicer and the Trustee, and
the Certificateholders by their purchase of Certificates, will agree to treat
the Trust as either (i) a disregarded entity if there is only one
Certificateholder, or if there are no Certificates and the undivided interest in
the Trust is held by a single holder for purposes of federal and state income
tax, franchise tax and any other tax measured in whole or in part by income, or
(ii), if there is more than one Certificateholder, 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
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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. However, the proper characterization of the arrangement involving
the Trust, the Certificates, the Notes, the Depositor, and the Servicer is not
clear because there is no authority on transactions closely comparable to that
contemplated herein.
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 would not result in materially adverse tax consequences to
Certificateholders as compared to the intended consequences from treatment of
the Certificates as equity in a partnership, described below.
The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, none of the Certificates are Strip Certificates,
and that a series of Securities includes a single class of Certificates.
The following discussion assumes that the Certificates represent equity
interests in a partnership.
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 accruals of guaranteed payments from
the Trust and its allocated share of other income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of interest and
finance charges earned on the Receivables (including appropriate adjustments for
market discount, OID and bond premium) and any gain upon collection or
disposition of Receivables. The Trust's deductions will consist primarily of
interest accruing with respect to the Notes, guaranteed payments on the
Certificates, servicing and other fees, and losses or deductions upon collection
or disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). Under the Trust Agreement, interest
payments on the Certificates at the Pass Through Rate (including interest on
amounts previously due on the Certificates but not yet distributed) will be
treated as "guaranteed payments" under Section 707(c) of the Code. Guaranteed
payments are payments to partners for the use of their capital and, in the
present circumstances, are treated as deductible to the Trust and ordinary
income to the Certificateholders. The Trust will have a calendar year tax year
and will deduct the guaranteed payments under the accrual method of accounting.
Certificateholders with a calendar year tax year are required to include the
accruals of guaranteed payments in income in their taxable year that corresponds
to the year in which the Trust deducts the payments, and Certificateholders with
a different taxable year are required to include the payments in income in their
taxable year that includes the December 31 of the Trust year in which the Trust
deducts the payments. It is possible that guaranteed payments will not be
treated as interest for all purposes of the Code.
In addition, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price, (ii) prepayment
premium, if any, payable to the Certificateholders for such month and (iii) any
other amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust of premium on
Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining items of taxable income, gain, loss
and deduction of the Trust, if any, will be allocated to the Depositor.
Based on the economic arrangement of the parties, this approach for
allocating Trust income arguably should be permissible under applicable Treasury
regulations, although no
67
assurance can be given that the IRS would not require a greater amount of income
to be allocated to Certificateholders. Moreover, even under the foregoing method
of allocation, 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 of such
amount. Thus, cash basis holders would, 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.
All of the guaranteed payments and taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity, including an individual retirement account, will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. 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. It is not clear whether these rules would be applicable to a
Certificateholder accruing guaranteed payments.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, 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 Receivables were not issued
with OID, and, therefore, the Trust should not have OID income. However, upon
transfer of the Receivables to the Trust, the value of the Receivables may be
greater or less than the remaining principal balance of the Receivables at the
time of transfer. If so, the Receivables may have been acquired at a premium or
discount, as the case may be. As indicated above, the Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, under current Treasury
regulations the Trust (the "old partnership") will be considered to contribute
its assets to a new partnership (the "new partnership") in exchange for interest
in the new partnership. Such interests would be deemed distributed to the
partners of the old partnership in liquidation thereof, which would not
constitute a sale or exchange. The Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Trust may be subject to certain tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
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Disposition of Certificates. Subject to the discussion in the immediately
following paragraph, generally, capital gain or loss will be recognized on a
sale of Certificates in an amount equal to the difference between the amount
realized and the seller's tax basis in the Certificates sold. A
Certificateholder's tax basis in a Certificate will generally equal the holder's
cost increased by the holder's share of Trust income (includible in 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 such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a portion of such 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 Receivables 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.
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, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such 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 purchase.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Depositor is
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 (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trust will file a partnership
information return (IRS Form 1065) with the IRS 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 IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information
69
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 IRS 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 (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing, and (z) 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 clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before 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.
Tax Consequences to 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. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the Trust to change
its withholding procedures. In determining a Certificateholder's withholding
status, the Trust may rely on IRS Form W-9, IRS Form W- 8BEN, IRS Form W-8ECI or
the holder's certification of nonforeign status signed under penalties of
perjury.
Each foreign Certificateholder might be required to file a U.S. individual
or corporate income tax return and pay U.S. income tax on the amount computed
therein (including, in the case of a corporation, the branch profits tax) on its
share of accruals of guaranteed payments and the Trust's income. Each foreign
Certificateholder must obtain a taxpayer identification number from the IRS and
submit that number to the Trust on Form W-8BEN in order to assure appropriate
crediting of the taxes withheld. A foreign Certificateholder generally would
70
be entitled to file with the IRS 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. However, the IRS may assert
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
The Withholding Tax Regulations alter, in certain respects, the foregoing
certification rules and generally are effective for periods after December 31,
2000. Prospective investors should consult their tax advisors with respect to
the effect of the Withholding Tax Regulations.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of up to 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. Certificateholders should consult with their
tax advisors as to their eligibility for exemption to backup withholding, the
procedure for obtaining the exemption, and the potential impact of the
Withholding Tax Regulations.
TRUSTS TREATED AS GRANTOR TRUSTS
Tax Classification of the Trust as a Grantor Trust. If the Prospectus
Supplement specifies that the related Trust will be treated as a grantor trust,
Tax Counsel is of the opinion that such Trust will not be classified as an
association taxable as a corporation and that such Trust will be classified as a
grantor trust under subpart E, Part 1 of subchapter J of the Code (such Trust
may be referred to herein as the "Grantor Trust"). Owners of Certificates issued
by such Grantor Trust (referred to herein as "Grantor Trust Certificateholders")
will be treated for federal income tax purposes as owners of a portion of the
Grantor Trust's assets as described below. The Certificates issued by the
Grantor Trust are referred to herein as "Grantor Trust Certificates."
Characterization. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Grantor Trust represented by the Grantor Trust Certificates and
will be considered the equitable owner of a pro rata undivided interest in each
of the Receivables in the Grantor Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Grantor Trust represented by the Grantor Trust
Certificates, including interest, OID, if any, market discount, if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Servicer. Under Section 162 or 212 of the
Code 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 such amounts are reasonable compensation for services rendered to
the Grantor Trust. Grantor Trust Certificateholders that are individuals,
estates or trusts will be entitled to deduct their share of expenses only to the
extent such expenses plus all other miscellaneous itemized deductions exceed two
percent of its adjusted gross income. In addition, the Code provides that the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the Code adjusted for inflation will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the specified threshold amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for such taxable year.
A Grantor Trust Certificateholder using the cash method of accounting must take
into account its
71
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 to the Servicer, whichever is earlier. If the
servicing fees paid to the Servicer are deemed to exceed reasonable servicing
compensation ("excess servicing"), the amount of such excess could be considered
as an ownership interest retained by the Servicer (or any person to whom the
Servicer assigned for value all or a portion of the servicing fees) in a portion
of the interest payments on the Receivables. The Receivables would then be
subject to the "coupon stripping" rules of the Code discussed below.
Stripped Bonds and Stripped Coupons. To the extent a transaction is
determined to involve "excess servicing" (as described above), or that the
classes of Certificates represent stripped interests in the underlying
Receivables, the Grantor Trust Certificates will represent interests in stripped
bonds for federal income tax purposes. Although the tax treatment of stripped
bonds is not entirely clear, based on recent guidance by the IRS, each purchaser
of a Grantor Trust Certificate will be treated as the purchaser of a stripped
bond which generally should be treated as a single debt instrument issued on the
day it is purchased for purposes of calculating any OID. Generally, under
Treasury regulations (the "Section 1286 Treasury Regulations"), if the discount
on a stripped bond is larger than a de minimis amount (as calculated for
purposes of the OID rules of the Code) such stripped bond will be considered to
have been issued with OID. If OID rules were to apply, all of the taxable income
to be recognized with respect to the Grantor Trust Certificates would be
includible in income as OID but would not be includible again when the interest
is actually received. Regulations do not adequately address the circumstances in
which payment of interest on Certificates such as the Grantor Trust Certificates
would be considered unconditionally payable, and thus, Tax Counsel is unable to
opine as to the extent to which interest payments on the Certificates would be
treated as qualified stated interest.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 of the Code to the extent an undivided interest in a
Receivable 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 such Receivable allocable to such holder's undivided
interest over such holder's tax basis in such interest. Market discount with
respect to a Grantor Trust Certificate will be considered to be zero if the
amount allocable to the Grantor Trust Certificate is less than 0.25% of the
Grantor Trust Certificate's stated redemption price at maturity multiplied by
the weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Sections 1276 through 1278 of the Code.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history likely will apply. Under those rules, the holder of
a market discount bond may elect to accrue market discount on the basis of a
constant yield method.
72
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 such
Grantor Trust Certificate purchased with market discount. For these purposes,
the de minimis rule referred to above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Receivable based on
each Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant yield method. Amortizable bond
premium will be treated as an offset to interest income on such Grantor Trust
Certificate. The basis for such Grantor Trust Certificate will be reduced to the
extent that amortizable premium is applied to offset interest payments. It is
not clear whether a reasonable prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. A Grantor Trust
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 such Grantor Trust Certificateholder held at the beginning of the
year of the election or acquired thereafter. Absent such an election, the
premium will be deductible as an ordinary loss only upon disposition of the
Certificate or pro rata as principal is paid on the Receivables.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of such Receivable that is
allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to such Receivable. If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred 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.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or OID) and premium in income as interest, based on
a constant yield method. If such an election were to be made with respect to a
Grantor Trust Certificate with market discount, the 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 such
Grantor Trust Certificateholder acquires during the year of the election or
thereafter. Similarly, a Grantor Trust 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 such Grantor Trust
Certificateholder held at the beginning of the year of the election or acquired
thereafter. See "Premium." The election to accrue interest, discount and premium
on a constant yield method with respect to a Grantor Trust Certificate is
generally irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate.
73
Such adjusted basis generally will equal the seller's purchase price for the
Grantor Trust Certificate, increased by the OID included in the seller's gross
income with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the seller.
Such gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a "capital asset" within the meaning of Section 1221 of the
Code, and will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a Grantor Trust Certificate by a bank or a thrift institution to
which such section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Generally, interest or OID paid by the person required
to withhold tax under Section 1441 or 1442 of the Code to (i) an owner that is
not a U.S. Person (as defined below) or (ii) a Grantor Trust Certificateholder
holding on behalf of an owner that is not a U.S. Person would not be subject to
withholding if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder).
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust, the
income of which is includible in gross income for federal income tax purposes
regardless of its source.
The Withholding Tax Regulations alter, in certain respects, the foregoing
certification rules and generally are effective for periods after December 31,
2000. Prospective investors should consult their tax advisors with respect to
the effect of the Withholding Tax Regulations.
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 such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, up to 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability. Prospective
investors should consult their tax advisors concerning the potential impact of
the Withholding Tax Regulations.
FASIT Legislation. The "Small Business Job Protection Act of 1996" (the
"Act") created a new type of entity for federal income tax purposes called a
"financial asset securitization investment trust" or "FASIT." The Act generally
enables certain arrangements similar to a trust that is treated as a partnership
to elect to be treated as a FASIT. Under the Act, a FASIT generally would avoid
federal income taxation and could issue securities substantially similar to the
Certificates and Notes, and those securities would be treated as debt for
federal income tax purposes. The Trust Agreement and Indenture will set forth
certain conditions which, if satisfied, will permit the Depositor to amend such
Trust Agreement and Indenture in order to enable all or a portion of the Trust
to qualify as a FASIT and to permit a FASIT election to be made with respect
thereto, and to make such modifications to such Trust Agreement and
74
Indenture as may be permitted by reason of the making of such an election.
However, there can be no assurance that the Depositor will or will not cause any
permissible FASIT election to be made with respect to a Trust or amend the
related Trust Agreement and Indenture in connection with any election.
Furthermore, any such election will be made only if an opinion of Tax Counsel is
rendered that such election will not have material adverse consequences to any
holder of a Note or Certificate. The applicable Trust Agreement or Pooling and
Servicing Agreement will provide that the ability of any FASIT to add or remove
assets will be limited to the same extent as real estate mortgage investment
conduits ("REMICs") under applicable federal tax rules and regulations.
STATE AND LOCAL TAX CONSEQUENCES
GENERAL MATTERS
The following is a general summary of certain State income tax consequences
to the Trust and the original Certificateholders and Noteholders under the State
income tax laws of Missouri, Illinois, California, and New York. The summary,
together with the discussion in the Prospectus Supplement under the heading
"State and Local Tax Consequences", represents the opinion of Bryan Cave LLP
("Special State Tax Counsel") subject to the limitations and qualifications set
forth herein. No ruling of any State or local taxing authority has been sought
with respect to the matters discussed herein and in the Prospectus Supplement,
and the opinion of Special State Tax Counsel is not binding on any State or
local taxing authority. The summary is intended as a general explanation only
and does not furnish information in the level of detail or with the attention to
the holder's specific tax situation as would be provided by a tax advisor to a
Certificateholder or a Noteholder. In addition, the summary relies upon the
correctness of certain opinions of Tax Counsel with respect to the federal
income tax consequences to the Trust, Certificateholders and Noteholders.
As a consequence of the foregoing, Noteholders and Certificateholders
should consult their own tax advisors in determining the specific federal,
state, local, foreign and any other tax consequences to them of the purchase,
ownership and disposition of the Notes and the Certificates.
STATE TAX LAWS DISCUSSED
Because the Servicer has its principal office in the State of Missouri and
will conduct its activities relating to servicing the receivables owned by the
Trust from its offices located in the States of Illinois and California, and the
Trust will be organized under the common law of the State of New York, these
four States currently appear to have the strongest claim to tax any income
derived by a Trust, or realized by the holders of Notes and Certificates by
virtue of their ownership. It is possible, however, that other states may assert
jurisdiction to tax income derived by a Trust, or by the holders of Notes and
Certificates. In addition, future changes in the operations of the Servicer, the
Trust, or other factors may cause the Trust or the income derived therefrom by
Noteholders or Certificateholders to be subject to taxation in other states or
jurisdictions. Furthermore, because of the factual nature of the issue, Special
State Tax Counsel expresses no opinion as to the tax consequences to
Certificateholders attributable to the activities of the Trust or the Servicer
under the laws of any State. Finally Special State Tax Counsel is rendering no
opinions with respect to the local tax consequences in any State, or the State
tax consequences in any State other than California, Illinois, Missouri and New
York.
TAX STATUS OF A TRUST FOR CALIFORNIA, ILLINOIS, MISSOURI AND NEW YORK INCOME TAX
PURPOSES
Assuming that the Trust will not constitute an association taxable as a
corporation, or a publicly traded partnership for federal income tax purposes,
Special State Tax Counsel is of
75
the opinion that a Trust will not constitute an association taxable as a
corporation, or publicly traded partnership, for purposes of the income tax laws
of the States of California, Illinois, Missouri or New York. Accordingly, such a
Trust will not be subject to corporate income or franchise taxes imposed by the
States of California, Illinois, Missouri and New York. However, if the Trust
were deemed to be doing business in Illinois, the Trust could be subject to
Illinois personal property replacement income tax. Such taxes could result in
reduced distributions to Certificateholders. In addition, Certificateholders not
otherwise subject to taxation in Illinois could become subject to Illinois
income tax as a result of their ownership of Certificates.
TAX STATUS OF NOTEHOLDERS FOR CALIFORNIA, ILLINOIS, MISSOURI AND NEW YORK INCOME
TAX PURPOSES
Assuming that the Notes issued by a Trust are classified as debt for
federal income tax purposes, Special State Tax Counsel is further of the opinion
that such Notes will be classified as debt for purposes of the income tax laws
of California, Illinois, Missouri and New York. Accordingly, Special State Tax
Counsel is of the opinion that natural persons will not be subject to income tax
liability imposed by any of those States with respect to interest and other
income derived from the Notes, unless:
(a) they reside in one of those States (in which case they will be
subject to the tax imposed by the state of their residence), or
(b) the Notes constitute either
(i) property employed in a business, trade, profession or
occupation carried on in Missouri,
(ii) property employed in a regular trade or business conducted in
Illinois,
(iii) property which has acquired a business situs in California,
or
(iv) property employed in a business, trade, profession or
occupation carried on in New York, as the case may be.
THE FEDERAL AND STATE DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each a "Benefit Plan"), from engaging
in certain transactions with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to such 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 such persons. ERISA
also imposes certain duties and certain prohibitions on persons who are
fiduciaries of plans subject to ERISA. Generally, any person who exercises any
authority or control with respect to the management or disposition of the assets
of a plan subject to ERISA is considered to be a fiduciary of such plan.
76
TRUSTS THAT ISSUE NOTES OR CERTIFICATES
If the assets of a Trust were deemed to constitute plan assets of a Benefit
Plan, the Benefit Plan's investment in Notes or Certificates might be deemed to
constitute delegation under ERISA of the duty to manage plan assets by the
fiduciaries making the decision on behalf of the Benefit Plan to make the
investment, and transactions involving the Trust might be deemed as transactions
with the Benefit Plan for the purpose of ERISA's fiduciary and prohibited
transaction rules. 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.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements but may be subject to state or other laws
that are substantially similar to ERISA or the Code.
A plan fiduciary considering the purchase of Securities of a given series
should consult its tax and/or legal advisors regarding the applicability of the
fiduciary responsibility provisions of ERISA, the Code and other applicable law
to such investment, 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.
SENIOR CERTIFICATES ISSUED BY TRUSTS THAT DO NOT ISSUE NOTES
The following discussion applies only to nonsubordinated Certificates
(referred to herein as "Senior Certificates") issued by a Trust that does not
issue Notes.
The U.S. Department of Labor has granted to the lead Underwriter named in
the 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
installment sales contracts such as the Receivables. In general, the Exemption
will apply to the acquisition, holding and resale of the Senior Certificates by
a Benefit Plan, provided that specific conditions (certain of which are
described below) are met. However, it is not clear whether the Exemption applies
to those Benefit Plans which are participant directed plans as described in
Section 404(c) of ERISA or plans that are subject to Section 4975 of the Code
but that are not subject to Title I of ERISA, such as certain Keogh plans and
certain individual retirement accounts.
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;
77
(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 Structured
Rating Group, Moody's Investors Service, Inc., Duff & Phelps Credit Rating
Co., now known as Fitch, Inc., or Fitch IBCA, Inc., now known as Fitch,
Inc. (each a "Rating Agency");
(4) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined in the Exemption);
(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 Transferor pursuant to the
transfer of the Contracts to the Trust represents not more than the fair
market value of such Contracts; and the sum of all payments made to and
retained by the Servicer represents not more than reasonable compensation
for the Servicer's services under the Agreement and reimbursement of the
Servicer's reasonable expenses in connection therewith;
(6) The Benefit Plan investing in the 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; and
(7) The Trust satisfies the following requirements:
(a) the corpus of the Trust consists solely of assets of the type
which have been included in other investment pools,
(b) certificates in such other investment pools have been rated in
one of the three highest generic rating categories of a Rating Agency
for at least one year prior to the Benefit Plan's acquisition of the
Senior Certificates, and
(c) certificates evidencing interests in such other investment
pools have been purchased by investors other than Benefit Plans for at
least one year prior to any Benefit Plan's acquisition of Senior
Certificates.
Furthermore, if the related Prospectus Supplement provides that the
property of the Trust will include a Pre-Funding Account, certain additional
conditions must be met in order for the Exemption to apply to the acquisition,
holding and resale of the Senior Certificates by a Benefit Plan.
The Exemption does not provide an exemption from ERISA Sections
406(a)(1)(E), 406(a)(2) or 407 for the purchase or holding of Senior
Certificates by fiduciaries investing assets of Benefit Plans sponsored by any
member of the Restricted Group or any affiliate of such person.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest or prohibited transactions 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 and at
least 50% of the aggregate interest in the Trust is acquired by persons
independent of the Restricted Group, (ii) the Benefit Plan's investment in
Senior Certificates does not exceed twenty-five (25) percent of all of the
Senior Certificates outstanding at the time of the acquisition, and (iii)
immediately after the acquisition, no more than twenty-five (25) percent of the
assets of the Benefit Plan 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 Plans sponsored by the Depositor, the Transferor,
any Underwriter, the Trustee, the Servicer, any obligor with respect to
Contracts included in the Trust constituting more than
78
five percent of the aggregate unamortized principal balance of the assets in the
Trust, or any affiliate of such parties (the "Restricted Group").
The Depositor believes that the Exemption will apply to the acquisition and
holding by Benefit Plans of Senior Certificates sold by the Underwriter or
Underwriters named in the Prospectus Supplement and that all conditions of the
Exemption other than those within the control of the investors have been met. In
addition, as of the date hereof, no obligor with respect to Contracts included
in the Trust constitutes more than five percent of the aggregate unamortized
principal balance of the assets of the Trust.
Any Benefit Plan fiduciary considering the purchase of Senior Certificates
should consult with its counsel with respect to the applicability of the
Exemption and other issues and determine on its own whether all conditions have
been satisfied and whether the Senior Certificates are an appropriate investment
for a Benefit Plan under ERISA and the Code. Each purchaser that purchases
Senior Certificates with the assets of one or more Benefit Plans shall be deemed
to represent that each such Plan qualifies as an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D under the Securities Act.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Securities of a given series (the "Underwriting Agreement"), the
Depositor will agree to cause the related Trust to sell to the underwriters
named therein and in the related Prospectus Supplement, and each of such
underwriters will severally agree to purchase the principal amount of each class
of Notes and Certificates, as the case may be, of the related series set forth
therein and in the related Prospectus Supplement.
In the Underwriting Agreement with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates or (ii)
specify that the related Notes and Certificates, as the case may be, are to be
resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Notes and Certificates, such public offering prices and such concessions
may be changed.
Each Underwriting Agreement will provide that the Depositor will indemnify
the underwriters against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Eligible Investments acquired from such underwriters or from the Depositor.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the Depositor by Mayer, Brown & Platt, Chicago, Illinois and
Bryan Cave LLP, St. Louis, Missouri. Certain federal income tax matters will be
passed upon for each Trust by Mayer, Brown & Platt. Certain legal matters and
certain state income tax matters will be passed upon for each Trust by Bryan
Cave LLP.
79
INDEX OF TERMS
<Table>
10 percent shareholder...................................... 65
accounts.................................................... 17
accredited investor......................................... 78
Act......................................................... 74
Administration Agreement.................................... 53
Administration Fee.......................................... 54
Administrator............................................... 53
Applicable Trustee.......................................... 38
Bank Originator............................................. 14
Base Rate................................................... 36
Benefit Plan................................................ 76
Boat Mortgage Trust......................................... 24
Boat Mortgage Trust Agreement............................... 23
Boat Mortgage Trustee....................................... 23
Boat Receivables............................................ 6
capital asset............................................... 74
Cede........................................................ 20
Certificate Balance......................................... 5
Certificate Distribution Account............................ 45
Certificate Pool Factor..................................... 27
Certificateholders.......................................... 20
Certificates................................................ 1
chattel paper............................................... 13
Closing Date................................................ 7
Coast Guard................................................. 57
Code........................................................ 64
Collection Account.......................................... 45
Commission.................................................. 3
controlled foreign corporation.............................. 65
coupon stripping............................................ 72
Dealer Agreements........................................... 22
Dealers..................................................... 22
Definitive Certificates..................................... 40
Definitive Notes............................................ 40
Definitive Securities....................................... 40
Depositaries................................................ 36
Depositor................................................... 1
Depository.................................................. 29
DFS......................................................... 4
DFS/Ganis Transfer Agreement................................ 43
disqualified persons........................................ 76
Distribution Date........................................... 35
DTC......................................................... 20
DTC's Nominee............................................... 20
Eligible Deposit Account.................................... 46
Eligible Institution........................................ 46
Eligible Investments........................................ 45
equity interest............................................. 77
ERISA....................................................... 10
ERISA Considerations........................................ 10
Euroclear................................................... 39
</Table>
80
<Table>
Euroclear Operator.......................................... 39
Euroclear Participants...................................... 39
Event of Default............................................ 31
Events of Default........................................... 31
evidences of indebtedness................................... 79
excess servicing............................................ 72
Exchange Act................................................ 3
Exemption................................................... 77
FASIT....................................................... 74
FDIA........................................................ 15
FDIC........................................................ 14
Federally Documented Boats.................................. 24
Financed Asset.............................................. 7
Financed Assets............................................. 7
Financed Boats.............................................. 6
financial asset securitization investment Trust............. 74
Fixed Rate Securities....................................... 36
Floating Rate Securities.................................... 36
foreign person.............................................. 65
FTC Rule.................................................... 62
Ganis....................................................... 4
Ganis/Depositor Transfer Agreement.......................... 43
Grantor Trust............................................... 71
Grantor Trust Certificateholders............................ 71
Grantor Trust Certificates.................................. 71
guaranteed payments......................................... 67
Highest Priority Notes...................................... 31
Holder-in-Due-Course........................................ 62
Indenture................................................... 4
Indenture Trustee........................................... 1
Initial Pool Balance........................................ 5
Initial Receivables......................................... 7
Insolvency Event............................................ 51
Insolvency Laws............................................. 17
Interest Rate............................................... 4
Interest Reset Period....................................... 36
Investment Earnings......................................... 45
IRS......................................................... 63
Issuer...................................................... 4
market discount............................................. 72
necessaries................................................. 60
new partnership............................................. 68
Nonbank Originator.......................................... 16
Note Distribution Account................................... 45
Note Pool Factor............................................ 27
Noteholders................................................. 20
Noteholder.................................................. 38
Notes....................................................... 1
Obligors.................................................... 22
OID regulations............................................. 65
old partnership............................................. 68
Originators................................................. 8
Owner Trustee............................................... 1
</Table>
81
<Table>
Paid-Ahead Period........................................... 25
Paid-Ahead Receivables...................................... 25
Participants................................................ 29
parties in interest......................................... 76
Pass Through Rate........................................... 5
Payment Date................................................ 30
Plan Assets Regulation...................................... 77
Pool Balance................................................ 28
Pooling and Servicing Agreement............................. 4
portfolio interest.......................................... 65
Pre-Funded Amount........................................... 7
Pre-Funding Account......................................... 1
Preferred Mortgage.......................................... 57
prepayments................................................. 18
prohibited transaction...................................... 76
Prospectus Supplement....................................... 1
Purchase Amount............................................. 44
qualified stated interest................................... 65
Rating Agencies............................................. 19
Rating Agency............................................... 19
Receivable.................................................. 6
Receivables................................................. 6
Receivables Pool............................................ 22
Registration Statement...................................... 3
Related Documents........................................... 33
related person.............................................. 65
REMICs...................................................... 75
Reserve Account............................................. 49
Restricted Group............................................ 79
Risk Factors................................................ 12
sale........................................................ 16
Schedule of Receivables..................................... 43
Section 1286 Treasury Regulations........................... 72
Securities.................................................. 1
Securities Act.............................................. 3
Securityholder.............................................. 38
Securityholders............................................. 20
Senior Certificates......................................... 77
Servicer.................................................... 1
Servicer Advance............................................ 9
Servicer Default............................................ 50
Servicing Fee............................................... 47
Servicing Fee Rate.......................................... 47
Simple Interest Receivables................................. 25
Small Business Job Protection Act of 1996................... 74
Special State Tax Counsel................................... 75
Spread...................................................... 36
Spread Multiplier........................................... 36
Strip Certificates.......................................... 6
Strip Notes................................................. 5
Subsequent Receivables...................................... 1
Subsequent Transfer Date.................................... 43
Tax Counsel................................................. 10
</Table>
82
<Table>
Terms and Conditions........................................ 40
The Boat Mortgage Trust..................................... 1
The Servicer................................................ 8
The Transferor.............................................. 8
The Trust................................................... 22
Transfer and Servicing Agreement............................ 7
Transfer and Servicing Agreements........................... 43
Transferor Receivables...................................... 43
Trust....................................................... 1
Trust Accounts.............................................. 45
Trust Agreement............................................. 4
Trustee..................................................... 4
U.S. Person................................................. 74
UCC......................................................... 9
Underwriting Agreement...................................... 79
unrelated business taxable income........................... 66
</Table>
83
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 any of DTC,
Clearstream, Luxembourg or Euroclear. The Global Securities will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Clearstream, Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream, Luxembourg or Euroclear
and DTC Participants holding Notes will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream, Luxembourg and Euroclear (in such capacity) and 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, Clearstream, Luxembourg and
Euroclear 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 U.S. corporate debt obligations.
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 Clearstream,
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payments in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
I-1
Trading Between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading Between Clearstream, Luxembourg and/or Euroclear
Participants. Secondary market trading between Clearstream, Luxembourg
Participants or Euroclear Participants will be settled using the procedures
applicable to conventional eurobonds in same-day funds.
Trading Between DTC Seller and Clearstream, Luxembourg or Euroclear
Purchaser. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement.
Clearstream, Luxembourg or Euroclear, as applicable, will instruct its
Depositary 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 such 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 applicable clearing system and by the clearing system,
in accordance with its usual procedures, to the Clearstream, Luxembourg
Participant's or Euroclear Participant's account. The Global Securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Clearstream, Luxembourg or Euroclear cash debit will be valued instead as of
the actual settlement date.
Clearstream, Luxembourg Participants and Euroclear Participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global Securities are credited
to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg Participants or Euroclear
Participants can elect not to pre-position funds and allow that credit line to
be drawn upon to finance settlement. Under this procedure, Clearstream,
Luxembourg Participants or Euroclear Participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Global Securities were credited to their accounts. However, interest on
the Global Securities would accrue from the value date. Therefore, in many cases
the investment income on the Global Securities earned during that one-day period
may substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Clearstream, Luxembourg Participant's
or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Clearstream, Luxembourg
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participant a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading Between Clearstream, Luxembourg or Euroclear Seller and DTC
Purchaser. Due to time zone differences in their favor, Clearstream, Luxembourg
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Global
I-2
Securities are to be transferred by the respective clearing systems, through
their respective Depositaries, to a DTC Participant. The seller will send
instructions to Clearstream, Luxembourg or Euroclear through a Clearstream,
Luxembourg Participant or Euroclear Participant at least one business day prior
to settlement. In these cases, Clearstream, Luxembourg or Euroclear will
instruct their respective Depositaries, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Clearstream, Luxembourg Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the Clearstream, Luxembourg
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Clearstream, Luxembourg Participant or Euroclear Participant
have a line of credit with its clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (i.e., the trade fails),
receipt of the cash proceeds in the Clearstream, Luxembourg Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date. Finally, day traders that use Clearstream, Luxembourg or
Euroclear and that purchase Global Securities from DTC Participants for delivery
to Clearstream, Luxembourg Participants or Euroclear Participants should note
that these trades would automatically fail on the sale side unless affirmative
action were taken. At least three techniques should be readily available to
eliminate this potential problem:
(a) borrowing through Clearstream, Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg or Euroclear accounts) in accordance with the
clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream, Luxembourg
or Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Clearstream,
Luxembourg Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC 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:
Certification of Foreign Status for non-U.S. Persons; Reduced rate or
exemption for non-U.S. Persons resident in the treaty countries. Form W-8BEN,
"Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding," is designed to establish foreign status, advise that the signatory
is the beneficial owner of the income for which the form is being furnished and,
if applicable, claim a reduced rate of, or exemption from, withholding as a
resident of a foreign country with which the U.S. has an income tax treaty. For
interest payments which qualify as "portfolio interest," non-U.S. Persons
generally can obtain
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complete exemption from withholding tax by completing part I of Form W-8BEN and
filing the signed form. If the payments do not qualify as "portfolio interest,"
non-U.S. Persons residing in a country that has a tax treaty with the United
States can obtain a reduced tax rate or exemption depending on the treaty terms
by completing parts I and II of the Form W-8BEN and filing the signed form.
Exemption for non-U.S. Persons with effectively connected income. 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-8EC1--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 for U.S. Persons. U.S. Persons can obtain a complete exemption
from the withholding tax by filing Form W-9--Request for Taxpayer Identification
Number and Certification.
Certification of Foreign Status For Certain Persons Who Are Not The
Beneficial Owners of U.S. Source Income. Form W-8IMY, "Certificate of Foreign
Intermediary, Foreign Partnership, or Certain U.S. Branches for United States
Tax Withholding," is designed to establish foreign status and should be provided
by a person who does not constitute a beneficial owner of U.S. source income for
U.S. income tax purposes such as a foreign intermediary (qualified or not
qualified), a foreign partnership or other fiscally transparent entity, a
foreign trustee or executor of a U.S. trust or estate or a U.S. branch of
certain foreign banks and insurance companies.
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security files by submitting the appropriate form to the person through
whom it holds. This is the clearing agency, in the case of persons holding
directly on the books of the clearing agency.
Form W-8BEN, if furnished with a taxpayer identification number, will
remain in effect until the status of the beneficial owner changes, or a change
in circumstances makes any information on the form incorrect. Form W-8BEN, if
furnished without a taxpayer identification number, and a Form W-8ECI will
remain in effect for a period starting on the date the form is signed and ending
on the last day of the third succeeding calendar year, unless a change in
circumstances makes any information on the form incorrect. If the information
shown on Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of
the change.
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 any political subdivision of either
(including the District of Columbia), or (iii) an estate or trust the income of
which is includible in gross income for United States tax purposes regardless of
its source.
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. We
suggest that investors consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities. Further,
recently finalized U.S. Treasury regulations revise some procedures for
withholding on amounts paid to foreign persons. Under these regulations,
interest or original issue discount paid to a nonresident alien would continue
to be exempt from U.S. withholding taxes, including backup withholding, provided
that the holder complies with the new certification procedures.
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$542,700,000
DISTRIBUTION FINANCIAL SERVICES RV/MARINE TRUST 2001-1
DEUTSCHE RECREATIONAL ASSET FUNDING CORPORATION
DEPOSITOR
DEUTSCHE FINANCIAL SERVICES CORPORATION
SERVICER
$189,000,000 2.82% ASSET BACKED NOTES, CLASS A-1
$54,000,000 4.05% ASSET BACKED NOTES, CLASS A-2
$90,000,000 4.74% ASSET BACKED NOTES, CLASS A-3
$95,000,000 5.67% ASSET BACKED NOTES, CLASS A-4
$72,350,000 6.19% ASSET BACKED NOTES, CLASS A-5
$19,830,000 6.43% ASSET BACKED NOTES, CLASS B
$9,270,000 6.86% ASSET BACKED NOTES, CLASS C
$13,250,000 7.73% ASSET BACKED NOTES, CLASS D
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PROSPECTUS SUPPLEMENT
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DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
JPMORGAN
We are not offering the Notes in any state where the offer is not
permitted.
Until February 18, 2002, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a Prospectus. This is in addition to the dealers' obligation to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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